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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from             to



Commission file number 0-23134



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NB&T FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Ohio                                                           |  | 31-1004998                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



48 N. South Street,
Wilmington, Ohio 45177

(Address of principal executive offices) (Zip Code)



Registrants telephone number: (513) 382-1441



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to 12(g) of the Act:



Common Shares, without par value

(Title of Class)



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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes ̈No  x



Based on the closing sales price on March 7, 2005 of $25.15 per, the aggregate market value of the issuers shares held by nonaffiliates was $48,788,963.



As of March 7, 2005, 3,227,063 common shares were issued and outstanding.



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##### Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE



The following sections of the definitive Proxy Statement for the 2005 Annual Meeting of Shareholders of NB&T Financial Group, Inc. (the
Proxy Statement), are incorporated by reference into Part III of this Form 10-K:



1. Board of Directors;

2. Executive Officers;

3. Section 16(a) Beneficial Ownership Reporting Compliance;

4. Compensation of Executive Officers and Directors;

5. Voting Securities and Ownership of Certain Beneficial Owners and Management;

6. Certain Relationships and Related Transactions; and

7. Auditors.



NB&T FINANCIAL GROUP, INC.

For the Year Ended December 31, 2004

Table of Contents



|              |  |                                                                                       |  |   
|------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I       
|Item 1:       |  | Business                                                                              |  | 3 
|Item 2:       |  | Properties                                                                            |  | 7 
|Item 3:       |  | Legal Proceedings                                                                     |  | 7 
|Item 4:       |  | Submission of Matters to a Vote of Security Holders                                   |  | 7 
|             
|PART II      
|Item 5:       |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 8 
|Item 6:       |  | Selected Financial Data                                                               |  | 9 
|Item 7:       |  | Managements Discussion and Analysis of Financial Condition And Results of Operations |  | 10
|Item 7A:      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 24
|Item 8:       |  | Financial Statements and Supplementary Data                                           |  | 25
|Item 9:       |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  |  | 53
|Item 9A:      |  | Controls & Procedures                                                                 |  | 53
|             
|PART III     
|Item 10:      |  | Directors and Executive Officers of the Registrant                                    |  | 53
|Item 11:      |  | Executive Compensation                                                                |  | 53
|Item 12:      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 53
|Item 13:      |  | Certain Relationships and Related Transactions                                        |  | 53
|Item 14:      |  | Principal Accountant Fees and Services                                                |  | 53
|             
|PART IV      
|Item 15:      |  | Exhibits and Financial Statement Schedules                                            |  | 54
|Exhibit Index |  |                                                                                       |  | 54
|Signatures    |  |                                                                                       |  | 55



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##### Table of Contents

PART I



Item 1. Description of Business



GENERAL



NB&T Financial Group, Inc. (NB&T
Financial), an Ohio corporation, is a bank holding company which owns all of the issued and outstanding common shares of The National Bank and Trust Company, chartered under the laws of the United States (the Bank). The Bank is
engaged in the commercial banking business in southwestern Ohio, providing a variety of consumer and commercial financial services. The primary business of the Bank consists of accepting deposits, through various consumer and commercial deposit
products, and using such deposits to fund consumer loans, including automobile loans, loans secured by residential and non-residential real estate, and commercial and agricultural loans. All of the foregoing deposit and lending services are
available at each of the Banks full-service offices. The Bank has also installed cash dispensers in convenience stores in three states as of the end of 2004. The Bank also has a trust department with assets under management of approximately
$194.2 million.



The Bank also operates its wholly-owned subsidiary NB&T
Insurance Agency, Inc. (NB&T Insurance). NB&T Insurance has four locations, with its principal office in Wilmington, Ohio. During 2004, NB&T Insurance acquired one agency located in Milford, Ohio for approximately $635,000
cash. This agency was merged into NB&T Insurance. NB&T Insurance sells a full line of insurance products, including: property and casualty, life, health, and annuities.



Because of its ownership of all the outstanding stock of the Bank, NB&T Financial is subject to regulation, examination and oversight by
the Board of Governors of the Federal Reserve System (the FRB) under the Bank Holding Company Act of 1956, as amended (the BHCA). The Bank, as a national bank, is subject to regulation, examination and oversight by the Office
of the Comptroller of the Currency (the OCC) and special examination by the FRB. The Bank is a member of the Federal Reserve Bank of Cleveland. In addition, since its deposits are insured by the Federal Deposit Insurance Corporation (the
FDIC), the Bank is also subject to some regulation, oversight and special examination by the FDIC. The Bank must file periodic financial reports with the FDIC, the OCC and the Federal Reserve Bank of Cleveland. Examinations are conducted
periodically by these federal regulators to determine whether the Bank and NB&T Financial are in compliance with various regulatory requirements and are operating in a safe and sound manner.



Since its incorporation in 1980, NB&T Financials activities have been limited
primarily to holding the common shares of the Bank. Consequently, the following discussion focuses primarily on the business of the Bank.



Lending Activities



General. The Banks income consists primarily of interest income generated by lending activities, including the origination of loans secured by residential and nonresidential real estate, commercial and
agricultural loans, and consumer loans. Please refer to Table 7 on page 16, which summarizes the loan portfolio mix.



Commercial and Industrial Lending. The Bank originates loans to businesses in its market area, including floor plan loans to automobile dealers and loans
guaranteed by the Small Business Administration. The typical commercial borrower is a small to mid-sized company with annual sales under $5,000,000. The majority of commercial loans are made at adjustable rates of interest tied to the prime rate.
Commercial loans typically have terms of up to five years. Commercial and industrial lending entails significant risks. Such loans are subject to greater risk of default during periods of adverse economic conditions. Because such loans are secured
by equipment, inventory, accounts receivable and other non-real estate assets, the collateral may not be sufficient to ensure full payment of the loan in the event of a default.



Commercial Real Estate. The Bank makes loans secured by commercial real estate located in its market area. Such loans generally are
adjustable-rate loans for terms of up to 20 years. The types of properties securing loans in the Banks portfolio include warehouses, retail outlets and general industrial use properties. Commercial real estate lending generally entails greater
risks than residential real estate lending. Such loans typically involve larger balances and depend on the income of the property to service the debt. Consequently, the risk of default on such loans may be more sensitive to adverse economic
conditions. The Bank attempts to minimize such risks through prudent underwriting practices.



Real Estate Construction. The Bank originates loans for the purpose of constructing both commercial and residential buildings. The Company offers both construction-phase-only and permanent financing.



Agricultural Loans. The Bank makes agricultural loans, which include loans to finance farm
operations, equipment purchases, and land acquisition. The repayment of such loans is significantly dependent upon income from farm operations, which can be adversely affected by weather and other physical conditions, government policies and general
economic conditions.



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Residential Real Estate. The Bank makes loans secured by one- to four-family residential real estate and multi-family
(over four units) real estate located in its market area. The Bank originates both fixed-rate mortgage loans and adjustable-rate mortgage loans (ARMs). Fixed-rate loans with terms of 20 to 30 years are typically originated for sale in
the secondary market.



Installment Loans. The Bank makes a variety of consumer
installment loans, including home equity loans, automobile loans, recreational vehicle loans, and overdraft protection. Consumer loans involve a higher risk of default than loans secured by one- to four-family residential real estate, particularly
in the case of consumer loans which are unsecured or secured by rapidly depreciating assets, such as automobiles. Various federal and state laws, including federal and state bankruptcy and insolvency laws, may also limit the amount which can be
recovered on such loans.



Credit Card Service. The Bank offers credit card
services directly through a correspondent bank.



Loan Processing. Loan officers
are authorized by the Board of Directors to approve loans up to specified limits. Loans exceeding the loan officers approval authority are referred to the Banks Senior Loan Committee. Any loans made by the Bank in excess of the limits
established for the Senior Loan Committee must be approved by the Chairman of the Board and the President of the Bank as representatives of the Board of Directors. All loans in excess of $50,000 are reported to the Board on a monthly basis.



Loan Originations, Purchases and Sales. Although the Bank generally does not
purchase loans, purchases could occur in the future. Fixed-rate residential real estate loans are originated for sale in the secondary market. From time to time, the Bank sells participation interests in loans it originates.



Allowance for Loan Losses. Federal regulations require that the Bank establish prudent
general allowances for loan losses. Senior management, with oversight responsibility provided by the Board of Directors, reviews on a monthly basis the allowance for loan losses as it relates to a number of relevant factors, including but not
limited to, historical trends in the level of non-performing assets and classified loans, current charge-offs and the amount of the allowance as a percent of the total loan portfolio. While management believes that it uses the best information
available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments, and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the final
determination.



Investment Activities



Funds not used in the Banks lending or banking function are dedicated to the
investment portfolio. Those funds will be placed in Investment programs approved by the Asset/Liability Management Committee (ALCO). The deployment of these funds will be consistent with the overall strategy and risk profile of the Bank. The Bank
primarily invests in high-quality securities to provide sufficient liquidity, secure pledged deposits, minimize current tax liability, and increase earnings.



Trust Services



The Bank received trust powers in 1922, and had approximately $194.2 million in assets under management at December 31, 2004 in the Trust Department. These assets are not included in the Banks balance sheet
because, under federal law, neither the Bank nor its creditors can assert any claim against funds held by the Bank in its fiduciary capacity. In addition to administering trusts, the services offered by the Trust Department include investment
purchase and management, estate planning and administration, tax and financial planning and employee benefit plan administration.



Deposits and Borrowings



General: Deposits have traditionally been the primary source of the Banks funds for use in lending and other investment activities. In addition to deposits, the Bank derives funds from interest payments and
principal repayments on loans and income on earning assets. Loan payments are a relatively stable source of funds, while deposit inflows and outflows fluctuate more in response to general interest rates and money market conditions.



Deposits: Deposits are attracted principally from within the Banks market area through
the offering of numerous deposit instruments, including checking accounts, savings accounts, money market deposit accounts, and term certificate accounts. Interest rates paid, maturity terms, service fees and withdrawal penalties for the various
types of accounts are established periodically by the Banks Asset/Liability Committee and the Executive Committee based on the Banks liquidity requirements, growth goals and market trends. The Company has also used brokers, on a limited
basis, to obtain deposits. Currently the amount of deposits from outside the Banks market area is not significant.



Borrowings: The Federal Reserve System functions as a central reserve bank providing credit for its member banks and certain other financial institutions. As a member in
good standing of the Federal Reserve Bank of Cleveland, the Bank is authorized to apply for advances, provided certain standards of credit-worthiness have been met. The Bank is also a member of the Federal Home Loan Bank system. Short-term
borrowings include securities sold under agreements to repurchase, federal funds purchased and U.S Treasury demand notes.



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Competition



The Bank competes for deposits with other commercial banks, savings associations and credit unions and with the issuers of commercial paper and other securities, such as
shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, the Bank competes with other commercial banks, savings associations, mortgage bankers,
consumer finance companies, credit unions, leasing companies, insurance companies and other lenders. The Bank competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of
services it provides to borrowers. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable.
For years the Bank has competed within its market area with several regional bank holding companies, each with assets far exceeding those of the Bank.



REGULATION



General



Because of its ownership of all the outstanding stock of the Bank, NB&T Financial is subject to regulation, examination and oversight by the FRB as a bank holding company under the BHCA. The Bank, as a national
bank, is subject to regulation, examination and oversight by the OCC and special examination by the FRB. The Bank is a member of the Federal Reserve Bank of Cleveland and a member of the Federal Home Loan Bank of Cincinnati. In addition, since its
deposits are insured by the FDIC, the Bank is also subject to some regulation, oversight and special examination by the FDIC. The Bank must file periodic financial reports with the FDIC, the OCC and the Federal Reserve Bank of Cleveland.
Examinations are conducted periodically by these federal regulators to determine whether the Bank and NB&T Financial are in compliance with various regulatory requirements and are operating in a safe and sound manner. In general, the FRB may
initiate enforcement actions for violations of law and regulations.



Bank
Holding Company Regulation



The FRB has also adopted capital adequacy
guidelines for bank holding companies, pursuant to which, on a consolidated basis, NB&T Financial must maintain total capital of at least 8% of risk-weighted assets. Risk-weighted assets consist of all assets, plus credit equivalent amounts of
certain off- balance sheet items, which are weighted at percentage levels ranging from 0% to 100%, based on the relative credit risk of the asset. At least half of the total capital to meet this risk-based requirement must consist of core or
Tier 1 capital, which includes common stockholders equity, qualifying perpetual preferred stock (up to 25% of Tier 1 capital) and minority interests in the equity accounts of consolidated subsidiaries, less goodwill, certain other
intangibles, and portions of certain nonfinancial equity investments. The remainder of total capital may consist of supplementary or Tier 2 capital. In addition to this risk-based capital requirement, the FRB requires bank holding
companies to meet a leverage ratio of a minimum level of Tier 1 capital to average total consolidated assets of 3%, if they have the highest regulatory examination rating, well-diversified risk and minimal anticipated growth or expansion. All other
bank holding companies are expected to maintain a leverage ratio of at least 4% of average total consolidated assets. NB&T Financial was in compliance with these capital requirements at December 31, 2004. For NB&T Financials capital
ratios, see Note 14 to the Consolidated Financial Statements in Item 8.



A bank
holding company is required by law to guarantee the compliance of any insured depository institution subsidiary that may become undercapitalized (defined in the regulations as not meeting minimum capital requirements) with the terms of
the capital restoration plan filed by such subsidiary with its appropriate federal banking agency.



The BHCA restricts NB&T Financials ownership or control of the outstanding shares of any class of voting stock of any company engaged in a nonbanking business, other than companies engaged in certain
activities determined by the FRB to be closely related to banking. In addition, the FRB has the authority to require a bank holding company to terminate any activity or relinquish control of any nonbank subsidiary (other than a nonbank subsidiary of
a bank) upon the determination by the FRB that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. NB&T Financial currently has no nonbank subsidiaries,
except subsidiaries of the Bank. The ownership of subsidiaries of the Bank is regulated by the OCC, rather than the FRB.



On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999). The Financial
Services Modernization Act permits, effective March 11, 2000, bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in
nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at
least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire
a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.



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The Financial Services Modernization Act defines financial in nature to include:



| |  |  | securities underwriting, dealing and market making;
| | - |  | ---------------------------------------------------



| |  |  | sponsoring mutual funds and investment companies;
| | - |  | -------------------------------------------------



| |  |  | insurance underwriting and agency;
| | - |  | ----------------------------------



| |  |  | merchant banking; and
| | - |  | ---------------------



| |  |  | activities that the Federal Reserve Board has determined to be closely related to banking.
| | - |  | ------------------------------------------------------------------------------------------



A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory Community
Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature
without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are
financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of satisfactory or better. NB&T Insurance is a financial subsidiary.



Transactions between NB&T Financial and the Bank are subject to statutory limits in
Sections 23A and 23B of the Federal Reserve Act (the FRA), which limit the amounts of such transactions and require that the terms of the transactions be at least as favorable to the Bank as the terms would be of a similar transaction
between the Bank and an unrelated party. NB&T Financial and the Bank were in compliance with these requirements and restrictions at December 31, 2004.



The FRB must approve the application of a bank holding company to acquire any bank or savings association.



National Bank Regulation



Office of the Comptroller of the Currency. The OCC is an office in the Department of the Treasury and is subject to the general oversight of the Secretary of the
Treasury. The OCC is responsible for the regulation and supervision of all national banks, including the Bank. The OCC issues regulations governing the operation of national banks and, in accordance with federal law, prescribes the permissible
investments and activities of national banks. The Bank is authorized to exercise trust powers in accordance with OCC guidelines. National banks are subject to regulatory oversight under various consumer protection and fair lending laws. These laws
govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and community reinvestment.



The Bank is required to meet certain minimum capital requirements set by the OCC. These requirements consist of risk-based capital guidelines and a leverage ratio, which
are substantially the same as the capital requirements imposed on NB&T Financial. The Bank was in compliance with those capital requirements at December 31, 2004. For the Bank capital ratios, see Note 14 to the Consolidated Financial Statements
in Item 8. The OCC may adjust the risk-based capital requirement of a national bank on an individualized basis to take into account risks due to concentrations of credit or nontraditional activities.



The OCC has adopted regulations governing prompt corrective action to resolve the problems of
capital deficient and otherwise troubled national banks. At each successively lower defined capital category, a national bank is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the OCC has less
flexibility in determining how to resolve the problems of the institution. In addition, the OCC generally can downgrade a national banks capital category, notwithstanding its capital level, if, after notice and opportunity for hearing, the
national bank is deemed to be engaging in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. The Banks capital at December 31, 2004, met the standards for the highest capital category, a well-capitalized bank.



A national bank is subject to restrictions on the payment of dividends, including dividends to a holding company. The Bank may not pay a dividend if it would cause the
bank not to meet its capital requirements. In addition, the dividends that a Bank subsidiary can pay to its holding company without prior approval of regulatory agencies is limited to net income plus its retained net income for the preceding two
years. Based on the current financial condition of the Bank, the Bank does not expect these provisions to affect the current ability of the Bank to pay dividends to NB&T Financial in an amount customary for the Bank.



OCC regulations generally limit the aggregate amount that a national bank can lend to one
borrower or aggregated groups of related borrowers to an amount equal to 15% of the banks unimpaired capital and surplus. A national bank may loan to one borrower an additional amount not to exceed 10% of the associations unimpaired
capital and surplus, if the additional amount is fully secured by certain forms of readily marketable collateral. Loans to executive officers, directors and principal shareholders and their related interests must conform to the OCC
lending limits. All transactions between national banks and their affiliates, including NB&T Financial, must comply with Sections 23A and 23B of the FRA.



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Federal Deposit Insurance Corporation. The FDIC is an independent federal agency that insures the deposits, up to
prescribed statutory limits, of federally insured banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, the BIF for commercial banks and state savings banks
and the SAIF for savings associations and for banks that have acquired SAIF deposits. The FDIC is required to maintain designated levels of reserves in each fund.



The Bank is a member of the BIF, and, at December 31, 2004, it had $414.5 million in deposits insured in the BIF, as well as $18.9 million,
acquired in a merger, insured in the SAIF.



The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of each of the BIF and the SAIF. The FDIC may increase assessment rates for either fund if necessary to restore the funds ratio of reserves to insured deposits to its target
level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined based on the institutions capital level and the FDICs level of supervisory concern about the institution. Insurance of deposits may be terminated by the FDIC
if it finds that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the
institutions regulatory agency.



Federal Reserve Board. The FRA requires
national banks to maintain reserves against their net transaction accounts (primarily checking and NOW accounts). The amounts are subject to adjustment by the FRB. At December 31, 2004, the Bank was in compliance with its reserve requirements.



Federal Home Loan Banks. The Federal Home Loan Banks (the FHLBs) provide
credit to their members in the form of advances. As a member, the Bank must maintain an investment in the capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1% of the aggregate outstanding principal amount of the
Banks residential real estate loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of its advances from the FHLB. The Bank is in compliance with this requirement with an investment in FHLB of Cincinnati
stock having a book value of $7.4 million at December 31, 2004. The FHLB advances are secured by collateral in one or more specified categories. The amount a member may borrow from the FHLB is limited based upon the amounts of various assets held by
the member.



Ohio Department of Insurance. The Banks insurance agency
operating subsidiary is subject to the insurance laws and regulations of the State of Ohio and the Ohio Department of Insurance. The insurance laws and regulations require education and licensing of agencies and individual agents, require reports
and impose business conduct rules.



Item 2. Properties



NB&T Financial Group, Inc.
and The National Bank and Trust Company own and occupy their main offices located at 48 North South Street, Wilmington, Ohio. The National Bank and Trust Company also owns or leases 19 full-service branch offices and one remote drive-through ATM
facility, all of which are located in Adams, Brown, Clermont, Clinton, Fayette, Hardin, Highland, and Warren Counties in Ohio. The Bank owns a building at 1600 West Main Street, Wilmington, Ohio which serves as an operation center for the Bank and
houses the Banks insurance agency. Additionally, the Bank also owns a building at 52 E. Main Street, Wilmington, Ohio, currently used as a storage facility.



Item 3. Legal Proceedings



Neither NB&T
Financial nor the Bank is presently involved in any legal proceedings of a material nature. From time to time, the Bank is a party to legal proceedings incidental to its business to enforce its security interest in collateral pledged to secure loans
made by the Bank.



Item 4. Submission of Matters to a Vote of Security Holders



Not applicable.





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##### Table of Contents

PART II



Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



There were 3,227,063 common shares of the Company outstanding on December 31, 2004 held of record by approximately 421 shareholders of record other than brokers, banks
and depositories, and approximately an additional 322 beneficial owners holding their shares in the names of brokers, banks and depositories. Dividends per share declared were $0.25 per share in each quarter in 2004 and were $0.24 per share in each
quarter in 2003.



The Companys shares started trading on the Nasdaq
SmallCap Market under the symbol NBTF in June 2003. The following table summarizes the quarterly common stock prices and dividends declared since June 2003.



|               |  |      |       |     |   |          |  |   |     
|-------------- |  | ---- | ----- | --- | - | -------- |  | - | ----
|               |  | High |       | Low |   | Dividend
|2004           |  |      |       |     |   |          |  |   |     
|Fourth Quarter |  | $    | 29.38 |     | $ | 25.50    |  | $ | 0.25
|Third Quarter  |  |      | 30.96 |     |   | 25.50    |  |   | 0.25
|Second Quarter |  |      | 32.30 |     |   | 29.60    |  |   | 0.25
|First Quarter  |  |      | 33.50 |     |   | 29.00    |  |   | 0.25
|               |  |      |      
|2003           |  |      |       |     |   |          |  |   |     
|Fourth Quarter |  | $    | 31.75 |     | $ | 25.40    |  | $ | 0.24
|Third Quarter  |  |      | 26.40 |     |   | 23.75    |  |   | 0.24
|June 2003      |  |      | 24.00 |     |   | 23.30    |  |   | 0.24



As a national bank, the Bank is
subject to restrictions on the payment of dividends to the Company, which could restrict the ability of the Company to pay dividends. The Bank may not pay a dividend if it would cause the Bank not to meet its capital requirements. In addition,
without regulatory approval, the Bank is limited to paying dividends equal to net income to date in the fiscal year plus its retained net income for the preceding two years.



The Company has a stock option plan under which the Company may grant options that vest over five years to selected employees for up to 7%
of the authorized and issued shares of the Company, currently 3,818,950 shares. The following table summarizes the securities authorized for issuance at December 31, 2004 under all equity compensation plans still in existence.



|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                             |        
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | Number of securities to beissued upon exercise
ofoutstanding options, warrants and rights (a) |  | Weighted-average exerciseprice of outstanding options,warrants and
rights (b) |       | Number of securities remainingavailable for future issuanceunder equity
compensationplans (excluding securitiesreflected in column (a)) (c)
|Equity compensation plans approved by security holders     |  | 135,100                                                                                       |  | $                                                                             | 23.84 |                                                                                                                                             | 132,227
|Equity compensation plans not approved by security holders |  | 0                                                                                             |  |                                                                               | 0     |                                                                                                                                             | 0      
|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                             |        
|Total                                                      |  | 135,100                                                                                       |  | $                                                                             | 23.84 |                                                                                                                                             | 132,227
|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                             |        





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##### Table of Contents

Item 6. Selected Financial Highlights

(Dollars and shares in thousands, except per share data)



|                                                     |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                     |  | 2004 |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Consolidated Statements of Income                    |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest income                                      |  | $    | 32,135  |   |      | $ | 34,904  |      |  | $ | 40,400  |   |  | $    | 41,993  |   |  | $ | 41,049  |  
|Interest expense                                     |  |      | 11,904  |   |      |   | 13,371  |      |  |   | 17,310  |   |  |      | 22,849  |   |  |   | 22,711  |  
|Net interest income                                  |  |      | 20,231  |   |      |   | 21,533  |      |  |   | 23,090  |   |  |      | 19,144  |   |  |   | 18,338  |  
|Provision for loan losses                            |  |      | 1,900   |   |      |   | 3,919   |      |  |   | 2,100   |   |  |      | 1,500   |   |  |   | 2,199   |  
|Non-interest income                                  |  |      | 9,239   |   |      |   | 9,415   |      |  |   | 8,952   |   |  |      | 7,987   |   |  |   | 4,051   |  
|Non-interest expenses                                |  |      | 21,552  |   |      |   | 22,471  |      |  |   | 22,020  |   |  |      | 18,138  |   |  |   | 15,372  |  
|Income before income taxes                           |  |      | 6,018   |   |      |   | 4,558   |      |  |   | 7,922   |   |  |      | 7,493   |   |  |   | 4,818   |  
|Income taxes                                         |  |      | 1,064   |   |      |   | 454     |      |  |   | 1,391   |   |  |      | 1,476   |   |  |   | 772     |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                           |  | $    | 4,954   |   |      | $ | 4,104   |      |  | $ | 6,531   |   |  | $    | 6,017   |   |  | $ | 4,046   |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Per Share Data                                       |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic earnings per share                             |  | $    | 1.57    |   |      | $ | 1.31    |      |  | $ | 2.11    |   |  | $    | 1.91    |   |  | $ | 1.27    |  
|Diluted earnings per share                           |  |      | 1.56    |   |      |   | 1.30    |      |  |   | 2.10    |   |  |      | 1.90    |   |  |   | 1.26    |  
|Dividends per share                                  |  |      | 1.00    |   |      |   | 0.96    |      |  |   | 0.92    |   |  |      | 0.84    |   |  |   | 0.76    |  
|Book value at year end                               |  |      | 18.16   |   |      |   | 17.59   |      |  |   | 17.78   |   |  |      | 15.89   |   |  |   | 15.44   |  
|Weighted average shares outstanding  basic          |  |      | 3,148   |   |      |   | 3,133   |      |  |   | 3,089   |   |  |      | 3,150   |   |  |   | 3,185   |  
|Weighted average shares outstanding diluted         |  |      | 3,166   |   |      |   | 3,152   |      |  |   | 3,117   |   |  |      | 3,165   |   |  |   | 3,207   |  
|                                                     |  |      |         |   |     
|Consolidated Balance Sheets (Year End)               |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                         |  | $    | 645,323 |   |      | $ | 664,928 |      |  | $ | 664,803 |   |  | $    | 671,171 |   |  | $ | 579,232 |  
|Securities                                           |  |      | 169,745 |   |      |   | 191,802 |      |  |   | 213,090 |   |  |      | 216,001 |   |  |   | 160,210 |  
|Loans                                                |  |      | 402,839 |   |      |   | 409,821 |      |  |   | 384,671 |   |  |      | 382,714 |   |  |   | 374,101 |  
|Allowance for loan losses                            |  |      | 4,212   |   |      |   | 4,830   |      |  |   | 4,010   |   |  |      | 3,810   |   |  |   | 3,802   |  
|Deposits                                             |  |      | 452,593 |   |      |   | 450,500 |      |  |   | 468,089 |   |  |      | 479,240 |   |  |   | 406,688 |  
|Long-term debt                                       |  |      | 111,673 |   |      |   | 132,519 |      |  |   | 116,446 |   |  |      | 114,844 |   |  |   | 80,323  |  
|Total shareholders equity                           |  |      | 58,601  |   |      |   | 56,696  |      |  |   | 57,304  |   |  |      | 50,976  |   |  |   | 49,482  |  
|                                                     |  |      |         |   |     
|Selected Financial Ratios                            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average assets                             |  |      | 0.75    | % |      |   | 0.60    | %    |  |   | 0.96    | % |  |      | 0.99    | % |  |   | 0.73    | %
|Return on average equity                             |  |      | 8.57    |   |      |   | 7.06    |      |  |   | 12.08   |   |  |      | 11.87   |   |  |   | 8.85    |  
|Dividend payout ratio                                |  |      | 63.69   |   |      |   | 73.28   |      |  |   | 43.60   |   |  |      | 43.98   |   |  |   | 58.27   |  
|Net interest margin                                  |  |      | 3.31    |   |      |   | 3.38    |      |  |   | 3.70    |   |  |      | 3.37    |   |  |   | 3.54    |  
|Average loans to average total assets                |  |      | 61.80   |   |      |   | 58.42   |      |  |   | 56.92   |   |  |      | 57.02   |   |  |   | 64.59   |  
|Average equity to average total assets               |  |      | 8.74    |   |      |   | 8.49    |      |  |   | 8.62    |   |  |      | 7.60    |   |  |   | 8.54    |  
|Total risk-based capital ratio (at year end)         |  |      | 15.06   |   |      |   | 14.57   |      |  |   | 14.66   |   |  |      | 11.50   |   |  |   | 14.04   |  
|Ratio of non-performing loans to total loans         |  |      | 0.71    |   |      |   | 1.43    |      |  |   | 1.59    |   |  |      | 1.49    |   |  |   | 1.13    |  
|Ratio of loan loss allowance to total loans          |  |      | 1.05    |   |      |   | 1.18    |      |  |   | 1.04    |   |  |      | 1.00    |   |  |   | 1.02    |  
|Ratio of loan loss allowance to non-performing loans |  |      | 147     |   |      |   | 83      |      |  |   | 65      |   |  |      | 67      |   |  |   | 90      |  
|Net charge-offs to average loans                     |  |      | 0.62    |   |      |   | 0.77    |      |  |   | 0.49    |   |  |      | 0.58    |   |  |   | 0.44    |  





9



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##### Table of Contents

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



The following discussion and analysis comparing 2004 to prior years should be read in conjunction with the audited consolidated financial statements at December 31, 2004
and 2003 and for the three years ended December 31, 2004.



FORWARD-LOOKING
STATEMENTS



Statements preceded by, followed by or that otherwise include
the words believes, expects, anticipates, intends, estimates, plans, may increase, may fluctuate, will likely result, and similar expressions
or future or conditional verbs such as will, should, would, and could are generally forward-looking in nature and not historical facts. Results could differ materially from those expressed in such
forward-looking statements due to a number of factors, including (1) the effect of economic conditions and interest rates on a national, regional or international basis; (2) competitive pressures in the retail banking, financial services, insurance
and other industries; (3) the financial resources of, and products available to, competitors; (4) changes in laws and regulations, including changes in accounting standards; (5) changes in policy by regulatory agencies; and (6) changes in the
securities markets. Any forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, and actual results could differ materially from those contemplated by those forward-looking statements.
Many of the factors that will determine these results are beyond the Companys ability to control or predict. The Company disclaims any duty to update any forward-looking statements, all of which are qualified by the statements in this section.



RESULTS OF OPERATIONS



OVERVIEW



Net income for 2004 was $4.9 million, or $1.57 per share, compared to $4.1 million, or $1.31 per share, for the year of 2003. The increase
in net income in 2004 is primarily due to a lower loan loss provision, as a result of decreasing non-performing loans. The provision for loan losses decreased $2.0 million, or 51.5%, to $1.9 million from $3.9 million during 2003. Non-performing
loans decreased 50.8% to $2.9 million from $5.8 million at December 31, 2003. Net interest income decreased $1.3 million from $21.5 million in 2003 to $20.2 million in 2004, partially offsetting the lower loan loss provision. Total non-interest
income of $8.5 million for 2004, excluding securities gains, was relatively unchanged from 2003. Non-interest expense decreased from $22.5 million in 2003 to $21.6 million in 2004 due to reorganization costs of $709,000 in 2003. Performance ratios
for 2004 included a return on assets of 0.75% and a return on equity of 8.57 %, compared to 0.60% and 7.06%, respectively, in 2003.



Net income for 2003 was $4.1 million, or $1.31 per share, compared to $6.5 million, or $2.11 per share, for the year of 2002. The decrease in net income from 2002 to 2003
is due to primarily two factors. First, net interest income was $21.5 million for 2003, compared to $23.1 million for 2002. Second, the provision for loan losses was increased $1.8 million to $3.8 million in 2003 from $2.1 million in 2002.
Performance ratios for 2003 included a return on assets of .60% and a return on equity of 7.06% compared to .96% and 12.08%, respectively, in 2002.



NET INTEREST INCOME



Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Companys
earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. Table 1 reflects the components of the Companys net interest income for each of the three
years ended December 31, 2004, setting forth: (i) Average assets, liabilities and shareholders equity, (ii) interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, (iii) average yields
earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, and (iv) the net interest margin (i.e., net interest income divided by average interest-earning assets). Non-accrual loans have been included in the
average loan balances.



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##### Table of Contents

TABLE 1  NET INTEREST INCOME AND NET INTEREST MARGIN



|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|---------------------------------- |  | ------------------------- | ------- | ------------ | ---- | ---- | ------------------- | - | ------------------------- |  | ------------ | ------- |  | -------------------- | - | ------------------------- | - | ------------ |  | - | ------------------- |  | ---- | - |  | - | ------
|                                   |  | 2004                      |         | 2003         |      | 2002
|                                   |  | AverageOutstandingBalance |         | Yield / Rate |      |      | InterestEarned/Paid |   | AverageOutstandingBalance |  | Yield / Rate |         |  | InterestEarned /Paid |   | AverageOutstandingBalance |   | Yield / Rate |  |   | InterestEarned/Paid
|Loans (1)                          |  | $                         | 408,779 |              | 6.09 | %    |                     | $ | 24,895                    |  | $            | 400,008 |  | 6.62                 | % |                           | $ | 26,471       |  | $ | 385,324             |  | 7.53 | % |  | $ | 29,002
|Securities                         |  |                           | 190,013 |              | 3.71 |      |                     |   | 7,055                     |  |              | 226,315 |  | 3.68                 |   |                           |   | 8,326        |  |   | 227,560             |  | 4.93 |   |  |   | 11,227
|Deposits in banks                  |  |                           | 718     |              | .70  |      |                     |   | 5                         |  |              | 537     |  | .56                  |   |                           |   | 3            |  |   | 893                 |  | 1.57 |   |  |   | 14    
|Federal funds sold                 |  |                           | 12,647  |              | 1.42 |      |                     |   | 180                       |  |              | 9,656   |  | 1.08                 |   |                           |   | 104          |  |   | 10,270              |  | 1.53 |   |  |   | 157   
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Total interest-earning assets      |  |                           | 612,157 |              | 5.25 |      |                     |   | 32,135                    |  |              | 636,516 |  | 5.48                 |   |                           |   | 34,904       |  |   | 624,047             |  | 6.47 |   |  |   | 40,400
|                                   |  |                           |         |              |      |      |                     |   |                          
|Non-earning assets                 |  |                           | 49,292  |              |      |      |                     |   |                           |  |              | 48,109  |  |                      |   |                           |   |              |  |   | 52,913              |  |      |   |  |   |       
|                                   |  |                           |         |              |      |      |                     |   |                          
|Total assets                       |  | $                         | 661,449 |              |      |      |                     |   |                           |  | $            | 684,625 |  |                      |   |                           |   |              |  | $ | 676,960             |  |      |   |  |   |       
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Interest-bearing deposits          |  | $                         | 394,363 |              | 1.41 |      |                     |   | 5,554                     |  | $            | 415,719 |  | 1.65                 |   |                           |   | 6,859        |  | $ | 425,756             |  | 2.59 |   |  |   | 11,028
|Short-term borrowings              |  |                           | 25,770  |              | 1.05 |      |                     |   | 271                       |  |              | 24,561  |  | 0.81                 |   |                           |   | 198          |  |   | 25,571              |  | 1.32 |   |  |   | 338   
|                                   |  |                           |         |              |      |      |                     |   |                          
|Junior subordinated debentures     |  |                           | 8,248   |              | 4.98 |      |                     |   | 411                       |  |              | 8,248   |  | 4.73                 |   |                           |   | 390          |  |   | 4,486               |  | 4.95 |   |  |   | 222   
|                                   |  |                           |         |              |      |      |                     |   |                          
|FHLB advances                      |  |                           | 116,689 |              | 4.86 |      |                     |   | 5,668                     |  |              | 123,985 |  | 4.78                 |   |                           |   | 5,924        |  |   | 113,354             |  | 5.05 |   |  |   | 5,722 
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Total interest-bearing liabilities |  |                           | 545,070 |              | 2.18 |      |                     |   | 11,904                    |  |              | 572,513 |  | 2.34                 |   |                           |   | 13,371       |  |   | 569,167             |  | 3.04 |   |  |   | 17,310
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Non-interest bearing liabilities   |  |                           | 58,544  |              |      |      |                     |   |                           |  |              | 53,960  |  |                      |   |                           |   |              |  |   | 53,740              |  |      |   |  |   |       
|Capital                            |  |                           | 57,835  |              |      |      |                     |   |                           |  |              | 58,152  |  |                      |   |                           |   |              |  |   | 54,053              |  |      |   |  |   |       
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Total liabilities and capital      |  | $                         | 661,449 |              |      |      |                     |   |                           |  | $            | 684,625 |  |                      |   |                           |   |              |  | $ | 676,960             |  |      |   |  |   |       
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Net interest income                |  |                           |         |              |      |      |                     | $ | 20,231                    |  |              |         |  |                      |   |                           | $ | 21,533       |  |   |                     |  |      |   |  | $ | 23,090
|                                   |  |                           |         |              |      |      |                     |   |                           |  |              |         |  |                      |   |                           |   |              |  |   |                     |  |      |   |  |   |       
|Net interest income margin         |  |                           |         |              | 3.31 | %    |                     |   |                           |  |              |         |  | 3.38                 | % |                           |   |              |  |   |                     |  | 3.70 | % |  |   |       

---

|(1) | Includes nonaccrual loans and loan fees.
|--- | ----------------------------------------



Net interest income decreased $1.3 million, or 6.0%, from $21.5 million in 2003 to $20.2 million in 2004. Net interest margin decreased from 3.38% in 2003 to 3.31% in
2004. Interest income on loans decreased $1.6 million, or 6.0%, from 2003, and the yield on average loans decreased from 6.62% in 2003 to 6.09% in 2004, despite an increase in average loans of $8.8 million. Although the prime rate increased
approximately 125 basis points from June 2004 to December 2004, approximately 60% of the Companys adjustable-rate loan portfolio reprices off the three- and five-year treasury rates. These treasury rates remained lower in 2004 than the
previous repricing rates, resulting in a decrease in the yield earned on adjusting loans. In addition, interest income on securities decreased $1.2 million from $8.3 million in 2003 to $7.1 million in 2004. The average securities balance declined
$36.3 million in 2004, primarily due to the use of proceeds from the sale and maturity of securities to pay down approximately $21.0 million in FHLB debt. The interest expense on interest-bearing liabilities only decreased $1.5 million from $13.4
million in 2003 to $11.9 million in 2004. The yield on interest-bearing deposits declined 24 basis points from 1.65% in 2003 to 1.41% in 2004 as certificate of deposits matured and repriced at lower rates. Rates on short-term borrowings, are
directly tied to the prime rate. As a result, short-term borrowing costs increased during the last six months of 2004. The yields on FHLB borrowings increased from 4.78% in 2003 to 4.86% in 2004, as lower rate advances were paid off, and higher-rate
advances remained outstanding. Based on the current rate environment, management expects these advances to have a negative impact on earnings for several years.



Net interest income decreased $1.6 million, or 7.0%, from $23.1 million in 2002 to $21.5 million in 2003. Net interest margin decreased from 3.70% in 2002 to 3.38% in
2003. As interest rates remained at historical lows during 2003, the interest income on interest-earning assets decreased $5.5 million from $40.4 million in 2002 to $34.9 million in 2003. The interest expense on interest-bearing liabilities,
however, decreased only $3.9 million from $17.3 million in 2002 to $13.4 million in 2003. This decrease is primarily the result of a mismatch in interest rate risk between investments and FHLB borrowings.



11



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##### Table of Contents

Historically at various times, the Bank has utilized FHLB borrowings to purchase securities, leverage its capital
position and improve earnings. With the decrease in rates during 2003, however, higher yielding mortgage-related and callable securities prepaid and were reinvested at lower yields. As a result, interest on securities decreased 25.9%, or $2.9
million in 2003 from 2002, and the yield decreased 125 basis points from 4.93% to 3.68%. The average balance of the securities portfolio decreased $1.2 million, or .55%, from 2002, due to the prepayments and a shifting of balances from
mortgage-related securities to mortgage loans. Unfortunately, interest expense on FHLB borrowings did not decrease. These borrowings have fixed rates and are subject to significant prepayment penalties. Interest expense on FHLB borrowings increased
to $5.9 million in 2003 from $5.7 million in 2002 and the average cost decreased to 4.78% in 2003 from 5.05% in 2002 due to additional average borrowings of $10.6 million during 2003 and no repricing of prior years outstanding FHLB borrowings.



Interest income on loans decreased $2.5 million from $29.0 million in 2002 to
$26.5 million in 2003. While the yield decreased to 6.62% in 2003 from 7.53%, an increase in average loans of $14.7 million partially offset the decrease in yield. Interest expense on deposits and short-term borrowings decreased $4.3 million, or
37.9%, in 2003 compared to 2002. This decrease was due to a combination of lower average costs, average balances and mix of deposits. Average interest-bearing deposits and short-term borrowings decreased $11.0 million, or 2.4%, during 2003, while
the cost decreased from 2.52% in 2002 to 1.60% in 2003. The volume growth in average deposits and short-term interest-bearing liabilities was due to a $2.1 million, or 1.2%, increase in NOW and money market accounts, and a $3.3 million, or 8.2%,
increase in savings deposits, offset by a decrease in average certificates of deposits of $15.5 million.



Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. Table 2 presents an analysis of increases and decreases in interest income and expense in
terms of changes in volume and interest rates during the three years ended December 31, 2004. Changes attributable to rate and volume are allocated to both rate and volume on an equal basis.



TABLE 2  NET INTEREST INCOME  RATE/VOLUME
ANALYSIS



|                                   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|---------------------------------- |  | ---------------------------------------------------------------- | ------ | - | ---------------------------------------------------------------- | - | ------ | ----- |  | - | ------ | - |  | ---- | ----- | - | ----- | - | ------ | - |  | - | ------ | -
|                                   |  | Years ended December 31, 2004 vs 2003 Increase (decrease) due to |        |   | Years ended December 31, 2003 vs 2002 Increase (decrease) due to |  
|                                   |  | Volume                                                           |        |   | Rate                                                             |   |        | Total |  |   | Volume |   |  | Rate |       |   | Total |  
|Interest income attributable to:   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|Loans                              |  | $                                                                | 557    |   |                                                                  | $ | (2,133 | )     |  | $ | (1,576 | ) |  | $    | 1,038 |   |       | $ | (3,569 | ) |  | $ | (2,531 | )
|Securities                         |  |                                                                  | (1,342 | ) |                                                                  |   | 71     |       |  |   | (1,271 | ) |  |      | (54   | ) |       |   | (2,847 | ) |  |   | (2,901 | )
|Deposits in banks                  |  |                                                                  | 1      |   |                                                                  |   | 1      |       |  |   | 2      |   |  |      | (4    | ) |       |   | (7     | ) |  |   | (11    | )
|Federal funds sold                 |  |                                                                  | 37     |   |                                                                  |   | 39     |       |  |   | 76     |   |  |      | (8    | ) |       |   | (45    | ) |  |   | (53    | )
|                                   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|Total interest-earning assets      |  |                                                                  | (747   | ) |                                                                  |   | (2,022 | )     |  |   | (2,769 | ) |  |      | 972   |   |       |   | (6,468 | ) |  |   | (5,496 | )
|                                   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|Interest expense attributable to:  |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|Interest-bearing deposits          |  |                                                                  | (327   | ) |                                                                  |   | (978   | )     |  |   | (1,305 | ) |  |      | (213  | ) |       |   | (3,956 | ) |  |   | (4,169 | )
|Short-term borrowings              |  |                                                                  | 11     |   |                                                                  |   | 62     |       |  |   | 73     |   |  |      | (11   | ) |       |   | (129   | ) |  |   | (140   | )
|Junior subordinated debentures     |  |                                                                  | 0      |   |                                                                  |   | 21     |       |  |   | 21     |   |  |      | 182   |   |       |   | (14    | ) |  |   | 168    |  
|FHLB advances                      |  |                                                                  | (351   | ) |                                                                  |   | 95     |       |  |   | (256   | ) |  |      | 522   |   |       |   | (320   | ) |  |   | 202    |  
|                                   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|Total interest-bearing liabilities |  |                                                                  | (667   | ) |                                                                  |   | (800   | )     |  |   | (1,467 | ) |  |      | (480  | ) |       |   | (4,419 | ) |  |   | (3,939 | )
|                                   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  
|Net interest income                |  | $                                                                | (80    | ) |                                                                  | $ | (1,222 | )     |  | $ | (1,302 | ) |  | $    | 492   |   |       | $ | (2,049 | ) |  | $ | (1,557 | )
|                                   |  |                                                                  |        |   |                                                                  |   |        |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |        |  



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##### Table of Contents

NON-INTEREST INCOME



Table 3 details the components of non-interest income, excluding securities gains and losses, and the percentage change from the two previous years. Total non-interest
income was $8.5 million in 2004, $ 8.5 million in 2003, and $8.5 million in 2002. Trust income increased 14.8% in 2004 and decreased 6.8 % in 2003, which was a function of the decline and subsequent increase in the average market value of funds
under management. Service charges and fees have increased over the last three years due to increased charges and growth in the number of accounts. In 2002, the Company also introduced the Overdraft Protector program that aids customers by paying
more and returning fewer overdraft checks. ATM network fees generated were $315,000 in 2004, $435,000 in 2003, and $578,000 in 2002. At the end of 2004, there were thirty-two machines installed in three states compared to forty-seven machines
installed at the end of 2003 and sixty-five at the end of 2002. The decrease in machines installed and fees generated is a result of increased competition in the ATM network business and the Companys decision not to expand this line of
business due to lower profit margins and higher machine upgrade expenses. Insurance agency commission income increased from $2,355,000 in 2002 to $2,519,000 in 2003 due to increased commissions from acquired agencies and remained relatively
unchanged at $2,494,000 in 2004, mainly due to a decline in annuity sales. Bank owned life insurance (BOLI) income decreased to $531,000 in 2003 compared to $787,000 in 2002 due to a death benefit claim in 2002. In 2004, other income
decreased to $716,000 from $848,000 in 2003 due to decreased loan originations and loan fees. During 2003, other income decreased to $848,000 from $1,127,000 in 2002 primarily due to reimbursement of self-insured insurance claims in 2002.



TABLE 3 - NON-INTEREST INCOME

(in thousands)



|                             |  |      |       |      |   |       |  |                |       |  |               |    |  |        |   
|---------------------------- |  | ---- | ----- | ---- | - | ----- |  | -------------- | ----- |  | ------------- | -- |  | ------ | --
|                             |  |      |       |      |   |       |  | Percent Change |      
|                             |  | 2004 |       | 2003 |   | 2002  |  | 2004 vs. 2003  |       |  | 2003 vs. 2002 |   
|Trust                        |  | $    | 991   |      | $ | 863   |  | $              | 926   |  | 14.83         | %  |  | (6.80  | )%
|Service charges on deposits  |  |      | 2,748 |      |   | 2,687 |  |                | 2,270 |  | 2.23          |    |  | 18.37  |   
|Other service charges        |  |      | 668   |      |   | 617   |  |                | 489   |  | 8.27          |    |  | 26.18  |   
|ATM network fees             |  |      | 315   |      |   | 435   |  |                | 578   |  | (27.36        | )  |  | (24.74 | ) 
|Insurance agency commissions |  |      | 2,494 |      |   | 2,519 |  |                | 2,355 |  | (.99          | )  |  | 6.96   |   
|Income from BOLI             |  |      | 520   |      |   | 531   |  |                | 787   |  | (2.07         | )  |  | (32.53 | ) 
|Other                        |  |      | 716   |      |   | 848   |  |                | 1,127 |  | (15.57        | )  |  | (24.76 | ) 
|                             |  |      |       |      |   |       |  |                |       |  |               |    |  |        |   
|Total                        |  | $    | 8,452 |      | $ | 8,500 |  | $              | 8,532 |  | (.56          | )% |  | (.38   | )%
|                             |  |      |       |      |   |       |  |                |       |  |               |    |  |        |   



Gain on sales of securities totaled
$787,000 in 2004, compared to $915,000 in 2003. Proceeds from the sale of securities totaled $42.1 million in 2004, compared to $42.5 million in 2003.



NON-INTEREST EXPENSE



Table 4 details the components of non-interest expense and the percentage change from the two previous years. Total non-interest expense decreased from $22.4 million in 2003, to $21.6 million in 2004. From 2002 to
2003, non-interest expense was up $379,000.



Salaries and benefits expense,
which is the largest component of non-interest expense, increased to $11.1 million in 2004 from $11.0 million in 2003. Salaries and benefits expense in 2002 was $11.5 million. In 2004, salary expense was down approximately $370,000, largely due to a
reduction in staffing in the fourth quarter of 2003 and the closing of three offices in January 2004. This decrease was offset by payment of bonuses in 2004. The decrease in expense in 2003 is primarily due to elimination of officer bonuses, offset
by an increase in health care costs and other retirement expenses. The average number of full-time equivalent employees was 249 in 2004, 269 in 2003 and 269 in 2002.



The operations center which opened in April 2003 contributed to the 14.2% increase in occupancy from 2002 to 2003. Equipment expense
declined from $2.6 million in 2003 to $2.2 million in 2004, primarily due to the Banks conversion to a new processing system in April 2004 where the annual maintenance fees were waived for the first year. Data processing expenses increased
from $526,000 in 2002 to $601,000 in 2003 and $684,000 in 2004, largely a result of increasing debit card processing expense. Professional fees increased 7.3% from 2003 to 2004, primarily due to legal fees associated with loan collection efforts and
third-party loan review.



Other noninterest expenses increased 58.9% to $2.3
million in 2003 primarily due to $704,000 in reorganization expenses. On October 3, 2003, the Company announced it was undertaking several initiatives designed to lower the Companys non-interest expense by closing three of its banking offices
and reducing its workforce. As of January 31, 2004, the three branch facilities were closed.



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##### Table of Contents

TABLE 4 - NON-INTEREST EXPENSE

(in thousands)



|                               |  |      |        |      |   |        |  |                |        |  |               |    |  |        |   
|------------------------------ |  | ---- | ------ | ---- | - | ------ |  | -------------- | ------ |  | ------------- | -- |  | ------ | --
|                               |  |      |        |      |   |        |  | Percent Change |       
|                               |  | 2004 |        | 2003 |   | 2002   |  | 2004 vs. 2003  |        |  | 2003 vs. 2002 |   
|Salaries & employee benefits   |  | $    | 11,055 |      | $ | 10,997 |  | $              | 11,512 |  | .53           | %  |  | (4.47  | )%
|Occupancy                      |  |      | 1,743  |      |   | 1,790  |  |                | 1,568  |  | (2.63         | )  |  | 14.16  |   
|Equipment                      |  |      | 2,213  |      |   | 2,643  |  |                | 2,748  |  | (16.27        | )  |  | (3.82  | ) 
|Data processing                |  |      | 684    |      |   | 601    |  |                | 526    |  | 13.81         |    |  | 14.26  |   
|Professional fees              |  |      | 1,388  |      |   | 1,294  |  |                | 1,281  |  | 7.26          |    |  | 1.01   |   
|Marketing                      |  |      | 628    |      |   | 577    |  |                | 785    |  | 8.84          |    |  | (26.50 | ) 
|Printing, postage and supplies |  |      | 809    |      |   | 827    |  |                | 941    |  | (2.18         | )  |  | (12.11 | ) 
|State franchise tax            |  |      | 701    |      |   | 685    |  |                | 548    |  | 2.34          |    |  | 25.00  |   
|Amortization of intangibles    |  |      | 705    |      |   | 712    |  |                | 616    |  | (.98          | )  |  | 15.58  |   
|Other                          |  |      | 1,626  |      |   | 2,345  |  |                | 1,495  |  | (30.66        | )  |  | 58.86  |   
|                               |  |      |        |      |   |        |  |                |        |  |               |    |  |        |   
|Total                          |  | $    | 21,552 |      | $ | 22,471 |  | $              | 22,020 |  | (4.09         | )% |  | 2.05   | % 
|                               |  |      |        |      |   |        |  |                |        |  |               |    |  |        |   



INCOME TAXES



The effective tax rates were 17.7% for 2004, 10.0% for 2003 and 17.6% for 2002. The
effective tax rate being lower than the statutory rate was primarily due to tax-exempt municipal bond interest income and BOLI income.



FINANCIAL CONDITION



ASSETS



Average total assets increased
3.4% during 2004 to $661.4 million. Average interest-earning assets decreased 3.8%, and were 93% of total average assets, equivalent to 2003 and 2002.



SECURITIES



The following table sets forth the composition of the Banks securities portfolio, based on amortized cost, at the dates indicated (thousands):



TABLE 5  SECURITIES PORTFOLIO



|                                            |  |                 |         |      |   |         |  |   |        
|------------------------------------------- |  | --------------- | ------- | ---- | - | ------- |  | - | -------
|                                            |  | At December 31,
|                                            |  | 2004            |         | 2003 |   | 2002   
|Securities available for sale (Book Value): |  |                 |         |      |   |         |  |   |        
|U.S. Treasuries & U.S. agency notes         |  | $               | 69,135  |      | $ | 60,502  |  | $ | 44,315 
|U.S. agency mortgage-backed securities      |  |                 | 30,098  |      |   | 42,696  |  |   | 101,495
|Other mortgage-backed securities            |  |                 | 31,825  |      |   | 41,380  |  |   | 3,077  
|Municipals                                  |  |                 | 38,336  |      |   | 7,810   |  |   | 8,576  
|Other securities                            |  |                 | 10      |      |   | 10      |  |   | 8,010  
|                                            |  |                 |         |      |   |         |  |   |        
|Total securities available for sale         |  |                 | 169,404 |      |   | 152,398 |  |   | 165,473
|                                            |  |                 |         |      |   |         |  |   |        
|Securities held to maturity:                |  |                 |         |      |   |         |  |   |        
|Municipals                                  |  |                 |        |      |   | 38,681  |  |   | 44,490 
|                                            |  |                 |         |      |   |         |  |   |        
|Total securities                            |  | $               | 169,404 |      | $ | 191,079 |  | $ | 209,963
|                                            |  |                 |         |      |   |         |  |   |        



The majority of the decreases in the
securities portfolio from 2003 to 2004 were the result of sales of U.S. agency mortgage-backed securities and other mortgage-backed securities, as well as some out-of-state municipal bonds. Part of the proceeds of these sales, along with the
proceeds from matured securities, were used to payoff approximately $21.0 million in Federal Home Loan Bank debt.



Effective July 30, 2004, the Company reclassified its Held-to-Maturity Securities as Available-for-Sale. Historically, the Held-to-Maturity portfolio contained both
out-of-state and Ohio municipal securities which were used to meet State of Ohio public fund pledging requirements and provide non-taxable income for the Company. As a result of a change in the Ohio Revised Code, the State of Ohio public fund
pledging requirements eliminated out-of-state municipals as eligible collateral. Because of this change, approximately 77% of the Held-to-Maturity portfolio could not be used as originally intended. Management reclassified the portfolio to provide
more flexibility for public fund pledging requirements, interest rate risk management and potential tax savings opportunities.



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##### Table of Contents

The following table sets forth the amortized cost of the Banks securities portfolio at December 31, 2004. U.S.
agency mortgage-backed securities and other mortgage-backed securities are categorized according to their expected prepayment speeds. All other securities are categorized based on contractual maturity. Actual maturities may differ from contractual
maturities when borrowers have the right to call or prepay obligations. Yields do not include the effect of income taxes (dollars in thousands).



TABLE 6  SECURITIES PORTFOLIO REPRICING



|                                       |  |                  |       |                      |      |               |   |                      |  |               |  |                      |       |               |      |                      |   |               |  |                      |  |   |         |  |     
|-------------------------------------- |  | ---------------- | ----- | -------------------- | ---- | ------------- | - | -------------------- |  | ------------- |  | -------------------- | ----- | ------------- | ---- | -------------------- | - | ------------- |  | -------------------- |  | - | ------- |  | ----
|                                       |  | Less than 1 Year |       | 1 to 5 Years         |      | 5 to 10 Years |   | Over 10 Years        |  | Total        
|                                       |  | AmortizedCost    |       | WeightedAverageYield |      | AmortizedCost |   | WeightedAverageYield |  | AmortizedCost |  | WeightedAverageYield |       | AmortizedCost |      | WeightedAverageYield |   | AmortizedCost |  | WeightedAverageYield
|Securities available for sale:         |  |                  |       |                      |      |               |   |                      |  |               |  |                      |       |               |      |                      |   |               |  |                      |  |   |         |  |     
|U.S. Treasuries & U.S. agency notes    |  | $                |      |                      |     |               | $ | 69,135               |  | 2.66          |  | $                    |      |               |      |                      | $ |              |  |                     |  | $ | 69,135  |  | 2.66
|U.S. agency mortgage-backed securities |  |                  | 543   |                      | 4.06 |               |   | 28,165               |  | 4.76          |  |                      | 1,390 |               | 5.47 |                      |   |              |  |                     |  |   | 30,098  |  | 4.78
|                                       |  |                  |       |                      |      |               |   |                      |  |              
|Other mortgage-backed securities       |  |                  | 5,733 |                      | 3.23 |               |   | 25,070               |  | 3.50          |  |                      | 1,022 |               | 4.22 |                      |   | 36,726        |  | 5.02                 |  |   | 31,825  |  | 3.47
|Municipals                             |  |                  |      |                      |     |               |   | 100                  |  | 4.50          |  |                      | 1,510 |               | 3.47 |                      |   |              |  |                     |  |   | 38,336  |  | 4.96
|                                       |  |                  |       |                      |      |               |   |                      |  |              
|Other securities                       |  |                  |      |                      |      |               |   |                      |  |               |  |                      |      |               |      |                      |   | 10            |  |                     |  |   | 10      |  |    
|                                       |  |                  |       |                      |      |               |   |                      |  |               |  |                      |       |               |      |                      |   |               |  |                      |  |   |         |  |     
|Total securities available for sale    |  | $                | 6,276 |                      | 3.30 |               | $ | 122,470              |  | 3.32          |  |                      | 3,922 |               | 4.37 |                      | $ | 36,736        |  | 5.02                 |  |   | 169,404 |  | 3.71
|                                       |  |                  |       |                      |      |               |   |                      |  |               |  |                      |       |               |      |                      |   |               |  |                      |  |   |         |  |     



LOANS



Table 7 shows loans outstanding at period end by type of loan. Commercial and industrial
loans declined from $108.5 million in 2002 to $89.6 million in 2003 and $85.7 million in 2004. The decline in the commercial and industrial loan portfolio has been largely offset by an increase in commercial real estate and real estate construction
loans. The Company has experienced an increase in its commercial real estate and construction lending over the past five years, because of the Companys sales activities in the higher-growth Clermont and Warren Counties. The Company continues
to focus its commercial lending on small- to medium-sized companies with established track records in its market area.



Residential real estate loans increased $11.3 million in 2003 and declined $10.2 million in 2004. In 2003 and continuing in 2004, the Company maintained shorter-term
fixed-rate real estate loans for its portfolio and sold the majority of the long-term fixed-rate residential real estate loans originated. While mortgage loan rates remained at historical lows, the Company sold more than it retained resulting in a
declining balance.



Installment loans outstanding decreased $7.0 million to
$81.0 million in 2004 from $88.0 million at December 31, 2003. This decrease occurred primarily in direct personal loans. Installment loans decreased to 20% of the portfolio at December 31, 2004 from 21% at December 31, 2003.



The Company has avoided concentration of commercial lending in any one industry. As of
December 31, 2004, the highest commercial lending concentration was 13% for rental real estate properties.



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TABLE 7 - LOAN PORTFOLIO

(in thousands)

At December 31,



|                               |  |        |         |   |                |     |   |        |   |         |                |  |     |        |  |   |                |   |  |        |   |                |   |         |        |     |                |  |   |         |  |     |  
|------------------------------ |  | ------ | ------- | - | -------------- | --- | - | ------ | - | ------- | -------------- |  | --- | ------ |  | - | -------------- | - |  | ------ | - | -------------- | - | ------- | ------ | --- | -------------- |  | - | ------- |  | --- | -
|                               |  | 2004   |         |   | 2003           |     |   | 2002   |   |         | 2001           |  |     | 2000   | 
|                               |  | Amount |         |   | PercentofTotal |     |   | Amount |   |         | PercentofTotal |  |     | Amount |  |   | PercentofTotal |   |  | Amount |   | PercentofTotal |   |         | Amount |     | PercentofTotal | 
|Commercial & industrial        |  | $      | 85,681  |   |                | 21  | % |        | $ | 89,621  |                |  | 22  | %      |  | $ | 108,513        |   |  | 28     | % |                | $ | 106,976 |        | 28  | %              |  | $ | 92,328  |  | 25  | %
|Commercial real estate         |  |        | 52,251  |   |                | 13  |   |        |   | 35,399  |                |  | 9   |        |  |   | 28,179         |   |  | 7      |   |                |   | 31,022  |        | 8   |                |  |   | 31,017  |  | 8   |  
|Real estate construction       |  |        | 13,114  |   |                | 3   |   |        |   | 11,296  |                |  | 3   |        |  |   | 7,282          |   |  | 2      |   |                |   | 5,389   |        | 2   |                |  |   | 11,677  |  | 3   |  
|Agricultural                   |  |        | 22,284  |   |                | 6   |   |        |   | 22,841  |                |  | 6   |        |  |   | 20,857         |   |  | 6      |   |                |   | 19,076  |        | 5   |                |  |   | 18,256  |  | 5   |  
|Residential real estate        |  |        | 148,644 |   |                | 37  |   |        |   | 158,880 |                |  | 38  |        |  |   | 141,417        |   |  | 37     |   |                |   | 145,755 |        | 38  |                |  |   | 145,582 |  | 39  |  
|Installment                    |  |        | 80,978  |   |                | 20  |   |        |   | 88,009  |                |  | 21  |        |  |   | 74,533         |   |  | 19     |   |                |   | 70,345  |        | 18  |                |  |   | 71,414  |  | 19  |  
|Other                          |  |        | 119     |   |                | 0   |   |        |   | 4,011   |                |  | 1   |        |  |   | 4,247          |   |  | 1      |   |                |   | 3,883   |        | 1   |                |  |   | 3,209   |  | 1   |  
|Deferred net origination costs |  |        | (232    | ) |                | 0   |   |        |   | (322    | )              |  | 0   |        |  |   | (357           | ) |  | 0      |   |                |   | 268     |        | 0   |                |  |   | 618     |  | 0   |  
|                               |  |        |         |   |                |     |   |        |   |         |                |  |     |        |  |   |                |   |  |        |   |                |   |         |        |     |                |  |   |         |  |     |  
|Total                          |  | $      | 402,839 |   |                | 100 | % |        | $ | 409,735 |                |  | 100 | %      |  | $ | 384,671        |   |  | 100    | % |                | $ | 382,714 |        | 100 | %              |  | $ | 374,101 |  | 100 | %
|                               |  |        |         |   |                |     |   |        |   |         |                |  |     |        |  |   |                |   |  |        |   |                |   |         |        |     |                |  |   |         |  |     |  



Table 8 shows the amount of
commercial, construction and agricultural loans outstanding as of December 31, 2004, which based on contractual maturities, are due in the periods indicated. Also, the amounts due after one year are classified according to their sensitivity to
changes in interest rates.



TABLE 8 
LOAN MATURITIES AND PRICE SENSITIVITY

(in thousands)



|                          |  |                    |        |                             |   |              |  |       |         |  |   |        
|------------------------- |  | ------------------ | ------ | --------------------------- | - | ------------ |  | ----- | ------- |  | - | -------
|                          |  | Due 0-1 Year       |        | Due 1-5 Years               |   | Due 5+ Years |  | Total
|Commercial and Industrial |  | $                  | 16,728 |                             | $ | 22,387       |  | $     | 46,566  |  | $ | 85,681 
|Commercial Real Estate    |  |                    | 5,662  |                             |   | 4,470        |  |       | 42,119  |  |   | 52,251 
|Real Estate Construction  |  |                    | 8,464  |                             |   | 164          |  |       | 4,486   |  |   | 13,114 
|Agricultural              |  |                    | 9,078  |                             |   | 3,729        |  |       | 9,477   |  |   | 22,284 
|                          |  |                    |        |                             |   |              |  |       |         |  |   |        
|Total                     |  | $                  | 39,932 |                             | $ | 30,750       |  | $     | 102,648 |  | $ | 173,330
|                          |  |                    |        |                             |   |              |  |       |         |  |   |        
|                          |  |                    |        |                            
|                          |  | PredeterminedRates |        | Floating orAdjustable Rates |   | Total        |  |      
|Commercial and Industrial |  | $                  | 19,424 |                             | $ | 49,529       |  | $     | 68,953  |  |   |        
|Commercial Real Estate    |  |                    | 4,910  |                             |   | 41,679       |  |       | 46,589  |  |   |        
|Real Estate Construction  |  |                    | 151    |                             |   | 4,499        |  |       | 4,650   |  |   |        
|Agricultural              |  |                    | 3,673  |                             |   | 9,533        |  |       | 13,206  |  |   |        
|                          |  |                    |        |                             |   |              |  |       |         |  |   |        
|Total                     |  | $                  | 28,158 |                             | $ | 105,240      |  | $     | 133,398 |  |   |        
|                          |  |                    |        |                             |   |              |  |       |         |  |   |        





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##### Table of Contents

NON-PERFORMING ASSETS



Table 9 shows the amount of non-performing assets outstanding as of December 31, for each of the last five years:



TABLE 9  NON-PERFORMING ASSETS

(in thousands)



|                                                                 |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|---------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                                 |  | 2004 |       |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|Non-accrual loans                                                |  | $    | 2,874 |   |      | $ | 5,599 |      |  | $ | 4,734 |   |  | $    | 4,859 |   |  | $ | 4,098 |  
|Loans 90 days or more past due                                   |  |      | 0     |   |      |   | 248   |      |  |   | 1,391 |   |  |      | 858   |   |  |   | 113   |  
|Renegotiated loans                                               |  |      | 0     |   |      |   | 0     |      |  |   | 0     |   |  |      | 0     |   |  |   | 0     |  
|Other real estate owned                                          |  |      | 389   |   |      |   | 637   |      |  |   | 226   |   |  |      | 143   |   |  |   | 67    |  
|                                                                 |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total non-performing assets                                      |  | $    | 3,263 |   |      | $ | 6,484 |      |  | $ | 6,351 |   |  | $    | 5,860 |   |  | $ | 4,278 |  
|                                                                 |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|RATIOS                                                           |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Non-performing assets to total loans and other real estate owned |  |      | .81   | % |      |   | 1.58  | %    |  |   | 1.65  | % |  |      | 1.53  | % |  |   | 1.14  | %
|Ratio of loan loss allowance to non-performing loans             |  |      | 147   |   |      |   | 83    |      |  |   | 65    |   |  |      | 67    |   |  |   | 90    |  



The amount of non-accrual loans was
$2.9 million at year-end 2004, compared to $5.6 million at year-end 2003. The decline is attributable to the resolution of two non-performing relationships during the fourth quarter of 2004. The two relationships totaled $3.2 million and were
resolved for a net loss of $437,000, which was previously specifically reserved.



Interest income recognized in 2004 on non-accrual loans outstanding at December 31, 2004 was $-0-, however, interest income that would have been recognized had the loans been accruing would have been approximately $181,000.



As of December 31, 2004 there were $1.0 million in twenty-two non-accrual small business
relationships with the largest loan balance being $182,000. Nonaccrual residential real estate loans consisted of twenty-four loans that total $1.3 million with the largest balance being $112,000. Non-accrual personal loans consisted of
sixty-two loans totaling $356,000, and home equity credit loans consisted of ten loans totaling $238,000.



ALLOWANCE FOR LOAN LOSSES



The
provision for loan losses charged to expense was $1.9 million in 2004, a decrease of $2.0 million from the provision of $3.9 million recorded in 2003, which was an increase from $1.8 million in 2002. The lower provision for loan losses for 2004 was
attributable to two factors. First, non-accruing loans decreased $2.7 million to $2.9 million at December 31,2004 from $5.6 million at December 31, 2003. Secondly, net charge-offs were $2.5 million in 2004, compared to $3.1 million in 2003.



Table 10 shows selected information relating to the Companys allowance
for loan losses. The allowance is maintained to absorb potential losses in the portfolio. Managements determination of the adequacy of the reserve is based on reviews of specific loans, loan loss experience, general economic conditions and
other pertinent factors. If, as a result of charge-offs or increases in risk characteristics of the loan portfolio, the reserve is below the level considered by management to be adequate to absorb possible future loan losses, the provision for loan
losses is increased. Loans deemed not collectible are charged off and deducted from the reserve. Recoveries on loans previously charged off are added to the reserve.



17



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TABLE 10  ALLOWANCE FOR LOAN LOSSES

(in thousands)



|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                        |  | December 31, |        
|                                                                        |  | 2004         |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Balance at beginning of period                                          |  | $            | 4,830   |   |      | $ | 4,010   |      |  | $ | 3,810   |   |  | $    | 3,802   |   |  | $ | 3,222   |  
|                                                                        |  |              |         |   |     
|Charge-offs:                                                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial                                               |  |              | (514    | ) |      |   | (696    | )    |  |   | (486    | ) |  |      | (691    | ) |  |   | (858    | )
|Commercial real estate                                                  |  |              | (501    | ) |      |   | (88     | )    |  |   | (53     | ) |  |      | (15     | ) |  |   | (15     | )
|Real estate construction                                                |  |              |        |   |      |   | (9      | )    |  |   |        |   |  |      | (35     | ) |  |   |        |  
|Agricultural                                                            |  |              | (173    | ) |      |   | (35     | )    |  |   | (53     | ) |  |      | (119    | ) |  |   | (107    | )
|Residential real estate                                                 |  |              | (625    | ) |      |   | (1,093  | )    |  |   | (238    | ) |  |      | (150    | ) |  |   | (66     | )
|Installment                                                             |  |              | (1,385  | ) |      |   | (1,385  | )    |  |   | (1,346  | ) |  |      | (1,318  | ) |  |   | (825    | )
|Other                                                                   |  |              |        |   |      |   | (316    | )    |  |   | (9      | ) |  |      | (18     | ) |  |   |        |  
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total charge-offs                                                       |  |              | (3,198  | ) |      |   | (3,622  | )    |  |   | (2,185  | ) |  |      | (2,346  | ) |  |   | (1,871  | )
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Recoveries:                                                             |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial                                               |  |              | 119     |   |      |   | 200     |      |  |   | 49      |   |  |      | 33      |   |  |   | 62      |  
|Commercial real estate                                                  |  |              | 51      |   |      |   | 6       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Real estate construction                                                |  |              |        |   |      |   | 9       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Agricultural                                                            |  |              | 41      |   |      |   |        |      |  |   | 10      |   |  |      | 9       |   |  |   | 5       |  
|Residential real estate                                                 |  |              | 88      |   |      |   | 37      |      |  |   | 7       |   |  |      | 2       |   |  |   | 1       |  
|Installment                                                             |  |              | 271     |   |      |   | 255     |      |  |   | 219     |   |  |      | 188     |   |  |   | 183     |  
|Other                                                                   |  |              | 110     |   |      |   | 16      |      |  |   |        |   |  |      |        |   |  |   | 1       |  
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total recoveries                                                        |  |              | 680     |   |      |   | 523     |      |  |   | 285     |   |  |      | 232     |   |  |   | 252     |  
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net charge-offs                                                         |  |              | (2,518  | ) |      |   | (3,099  | )    |  |   | (1,900  | ) |  |      | (2,114  | ) |  |   | (1,619  | )
|Acquired in acquisition                                                 |  |              |        |   |      |   |        |      |  |   |        |   |  |      | 622     |   |  |   |        |  
|Provision for possible loan losses                                      |  |              | 1,900   |   |      |   | 3,919   |      |  |   | 2,100   |   |  |      | 1,500   |   |  |   | 2,199   |  
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance at end of period                                                |  | $            | 4,212   |   |      | $ | 4,830   |      |  | $ | 4,010   |   |  | $    | 3,810   |   |  | $ | 3,802   |  
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratio of net charge-offs to average loans outstanding during the period |  |              | 0.62    | % |      |   | 0.77    | %    |  |   | 0.49    | % |  |      | 0.58    | % |  |   | 0.44    | %
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average loans outstanding                                               |  | $            | 408,779 |   |      | $ | 400,008 |      |  | $ | 385,324 |   |  | $    | 366,190 |   |  | $ | 367,419 |  
|                                                                        |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



Net charge-offs were higher in 2003
with increased bankruptcies, foreclosures and change in economic conditions. During 2003, management reappraised collateral securing loans, updated estimated recovery rates, and used a third-party loan specialist to assist in identifying other
potential loan weaknesses. Because of this, management charged-off or charged-down problem loans and increased the loan loss provision in 2003 based upon evaluation of the loan portfolio and potential weaknesses of specific loans incorporating the
updated estimates. Net charge-offs as a percentage of average loans decreased to .62% for the year 2004, compared to .77% for the year 2003. The allowance for loan losses as a percent of total loans at December 31 was 1.05% in 2004, 1.18% in 2003,
and 1.04% in 2002.



The Company allocates the allowance for loan losses to
specifically classified loans and generally based on three-year net charge-off history. In assessing the adequacy of the allowance for loan losses, the Company considers three principal factors: (1) the three-year rolling average charge-off
percentage applied to the current outstanding balance by portfolio type; (2) specific percentage applied to individual loans estimated by management to have a potential loss; and (3) estimated losses attributable to economic conditions. Economic
conditions considered include unemployment levels, the condition of the agricultural business, and other local economic factors. Table 11 shows the allocation of the allowance for loan losses as of December 31, 2004.



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TABLE 11  ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

(in thousands)



|                          |  |        |       |                  |     |  
|------------------------- |  | ------ | ----- | ---------------- | --- | -
|                          |  | Amount |       | Percent of Total |    
|Commercial and industrial |  | $      | 679   |                  | 16  | %
|Commercial real estate    |  |        | 1,064 |                  | 25  |  
|Real estate construction  |  |        | 73    |                  | 2   |  
|Agricultural              |  |        | 105   |                  | 2   |  
|Residential real estate   |  |        | 556   |                  | 13  |  
|Installment               |  |        | 1,201 |                  | 29  |  
|Other                     |  |        |       |                  |     |  
|Unallocated               |  |        | 534   |                  | 13  |  
|                          |  |        |       |                  |     |  
|                          |  | $      | 4,212 |                  | 100 | %
|                          |  |        |       |                  |     |  



OTHER ASSETS



In September 2000, $10 million was used to purchase Bank Owned Life Insurance with a cash
surrender value that increases tax-free during future years at an adjustable rate. At December 31, 2004, the cash surrender value was $12.1 million. The Company also operates a network of cash dispenser machines located in convenience stores and
supermarkets. There were 32 machines located in Ohio, Kentucky and Indiana at the end of 2004. Due to changes in the market, the Company anticipates a reduced commitment to this business in the future. The intangible assets consisted of core deposit
intangibles of $3.1 million, which is amortized over the expected life of the related core deposits, and goodwill of $3.6 million, which is not amortized in accordance with SFAS No. 141, but is tested annually for impairment. In 2004 and 2003, no
goodwill was expensed due to impairment of value.



DEPOSITS



Table 12 presents a summary of period end deposit balances. Interest-bearing NOW accounts
have increased from 20% of deposits in 2000 to 24% in 2004 due to the introduction of a high yielding, high balance checking account early in 2000. Savings accounts have continued to grow with 12% of total deposits at December 31, 2004. The Company
introduced a Business Savings account in 2004, which contributed to the Savings growth. Money market accounts declined from 13% to 10% in 2004, partially due to the introduction of the Business Savings account. Certificates of deposit less than
$100,000 increased to 32% of deposits by the end of 2004, as interest rates increased. Certificates of $100,000 and over are primarily short-term public funds and broker deposits. Balances of such large certificates fluctuate depending on the
Companys pricing strategy and funding needs at any particular time and were up to 9% of total deposits in 2004. Deposits are attracted principally from within the Companys market area through the offering of numerous deposit instruments.
Interest rates, maturity terms, service fees, and withdrawal penalties for the various types of accounts are established periodically by management based on the Companys liquidity requirements, growth goals and market trends. The Company
issued approximately $6.0 million in certificates of deposit through brokers in 2004 at terms ranging from 15 to 24 months. The amount of deposits currently from outside the Companys market area is not significant.



TABLE 12  DEPOSITS

(in thousands)

At December 31,



|                        |  |        |         |                 |      |   |        |      |                 |  |      |        |  |                 |         |  |        |   |                 |   |         |        |     |                 |  |   |         |  |     |  
|----------------------- |  | ------ | ------- | --------------- | ---- | - | ------ | ---- | --------------- |  | ---- | ------ |  | --------------- | ------- |  | ------ | - | --------------- | - | ------- | ------ | --- | --------------- |  | - | ------- |  | --- | -
|                        |  | 2004   |         |                 | 2003 |   |        | 2002 |                 |  | 2001 |        |  | 2000            |        
|                        |  | Amount |         | Percent ofTotal |      |   | Amount |      | Percent ofTotal |  |      | Amount |  | Percent ofTotal |         |  | Amount |   | Percent ofTotal |   |         | Amount |     | Percent ofTotal | 
|Demand                  |  | $      | 58,452  |                 | 13   | % |        | $    | 56,781          |  | 13   | %      |  | $               | 52,280  |  | 11     | % |                 | $ | 52,734  |        | 11  | %               |  | $ | 42,965  |  | 11  | %
|NOW                     |  |        | 109,840 |                 | 24   | % |        |      | 110,429         |  | 25   | %      |  |                 | 111,680 |  | 24     | % |                 |   | 103,905 |        | 22  | %               |  |   | 81,540  |  | 20  | %
|Savings                 |  |        | 53,037  |                 | 12   | % |        |      | 46,785          |  | 10   | %      |  |                 | 41,853  |  | 9      | % |                 |   | 42,854  |        | 9   | %               |  |   | 32,628  |  | 8   | %
|Money market            |  |        | 45,023  |                 | 10   | % |        |      | 60,084          |  | 13   | %      |  |                 | 54,688  |  | 12     | % |                 |   | 59,990  |        | 13  | %               |  |   | 33,533  |  | 8   | %
|CDs less than $100,000 |  |        | 143,264 |                 | 32   | % |        |      | 141,089         |  | 31   | %      |  |                 | 164,962 |  | 35     | % |                 |   | 174,599 |        | 36  | %               |  |   | 172,982 |  | 43  | %
|CDs $100,000 and over  |  |        | 42,977  |                 | 9    | % |        |      | 35,332          |  | 8    | %      |  |                 | 42,633  |  | 9      | % |                 |   | 45,158  |        | 9   | %               |  |   | 43,040  |  | 10  | %
|                        |  |        |         |                 |      |   |        |      |                 |  |      |        |  |                 |         |  |        |   |                 |   |         |        |     |                 |  |   |         |  |     |  
|Total                   |  | $      | 452,593 |                 | 100  | % |        | $    | 450,500         |  | 100  | %      |  | $               | 468,096 |  | 100    | % |                 | $ | 479,240 |        | 100 | %               |  | $ | 406,688 |  | 100 | %
|                        |  |        |         |                 |      |   |        |      |                 |  |      |        |  |                 |         |  |        |   |                 |   |         |        |     |                 |  |   |         |  |     |  



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The following table sets forth the dollar amount of time deposits greater than $100,000 maturing in the periods indicated
(thousands):



TABLE 13  MATURITY OF TIME DEPOSITS OF $100,000 OR MORE



|                           |  |                   |       
|-------------------------- |  | ----------------- | ------
|                           |  | December 31, 2004
|Three months or less       |  | $                 | 7,947 
|Over 3 months to 6 months  |  |                   | 6,847 
|Over 6 months to 12 months |  |                   | 16,495
|Over twelve months         |  |                   | 11,688
|                           |  |                   |       
|Total                      |  | $                 | 42,977
|                           |  |                   |       



OTHER BORROWINGS



Periodically during the past five years the Company has purchased investment securities with
funds borrowed from the FHLB. At December 31, 2004, the Bank had outstanding $103.4 million of total borrowings from the FHLB, $98.5 million of which consisted of seven fixed-rate notes with a weighted average rate of 5.20% and with maturities in
2008, 2010 and 2011. At the option of the FHLB, all of these notes can be converted at certain dates to instruments that adjust quarterly at the three-month LIBOR rate. The note amount and nearest optional conversion dates at December 31, 2004, are:
$86.5 million in 2005 and $12 million in 2006. These notes are subject to substantial prepayment penalties. The remaining $4.9 million consists of one fixed-rate monthly amortizing note with a weighted average rate of 4.67% and with final maturity
in 2006.



At December 31, 2004, the Companys short-term borrowings
consisted of $16.9 million in securities sold under repurchase agreements and $1.2 million in treasury demand notes. Table 14 sets forth certain information regarding the Companys outstanding short-term borrowings at the dates and for the
periods indicated (dollars in thousands):



TABLE 14  SHORT-TERM BORROWINGS



|                                                                                   |  |              |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                   |  | December 31, |       
|                                                                                   |  | 2004         |        |   | 2003 |   |        | 2002 | 
|Amount of short-term borrowings outstanding at end of period                       |  | $            | 18,023 |   |      | $ | 21,909 |      |  | $ | 19,240 |  
|Maximum amount of short-term borrowings outstanding at any month end during period |  | $            | 39,250 |   |      | $ | 36,480 |      |  | $ | 30,145 |  
|Average amount of short-term borrowings outstanding during period                  |  | $            | 25,770 |   |      | $ | 24,561 |      |  | $ | 23,445 |  
|                                                                                   |  |              |       
|Weighted average interest rate of short-term borrowings during period              |  |              | 1.05   | % |      |   | 0.83   | %    |  |   | 1.33   | %
|Weighted average interest rate of short-term borrowings at end of period           |  |              | 1.81   | % |      |   | 0.65   | %    |  |   | 0.87   | %



During the second quarter of 2002, the
Company participated in a securities sale commonly referred to as a pooled trust preferred securities offering. In that offering, the Company issued to a trust controlled by the Company $8.2 million in thirty-year debt securities at a
rate of interest adjustable quarterly equal to the three-month LIBOR rate plus 3.45% (currently 5.24%), and the trust issued capital securities of $8.0 million to an unrelated party. The securities issued by the Company are classified as Tier 1
capital for regulatory purposes, and the interest is deductible for federal income tax purposes. The Company made a capital contribution of $8 million of these funds to the Bank to improve its regulatory capital ratios.



OFF-BALANCE SHEET ARRANGEMENTS



The Company has not entered into off-balance sheet arrangements that have or are reasonably
likely to have a material current or future effect on the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



20



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CONTRACTUAL OBLIGATIONS



The following table summarizes the Companys contractual obligations at December 31, 2004 and the periods the expected payments are due.



TABLE 15- CONTRACTUAL OBLIGATIONS

(In thousands)

December 31, 2004



|                                                           |  |       |         |                        |   |           |  |           |        |                   |   |        |  |   |       
|---------------------------------------------------------- |  | ----- | ------- | ---------------------- | - | --------- |  | --------- | ------ | ----------------- | - | ------ |  | - | ------
|                                                           |  |       |         | Payments Due By Period
|Contractual Obligation                                     |  | Total |         | Less than 1 year       |   | 1-3 years |  | 3-5 years |        | More than 5 years
|Time Deposits                                              |  | $     | 186,242 |                        | $ | 116,265   |  | $         | 48,606 |                   | $ | 5,405  |  | $ | 15,966
|Long-Term Debt                                             |  |       | 111,673 |                        |   | 4,925     |  |           |       |                   |   | 45,000 |  |   | 61,748
|Capital Lease                                              |  |       |        |                        |   |          |  |           |       |                   |   |       |  |   |      
|Operating Lease                                            |  |       | 346     |                        |   | 98        |  |           | 151    |                   |   | 67     |  |   | 30    
|Fixed Purchase Obligation                                  |  |       |        |                        |   |          |  |           |       |                   |   |       |  |   |      
|Variable Purchase Obligation (a)                           |  |       | 1,794   |                        |   | 363       |  |           | 692    |                   |   | 590    |  |   | 149   
|Other Long-Term Liabilities Reflected on the Balance Sheet |  |       |        |                        |   |          |  |           |       |                   |   |       |  |   |      
|                                                           |  |       |         |                        |   |           |  |           |        |                   |   |        |  |   |       
|Total                                                      |  | $     | 300,055 |                        | $ | 121,651   |  | $         | 49,449 |                   | $ | 51,062 |  | $ | 77,893
|                                                           |  |       |         |                        |   |           |  |           |        |                   |   |        |  |   |       

---

|(a) | Variable purchase obligation includes service contracts based on variable pricing measures such as number of accounts or items processed. Future obligations have been estimated
based recent activity and pricing.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



CAPITAL



The Federal Reserve Board has adopted risk-based capital guidelines that assign risk
weightings to assets and off-balance sheet items and also define and set minimum capital requirements (risk-based capital ratios). Bank holding companies must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 8%, 4% and 3%,
respectively. At December 31, 2004, NB&T Financial Group, Inc. met all of its capital requirements with a total risk-based capital ratio of 15.06%, a Tier 1 risk-based capital ratio of 14.06%, and a Tier 1 leverage ratio of 9.18%.



LIQUIDITY



Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as Company cash needs, are met.
The Company manages liquidity on both the asset and liability sides of the balance sheet. The loan to deposit ratio at December 31, 2004, was 89.0%, compared to 91.0% at December 31, 2003. Loans to total assets were 62.4% at the end of 2004,
compared to 61.6% at the same time last year. Management strives to keep this ratio below 70%. The securities portfolio is 100% available-for-sale securities that are readily marketable. Approximately 67% of the available-for-sale portfolio is
pledged to secure public deposits, short-term and long-term borrowings and for other purposes as required by law. The balance of the available-for-sale securities could be sold if necessary for liquidity purposes. Also, a stable deposit base,
consisting of over 91% core deposits, makes the Company less susceptible to large fluctuations in funding needs. The Company has short-term borrowing lines of credit with several correspondent banks. The Company also has both short- and long-term
borrowing available through the FHLB. The Company has the ability to obtain deposits in the brokered certificate of deposit market to help provide liquidity to fund loan growth.



MARKET RISK MANAGEMENT



Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to interest rate risk, exchange rate risk, equity price risk
and commodity price risk. The Company does not maintain a trading account for any class of financial instrument, and is not currently subject to foreign currency exchange rate risk, equity price risk or commodity price risk. The Companys
market risk is composed primarily of interest rate risk.



The Companys
Asset/Liability Committee (ALCO) is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. The Companys Board of Directors approves the
guidelines established by ALCO. The primary goal of the asset/liability management function is to maximize net interest income within the interest rate risk limits set by ALCO. Interest rate risk is monitored on a quarterly basis through ALCO
meetings. Techniques used include both interest rate gap management and simulation modeling that measures the effect of rate changes on net interest income and market value of equity under different rate scenarios. The interest rate gap analysis
schedule (Table 16) quantifies the static asset/liability rate sensitivity as of December 31, 2004 for the Bank only. As shown, the Bank was asset sensitive for periods zero through one year and one- to five-years and liability sensitive within the
over-five-year period. Asset sensitive means the Bank



21



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has more earning assets with the potential to change rate than interest-bearing liabilities. Conversely, liability sensitive means the Bank has more
interest-bearing liabilities with the potential to change rate than earning assets. The cumulative gap as a percent of total assets through one year at the end of 2004 was a positive 7.7% compared to a positive 3.0% at the end of 2003. The balances
of transaction type NOW and MMDA accounts are scheduled to run off over their expected lives. Although the entire balance of these deposits is subject to repricing or withdrawal in a relatively short period of time, they have been a stable base of
retail core deposits for the Bank. Also, historically their sensitivity to changes in interest rates has been significantly less than some other deposits, such as certificates of deposit. The Bank estimates the repricing periods for NOW, savings and
MMDAs using guidance available from industry historical measures. However, considering todays low interest rate environment, the future rate sensitivity of these deposits could be significantly different.



TABLE 16  INTEREST RATE GAP ANALYSIS

(in thousands)

At December 31, 2004



|                             |  |                 |         |   |            |   |        |            |  |   |           |   |  |             |         |   |       |   |         |   |  |   |        
|---------------------------- |  | --------------- | ------- | - | ---------- | - | ------ | ---------- |  | - | --------- | - |  | ----------- | ------- | - | ----- | - | ------- | - |  | - | -------
|                             |  | Report Grouping
|                             |  | 0-3 Months      |         |   | 3-6 Months |   |        | 6-12Months |  |   | 1-5 Years |   |  | Over 5Years |         |   | Total
|Loans                        |  | $               | 78,236  |   |            | $ | 27,752 |            |  | $ | 47,257    |   |  | $           | 230,963 |   |       | $ | 18,631  |   |  | $ | 402,839
|Securities                   |  |                 | 18,207  |   |            |   | 5,423  |            |  |   | 11,892    |   |  |             | 126,475 |   |       |   | 15,924  |   |  |   | 177,921
|Short-term funds & BOLI      |  |                 | 16,803  |   |            |   |       |            |  |   | 12,150    |   |  |             |        |   |       |   |        |   |  |   | 28,953 
|                             |  |                 |         |   |            |   |        |            |  |   |           |   |  |             |         |   |       |   |         |   |  |   |        
|Total Earning Assets         |  | $               | 113,246 |   |            | $ | 33,175 |            |  | $ | 71,299    |   |  | $           | 357,438 |   |       | $ | 34,555  |   |  | $ | 609,713
|                             |  |                 |         |   |            |   |        |            |  |   |           |   |  |             |         |   |       |   |         |   |  |   |        
|Savings, NOW & MMDA          |  | $               | 12,357  |   |            | $ | 12,355 |            |  | $ | 24,711    |   |  | $           | 136,421 |   |       | $ | 22,056  |   |  | $ | 207,900
|Other time deposits          |  |                 | 24,937  |   |            |   | 26,084 |            |  |   | 65,147    |   |  |             | 54,108  |   |       |   | 15,966  |   |  |   | 186,242
|Long term debt               |  |                 | 675     |   |            |   | 683    |            |  |   | 1,390     |   |  |             | 47,390  |   |       |   | 53,286  |   |  |   | 103,424
|                             |  |                 |         |   |            |   |        |            |  |   |           |   |  |             |         |   |       |   |         |   |  |   |        
|Total Interest Bearing Funds |  | $               | 37,969  |   |            | $ | 39,122 |            |  | $ | 91,248    |   |  | $           | 237,919 |   |       | $ | 91,308  |   |  | $ | 497,566
|                             |  |                 |         |   |            |   |        |            |  |   |           |   |  |             |         |   |       |   |         |   |  |   |        
|Period gap                   |  |                 | 75,277  |   |            |   | (5,947 | )          |  |   | (19,949   | ) |  |             | 119,519 |   |       |   | (56,753 | ) |  |   | 112,147
|Cumulative gap               |  |                 | 75,277  |   |            |   | 69,330 |            |  |   | 49,381    |   |  |             | 168,900 |   |       |   | 112,147 |   |  |   |        
|Gap as a percent of assets   |  |                 | 11.68   | % |            |   | 10.76  | %          |  |   | 7.66      | % |  |             | 26.22   | % |       |   | 17.41   | % |  |   |        



In the Companys simulation
models, each asset and liability balance is projected over a one-year horizon. Net interest income is then projected based on expected cash flows and projected interest rates under a stable rate scenario and analyzed on a quarterly basis. The
results of this analysis are used in decisions made concerning pricing strategies for loans and deposits, balance sheet mix, securities portfolio strategies, liquidity and capital adequacy. The Companys current one-year simulation models under
stable rates indicate a relatively flat yield on interest-earning assets and an increasing cost of interest-bearing liabilities. This position could have a slightly negative effect on projected net interest margin over the next twelve months.



Simulation models are also performed under an instantaneous parallel 300 basis
point increase or decrease in interest rates. The model includes assumptions as to repricing and expected prepayments, anticipated calls, and expected decay rates of transaction accounts under the different rate scenarios. The results of these
simulations include changes in both net interest income and market value of equity. ALCO guidelines that measure interest rate risk by the percent of change from stable rates, and capital adequacy, have been established, and as Table 17 indicates at
December 31, 2004, the results of 300 basis points increase simulations are within those guidelines; however, the results of the 200 and 300 basis points decrease simulations exceeded those guidelines. Interest rates have declined to historically
low levels. As a result, many of the Banks deposits are within 200 basis points of a zero interest rate floor, and the Banks inability to reduce rates below the zero floor could negatively impact the Banks future earnings and
market value of equity.



As with any method of measuring interest rate risk,
certain shortcomings are inherent in the simulation modeling. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. In addition, the
interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected
rates of prepayment on loans and mortgage-backed securities and early withdrawals from certificates of deposit may deviate significantly from those assumed in making the risk calculations. The Companys rate shock simulation models provide
results



22



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##### Table of Contents

in extreme interest rate environments and results are used accordingly. Reacting to changes in economic conditions, interest rates and market forces, the
Company has been able to alter the mix of short- and long-term loans and investments, and increase or decrease the emphasis on fixed- and variable-rate products in response to changing market conditions. By managing the interest rate sensitivity of
its asset composition in this manner, the Company has been able to maintain a flow of net interest income less volatile than the rate shock simulation models predicted.



TABLE 17  RATE SHOCK ANALYSIS



|           |  |                                     |   |  |                                 |   |  |               |   |  |              |   |  |               |   |  |               |  
|---------- |  | ----------------------------------- | - |  | ------------------------------- | - |  | ------------- | - |  | ------------ | - |  | ------------- | - |  | ------------- | -
|           |  | One Year Net Interest Income Change |   |  | Economic Value of Equity Change |  
|Rate Shock |  | Year End2004                        |   |  | Year End 2003                   |   |  | ALCOGuideline |   |  | Year End2004 |   |  | Year End 2003 |   |  | ALCOGuideline |  
|+ 300      |  | -  2.8                              | % |  | -  1.8                          | % |  | ± 10          | % |  | -  2.4       | % |  | -13.6         | % |  | ± 50          | %
|+ 200      |  | 1.3                                 |   |  | -  0.4                          |   |  | ± 10          |   |  | 0.0          |   |  | -  7.6        |   |  | ± 30          |  
|+ 100      |  | 0.3                                 |   |  | 0.2                             |   |  | ± 10          |   |  | 0.7          |   |  | -  2.8        |   |  | ± 15          |  
|- 100      |  | -  8.7                              |   |  | -  7.6                          |   |  | ± 10          |   |  | -  7.9       |   |  | -  6.0        |   |  | ± 15          |  
|- 200      |  | -17.9                               |   |  | -14.4                           |   |  | ± 10          |   |  | -18.7        |   |  | -  9.2        |   |  | ± 30          |  
|- 300      |  | -27.5                               |   |  | -20.1                           |   |  | ± 10          |   |  | -25.7        |   |  | -13.2         |   |  | ± 50          |  



IMPACT OF INFLATION AND CHANGING
PRICES



The majority of a financial institutions assets and
liabilities are monetary in nature. Changes in interest rates affect the financial condition of a financial institution to a greater degree than inflation. Although interest rates are determined in large measure by changes in the general level of
inflation, they do not change at the same rate or in the same magnitude, but rather react in correlation to changes in expected rate of inflation and to changes in monetary and fiscal policy. The Companys ability to react to changes in
interest rates has a significant impact on financial results. As discussed previously, management attempts to control interest rate sensitivity in order to protect against wide interest rate fluctuations.



CRITICAL ACCOUNTING POLICIES



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 Companys significant accounting policies are described in detail in the notes to the Companys consolidated financial
statements for the year ended December 31, 2004. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The 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 Loan Losses- The allowance for loan losses provides coverage for probable losses inherent in the Companys loan portfolio. Management evaluates
the adequacy of the allowance for loan losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect managements estimates of specific and expected losses,
including volatility of default probabilities, collateral values, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.



The Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and historical loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis
of loan mix, risk characteristics of the portfolio, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for loan losses relating to impaired loans is based on the loans observable
market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loans effective interest rate.



Regardless of the extent of the Companys analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are
probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customers financial condition or changes in their unique business conditions, the judgmental nature of
individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the
sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the
Companys evaluation of risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.



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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 by SFAS 141. 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 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.



EFFECT OF RECENT ACCOUNTING
STANDARDS



Impairment of Securities- The Financial Accounting
Standards Board issued EITF Issue 03-1 The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investment in 2004 but has delayed its effective date until further guidance as to its application is approved. As a
result, two proposed FASB Staff Positions have been issued: Proposed FSP EITF Issue 03-1-a, which provides guidance for the recognition of impairment due to interest rate and/or sector spread increases, and Proposed FSP Issue 03-1 b, which delays
the effective date of EITF Issue 03-1. Until further guidance is provided, the Company is uncertain as to the impact these issuances will have on its financial statements.



Share Based Payments-The Financial Accounting Standards Board issued Standard 123R Share Based Payments in 2004, which
becomes effective for accounting periods beginning after June 15, 2005. This standard impacts the accounting for and disclosure of stock-based compensation plans. As disclosed in Note 1 Stock Options to the financial statements included
in Item 8, this standard will increase the Companys compensation expense related to stock options.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.



See Market Risk Management in Item 7, which is incorporated herein by reference.



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##### Table of Contents

Item 8. Financial Statements and Supplementary Data



-INDEX-



|                                                 |  |      
|------------------------------------------------ |  | -----
|                                                 |  | PAGE 
|REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM |  | 26   
|                                                 | 
|FINANCIAL STATEMENTS                             |  |      
|                                                 | 
|Consolidated Balance Sheets                      |  | 27   
|                                                 | 
|Consolidated Statements of Income                |  | 28-29
|                                                 | 
|Consolidated Statements of Shareholders Equity  |  | 30   
|                                                 | 
|Consolidated Statements of Cash Flows            |  | 31-32
|                                                 | 
|Notes to Consolidated Financial Statements       |  | 33-52



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



Board of Directors

NB&T Financial Group, Inc.

Wilmington, Ohio



We have audited the accompanying consolidated balance sheets of NB&T Financial Group, Inc. as of December 31, 2004 an 2003, and the
related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of NB&T Financial Group, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.



/s/ BKD, LLP



Cincinnati, Ohio

February 4, 2005



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##### Table of Contents

NB&T Financial Group, Inc.

Consolidated Balance Sheets

December 31, 2004 and 2003

(Dollars
in Thousands)



|                                                                                           |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                           |  | 2004 |         |   | 2003 |  
|Assets                                                                                     |  |      |         |   |      |   |         |  
|Cash and due from banks                                                                    |  | $    | 13,248  |   |      | $ | 19,789  |  
|Interest-bearing demand deposits                                                           |  |      | 563     |   |      |   | 65      |  
|Federal funds sold                                                                         |  |      | 16,240  |   |      |   | 2,364   |  
|                                                                                           |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                  |  |      | 30,051  |   |      |   | 22,218  |  
|                                                                                           |  |      |         |   |      |   |         |  
|Available-for-sale securities                                                              |  |      | 169,745 |   |      |   | 153,121 |  
|Held-to-maturity securities                                                                |  |      |        |   |      |   | 38,681  |  
|Loans held for sale                                                                        |  |      |        |   |      |   | 86      |  
|Loans, net of allowance for loan losses of $4,212 and $4,830 at December 31, 2004 and 2003 |  |      | 398,627 |   |      |   | 404,905 |  
|Premises and equipment                                                                     |  |      | 14,096  |   |      |   | 14,057  |  
|Federal Reserve and Federal Home Loan Bank stock                                           |  |      | 8,176   |   |      |   | 7,877   |  
|Earned income receivable                                                                   |  |      | 3,393   |   |      |   | 3,492   |  
|Goodwill                                                                                   |  |      | 3,625   |   |      |   | 3,625   |  
|Core deposits and other intangibles                                                        |  |      | 3,344   |   |      |   | 3,414   |  
|Bank-owned life insurance                                                                  |  |      | 12,150  |   |      |   | 11,631  |  
|Other                                                                                      |  |      | 2,116   |   |      |   | 1,821   |  
|                                                                                           |  |      |         |   |      |   |         |  
|Total assets                                                                               |  | $    | 645,323 |   |      | $ | 664,928 |  
|                                                                                           |  |      |         |   |      |   |         |  
|Liabilities and Stockholders Equity                                                       |  |      |         |   |      |   |         |  
|Liabilities                                                                                |  |      |         |   |      |   |         |  
|Deposits                                                                                   |  |      |         |   |      |   |         |  
|Demand                                                                                     |  | $    | 58,451  |   |      | $ | 56,781  |  
|Savings, NOW and money market                                                              |  |      | 207,900 |   |      |   | 217,297 |  
|Time                                                                                       |  |      | 186,242 |   |      |   | 176,422 |  
|                                                                                           |  |      |         |   |      |   |         |  
|Total deposits                                                                             |  |      | 452,593 |   |      |   | 450,500 |  
|                                                                                           |  |      |         |   |      |   |         |  
|Short-term borrowings                                                                      |  |      | 18,023  |   |      |   | 21,909  |  
|Long-term debt                                                                             |  |      | 111,673 |   |      |   | 132,519 |  
|Interest payable and other liabilities                                                     |  |      | 4,433   |   |      |   | 3,304   |  
|                                                                                           |  |      |         |   |      |   |         |  
|Total liabilities                                                                          |  |      | 586,722 |   |      |   | 608,232 |  
|                                                                                           |  |      |         |   |      |   |         |  
|Commitments and Contingencies                                                              |  |      |         |   |      |   |         |  
|Stockholders Equity                                                                       |  |      |         |   |      |   |         |  
|Preferred stock, no par value, authorized 100,000 shares; none issued                      |  |      |         |   |      |   |         |  
|Common stock, no par value; authorized 6,000,000 shares; issued  3,818,950 shares         |  |      | 1,000   |   |      |   | 1,000   |  
|Additional paid-in capital                                                                 |  |      | 9,828   |   |      |   | 9,692   |  
|Retained earnings                                                                          |  |      | 54,688  |   |      |   | 52,883  |  
|Unearned employee stock ownership plan (ESOP) shares                                       |  |      | (1,337  | ) |      |   | (1,506  | )
|Accumulated other comprehensive income                                                     |  |      | 225     |   |      |   | 477     |  
|Treasury stock, at cost Common; 2004  591,887 shares, 2003  596,667 shares               |  |      | (5,803  | ) |      |   | (5,850  | )
|                                                                                           |  |      |         |   |      |   |         |  
|Total stockholders equity                                                                 |  |      | 58,601  |   |      |   | 56,696  |  
|                                                                                           |  |      |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                 |  | $    | 645,323 |   |      | $ | 664,928 |  
|                                                                                           |  |      |         |   |      |   |         |  



See Notes to Consolidated Financial
Statements.



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##### Table of Contents

NB&T Financial Group, Inc.

Consolidated Statements of Income

Years Ended December 31, 2004, 2003 and 2002

(Dollars in Thousands, except per share amounts)



|                                                              |  |      |        |      |   |        |  |   |       
|------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                              |  | 2004 |        | 2003 |   | 2002  
|Interest and Dividend Income                                  |  |      |        |      |   |        |  |   |       
|Loans                                                         |  | $    | 24,895 |      | $ | 26,471 |  | $ | 29,002
|Securities                                                    |  |      |        |      |   |        |  |   |       
|Taxable                                                       |  |      | 4,638  |      |   | 5,515  |  |   | 8,178 
|Tax-exempt                                                    |  |      | 2,076  |      |   | 2,488  |  |   | 2,713 
|Federal funds sold                                            |  |      | 180    |      |   | 104    |  |   | 157   
|Dividends on Federal Home Loan and Federal Reserve Bank stock |  |      | 341    |      |   | 323    |  |   | 336   
|Deposits with financial institutions                          |  |      | 5      |      |   | 3      |  |   | 14    
|                                                              |  |      |        |      |   |        |  |   |       
|Total interest and dividend income                            |  |      | 32,135 |      |   | 34,904 |  |   | 40,400
|                                                              |  |      |        |      |   |        |  |   |       
|Interest Expense                                              |  |      |        |      |   |        |  |   |       
|Deposits                                                      |  |      | 5,554  |      |   | 6,859  |  |   | 11,028
|Short-term borrowings                                         |  |      | 271    |      |   | 198    |  |   | 338   
|Long-term debt                                                |  |      | 6,079  |      |   | 6,314  |  |   | 5,944 
|                                                              |  |      |        |      |   |        |  |   |       
|Total interest expense                                        |  |      | 11,904 |      |   | 13,371 |  |   | 17,310
|                                                              |  |      |        |      |   |        |  |   |       
|Net Interest Income                                           |  |      | 20,231 |      |   | 21,533 |  |   | 23,090
|                                                              |  |      |       
|Provision for Loan Losses                                     |  |      | 1,900  |      |   | 3,919  |  |   | 2,100 
|                                                              |  |      |        |      |   |        |  |   |       
|Net Interest Income After Provision for Loan Losses           |  |      | 18,331 |      |   | 17,614 |  |   | 20,990
|                                                              |  |      |        |      |   |        |  |   |       
|Noninterest Income                                            |  |      |        |      |   |        |  |   |       
|Trust income                                                  |  |      | 991    |      |   | 863    |  |   | 926   
|Service charges on deposits                                   |  |      | 2,748  |      |   | 2,687  |  |   | 2,270 
|Other service charges and fees                                |  |      | 668    |      |   | 617    |  |   | 489   
|ATM network fees                                              |  |      | 315    |      |   | 435    |  |   | 578   
|Insurance agency commissions                                  |  |      | 2,494  |      |   | 2,519  |  |   | 2,355 
|Net realized gains on sales of available-for-sale securities  |  |      | 787    |      |   | 915    |  |   | 420   
|Income from bank owned life insurance                         |  |      | 520    |      |   | 531    |  |   | 787   
|Other                                                         |  |      | 716    |      |   | 848    |  |   | 1,127 
|                                                              |  |      |        |      |   |        |  |   |       
|Total noninterest income                                      |  |      | 9,239  |      |   | 9,415  |  |   | 8,952 
|                                                              |  |      |        |      |   |        |  |   |       



See Notes to Consolidated Financial
Statements.



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##### Table of Contents

NB&T Financial Group, Inc.

Consolidated Statements of Income

Years Ended December 31, 2004, 2003 and
2002

(Dollars in Thousands, except per share amounts)



|                               |  |   |        |  |   |        |  |   |       
|------------------------------ |  | - | ------ |  | - | ------ |  | - | ------
|Noninterest Expense            |  |   |        |  |   |        |  |   |       
|Salaries and employee benefits |  | $ | 11,055 |  | $ | 10,997 |  | $ | 11,512
|Net occupancy expense          |  |   | 1,743  |  |   | 1,790  |  |   | 1,568 
|Equipment expense              |  |   | 2,213  |  |   | 2,643  |  |   | 2,748 
|Data processing fees           |  |   | 684    |  |   | 601    |  |   | 526   
|Professional fees              |  |   | 1,388  |  |   | 1,294  |  |   | 1,281 
|Marketing expense              |  |   | 628    |  |   | 577    |  |   | 785   
|Printing, postage and supplies |  |   | 809    |  |   | 827    |  |   | 941   
|State franchise tax            |  |   | 701    |  |   | 685    |  |   | 548   
|Amortization of intangibles    |  |   | 705    |  |   | 712    |  |   | 616   
|Other                          |  |   | 1,626  |  |   | 2,345  |  |   | 1,495 
|                               |  |   |        |  |   |        |  |   |       
|Total noninterest expense      |  |   | 21,552 |  |   | 22,471 |  |   | 22,020
|                               |  |   |        |  |   |        |  |   |       
|Income Before Income Tax       |  |   | 6,018  |  |   | 4,558  |  |   | 7,922 
|                               |  |   |       
|Provision for Income Taxes     |  |   | 1,064  |  |   | 454    |  |   | 1,391 
|                               |  |   |        |  |   |        |  |   |       
|Net Income                     |  | $ | 4,954  |  | $ | 4,104  |  | $ | 6,531 
|                               |  |   |        |  |   |        |  |   |       
|Basic Earnings Per Share       |  | $ | 1.57   |  | $ | 1.31   |  | $ | 2.11  
|                               |  |   |        |  |   |        |  |   |       
|Diluted Earnings Per Share     |  | $ | 1.56   |  | $ | 1.30   |  | $ | 2.10  
|                               |  |   |        |  |   |        |  |   |       



See Notes to Consolidated Financial
Statements.



29



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##### Table of Contents

NB&T Financial Group, Inc.

Consolidated Statements of Stockholders Equity

Years Ended December 31, 2004, 2003 and 2002

(Dollars in Thousands)



|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ------------------------ | - | ---------------- |  | - | ------------------ | - |  | ------------------------------------------ | ------ | - | ------------- | - | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                |  | CommonStockAmount |       | AdditionalPaid-inCapital |   | RetainedEarnings |  |   | UnearnedESOPShares |   |  | AccumulatedOtherComprehensiveIncome (Loss) |        |   | TreasuryStock |   |        | Total | 
|Balance, January 1, 2002                                                                                        |  |                   | 1,000 |                          |   | 9,129            |  |   | 48,109             |   |  |                                            | (1,871 | ) |               |   | (145   | )     |  |   | (5,246 | ) |  |   | 50,976 |  
|Comprehensive income                                                                                            |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Net income                                                                                                      |  |                   |       |                          |   |                  |  |   | 6,531              |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 6,531  |  
|Change in unrealized (loss) on securities available for sale, net of reclassification adjustment and tax effect |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   | 2,209  |       |  |   |        |   |  |   | 2,209  |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Total comprehensive income                                                                                      |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 8,740  |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Dividends on common stock, $.92 per share                                                                       |  |                   |       |                          |   |                  |  |   | (2,848             | ) |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | (2,848 | )
|Sale of stock to ESOP (5,728 shares)                                                                            |  |                   |       |                          |   | 83               |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   | 49     |   |  |   | 132    |  
|Stock options exercised                                                                                         |  |                   |       |                          |   | 30               |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   | 78     |   |  |   | 108    |  
|ESOP shares earned                                                                                              |  |                   |      |                          |   | 28               |  |   |                   |   |  |                                            | 168    |   |               |   |       |       |  |   |       |   |  |   | 196    |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Balance, December 31, 2002                                                                                      |  |                   | 1,000 |                          |   | 9,270            |  |   | 51,792             |   |  |                                            | (1,703 | ) |               |   | 2,064  |       |  |   | (5,119 | ) |  |   | 57,304 |  
|Comprehensive income                                                                                            |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Net income                                                                                                      |  |                   |       |                          |   |                  |  |   | 4,104              |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 4,104  |  
|Change in unrealized gain on securities available for sale, net of reclassification adjustment and tax effect   |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   | (1,587 | )     |  |   |        |   |  |   | (1,587 | )
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Total comprehensive income                                                                                      |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 2,517  |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Dividends on common stock, $.96 per share                                                                       |  |                   |       |                          |   |                  |  |   | (3,013             | ) |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | (3,013 | )
|Purchase of Stock (45,245 shares)                                                                               |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   | (1,138 | ) |  |   | (1,138 | )
|Tax benefit on stock options exercised                                                                          |  |                   |       |                          |   | 172              |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 172    |  
|Stock options exercised                                                                                         |  |                   |       |                          |   | 186              |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   | 407    |   |  |   | 593    |  
|ESOP shares earned                                                                                              |  |                   |      |                          |   | 64               |  |   |                   |   |  |                                            | 197    |   |               |   |       |       |  |   |       |   |  |   | 261    |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Balance, December 31, 2003                                                                                      |  |                   | 1,000 |                          |   | 9,692            |  |   | 52,883             |   |  |                                            | (1,506 | ) |               |   | 477    |       |  |   | (5,850 | ) |  |   | 56,696 |  
|Comprehensive income                                                                                            |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Net income                                                                                                      |  |                   |       |                          |   |                  |  |   | 4,954              |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 4,954  |  
|Change in unrealized gain on securities available for sale, net of reclassification adjustment and tax effect   |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   | (252   | )     |  |   |        |   |  |   | (252   | )
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Total comprehensive income                                                                                      |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 4,702  |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Dividends on common stock, $1.00 per share                                                                      |  |                   |       |                          |   |                  |  |   | (3,149             | ) |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | (3,149 | )
|Tax benefit on stock options exercised                                                                          |  |                   |       |                          |   | 16               |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 16     |  
|Stock options exercised                                                                                         |  |                   |       |                          |   | 42               |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   | 47     |   |  |   | 89     |  
|ESOP shares earned                                                                                              |  |                   |      |                          |   | 78               |  |   |                   |   |  |                                            | 169    |   |               |   |       |       |  |   |       |   |  |   | 247    |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Balance, December 31, 2004                                                                                      |  | $                 | 1,000 |                          | $ | 9,828            |  | $ | 54,688             |   |  | $                                          | (1,337 | ) |               | $ | 225    |       |  | $ | (5,803 | ) |  | $ | 58,601 |  
|                                                                                                                |  |                   |       |                          |   |                  |  |   |                    |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  



See Notes to Consolidated Financial
Statements.



30



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##### Table of Contents

NB&T Financial Group, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2004, 2003 and 2002

(Dollars in Thousands)



|                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                             |  | 2004 |         |   | 2003 |   |          | 2002 | 
|Operating Activities                                         |  |      |         |   |      |   |          |      |  |   |          |  
|Net income                                                   |  | $    | 4,954   |   |      | $ | 4,104    |      |  | $ | 6,531    |  
|Items not requiring (providing) cash                         |  |      |         |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                |  |      | 2,435   |   |      |   | 2,491    |      |  |   | 1,855    |  
|Provision for loan losses                                    |  |      | 1,900   |   |      |   | 3,919    |      |  |   | 2,100    |  
|Amortization of premiums and discounts on securities         |  |      | 1,183   |   |      |   | 1,910    |      |  |   | 946      |  
|ESOP shares earned                                           |  |      | 247     |   |      |   | 261      |      |  |   | 196      |  
|Deferred income taxes                                        |  |      | 529     |   |      |   | (620     | )    |  |   | (440     | )
|Proceeds from sale of loans held for sale                    |  |      | 874     |   |      |   | 1,954    |      |  |   | 4,791    |  
|Originations of loans held for sale                          |  |      | (766    | ) |      |   | (1,980   | )    |  |   | (3,856   | )
|Gain from sale of loans                                      |  |      | (22     | ) |      |   | (60      | )    |  |   | (143     | )
|Net realized (gains) losses on available-for-sale securities |  |      | (787    | ) |      |   | (915     | )    |  |   | (420     | )
|FHLB stock dividends                                         |  |      | (299    | ) |      |   | (279     | )    |  |   | (309     | )
|Changes in                                                   |  |      |         |   |      |   |          |      |  |   |          |  
|Interest receivable                                          |  |      | 99      |   |      |   | 621      |      |  |   | 861      |  
|Other assets                                                 |  |      | (1,095  | ) |      |   | (892     | )    |  |   | 1,189    |  
|Interest payable and other liabilities                       |  |      | 1,591   |   |      |   | (420     | )    |  |   | (1,029   | )
|                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                    |  |      | 10,843  |   |      |   | 10,094   |      |  |   | 12,272   |  
|                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Investing Activities                                         |  |      |         |   |      |   |          |      |  |   |          |  
|Purchases of available-for-sale securities                   |  |      | (71,340 | ) |      |   | (146,732 | )    |  |   | (159,328 | )
|Proceeds from maturities of available-for-sale securities    |  |      | 49,995  |   |      |   | 116,295  |      |  |   | 137,539  |  
|Proceeds from the sales of available-for-sale securities     |  |      | 42,106  |   |      |   | 42,509   |      |  |   | 27,520   |  
|Proceeds from maturities of held-to-maturity securities      |  |      | 519     |   |      |   | 5,815    |      |  |   |         |  
|Purchases of Federal Reserve Bank stock                      |  |      |        |   |      |   |         |      |  |   | (375     | )
|Net change in loans                                          |  |      | 4,378   |   |      |   | (28,163  | )    |  |   | (2,801   | )
|Purchases of premises and equipment                          |  |      | (2,086  | ) |      |   | (1,005   | )    |  |   | (2,482   | )
|Acquisitions of bank and insurance agencies                  |  |      | (635    | ) |      |   |         |      |  |   |         |  
|                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Net cash provided (used) in investing activities             |  |      | 22,937  |   |      |   | (11,281  | )    |  |   | 73       |  
|                                                             |  |      |         |   |      |   |          |      |  |   |          |  



See Notes to Consolidated Financial
Statements.



31



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##### Table of Contents

NB&T Financial Group, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2004, 2003 and
2002

(Dollars in Thousands)



|                                                                                   |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                   |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Financing Activities                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in demand deposits, money market, now and savings accounts |  | $    | (7,727  | ) |      | $ | 13,577  |      |  | $ | 1,018   |  
|Net increase (decrease) in certificates of deposit                                 |  |      | 9,820   |   |      |   | (31,173 | )    |  |   | (12,162 | )
|Net decrease in short-term borrowings                                              |  |      | (3,886  | ) |      |   | 2,669   |      |  |   | (2,815  | )
|Proceeds from long-term debt                                                       |  |      |        |   |      |   | 20,000  |      |  |   | 8,000   |  
|Repayment of long-term debt                                                        |  |      | (21,094 | ) |      |   | (3,927  | )    |  |   | (6,398  | )
|Proceeds from stock options exercised                                              |  |      | 89      |   |      |   | 593     |      |  |   | 108     |  
|Sale (purchase) of treasury stock                                                  |  |      |        |   |      |   | (1,138  | )    |  |   | 132     |  
|Dividends paid                                                                     |  |      | (3,149  | ) |      |   | (3,013  | )    |  |   | (2,848  | )
|                                                                                   |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in financing activities                                              |  |      | (25,947 | ) |      |   | (2,412  | )    |  |   | (14,965 | )
|                                                                                   |  |      |         |   |      |   |         |      |  |   |         |  
|Increase (Decrease) in Cash and Cash Equivalents                                   |  |      | 7,833   |   |      |   | (3,599  | )    |  |   | (2,620  | )
|                                                                                   |  |      |        
|Cash and Cash Equivalents, Beginning of Year                                       |  |      | 22,218  |   |      |   | 25,817  |      |  |   | 28,437  |  
|                                                                                   |  |      |         |   |      |   |         |      |  |   |         |  
|Cash and Cash Equivalents, End of Year                                             |  | $    | 30,051  |   |      | $ | 22,218  |      |  | $ | 25,817  |  
|                                                                                   |  |      |         |   |      |   |         |      |  |   |         |  
|Supplemental Cash Flows Information                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Interest paid                                                                      |  | $    | 12,401  |   |      | $ | 13,474  |      |  | $ | 17,705  |  
|                                                                                   |  |      |        
|Income taxes paid (net of refunds)                                                 |  |      | 380     |   |      |   | 1,043   |      |  |   | 1,977   |  



See
Notes to Consolidated Financial Statements.



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##### Table of Contents

NB&T Financial Group, Inc.

Notes to Consolidated Financial Statements

Years Ended December 31, 2004, 2003 and 2002



|Note 1:        Nature | of Operations and Summary of Significant Accounting Policies
|--------------------- | ------------------------------------------------------------



Nature of Operations



NB&T Financial Group, Inc. (Company) is a bank holding company whose principal activity is the ownership and management of its
wholly-owned subsidiaries, The National Bank and Trust Company (the Bank) and NB&T Statutory Trust I (Trust I). In accordance with FIN 46, Trust I is not consolidated into these financial statements. The Bank is primarily
engaged in providing a full range of banking and financial services to individual and corporate customers in Adams, Brown, Clermont, Clinton, Hardin, Highland, and Warren counties in Ohio. The Bank offers insurance products including property,
casualty and life through its wholly-owned subsidiary, NB&T Insurance Agency, Inc. (Agency). The Bank is subject to competition from other financial institutions. The Bank is subject to the regulation of certain federal and state
agencies and undergoes periodic examinations by those regulatory authorities.



Principles of Consolidation



The consolidated financial statements include the accounts of the Company, Bank and the Agency. All significant intercompany accounts and transactions have been eliminated in consolidation.



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. In connection
with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.



Cash Equivalents



The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.



Securities



Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.



Held-to-maturity securities, which include any security for which the
Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.



Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains and
losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the specific-identification method.



Loans Held for Sale



Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to income.



Loans



Loans
that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs
on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, loans are placed on
non-accrual status at ninety days past due and interest is considered a loss, unless the loan is well-secured and in the process of collection.



33



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##### Table of Contents

Allowance for Loan Losses



The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses
charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance for loan losses is evaluated on a regular basis by management
and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.



A loan is considered impaired when, based on current information and events,
it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future
cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the collateral if the loan is collateral dependent.



Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not
separately identify individual consumer and residential loans for impairment measurements.



Premises and Equipment



Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.



Federal Reserve and Federal Home Loan Bank Stock



Federal Reserve and Federal Home Loan Bank stock are required investments
for institutions that are members of the Federal Reserve and Federal Home Loan Bank systems. The required investment in the common stock is based on a predetermined formula.



Foreclosed Assets Held for Sale



Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the
date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.



Goodwill



Goodwill is annually tested for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated
and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.



Intangible Assets



Intangible assets are being amortized on an accelerated basis over periods ranging from seven to eleven years. Such assets are periodically evaluated as
to the recoverability of their carrying value.



Treasury
Stock



Treasury stock is stated at cost. Cost is
determined based on the average cost of all shares.



34



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##### Table of Contents

Stock Options



At December 31, 2004, the Company has a stock-based employee compensation plan, which is described more fully in Note 16.
The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the company had
applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation (thousands, except per share amounts):



|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                                                     |  | Year Ended December 31 |      
|                                                                                                                     |  | 2004                   |       |   | 2003 |   |       | 2002 | 
|Net income, as reported                                                                                              |  | $                      | 4,954 |   |      | $ | 4,104 |      |  | $ | 6,531 |  
|Less: Total stock-based employee compensation cost determined under the fair value based method, net of income taxes |  |                        | (51   | ) |      |   | (75   | )    |  |   | (71   | )
|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  
|Pro forma net income                                                                                                 |  | $                      | 4,903 |   |      | $ | 4,029 |      |  | $ | 6,460 |  
|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  
|Earnings per share:                                                                                                  |  |                        |       |   |      |   |       |      |  |   |       |  
|Basic  as reported                                                                                                  |  | $                      | 1.57  |   |      | $ | 1.31  |      |  | $ | 2.11  |  
|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  
|Basic  pro forma                                                                                                    |  | $                      | 1.56  |   |      | $ | 1.29  |      |  | $ | 2.09  |  
|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  
|Diluted  as reported                                                                                                |  | $                      | 1.56  |   |      | $ | 1.30  |      |  | $ | 2.10  |  
|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  
|Diluted  pro forma                                                                                                  |  | $                      | 1.55  |   |      | $ | 1.28  |      |  | $ | 2.07  |  
|                                                                                                                     |  |                        |       |   |      |   |       |      |  |   |       |  



Income Taxes



Deferred tax assets and liabilities are recognized
for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be
realized. The Company files consolidated income tax returns with its subsidiaries.



Earnings Per Share



Earnings per share have been computed based upon the weighted-average common shares outstanding during each year. Unearned ESOP shares which have not vested have been excluded from the computation of average shares outstanding.



Reclassifications



Certain reclassifications have been made to the 2003 and 2002 financial
statements to conform to the 2004 financial statement presentation. These reclassifications had no effect on net income.



|Note 2:        Restriction | on Cash and Due From Banks
|-------------------------- | --------------------------



The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2004 was
$7,510,000.



35



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##### Table of Contents

|Note 3:        Securities | 
|------------------------- | 



The amortized cost and approximate fair values of securities are as follows (thousands):



|                                 |  |               |         |                      |   |                       |  |                       |       |  |   |        
|-------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | --------------------- | ----- |  | - | -------
|                                 |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | ApproximateFair Value
|Available-for-Sale Securities:   |  |               |         |                      |   |                       |  |                       |       |  |   |        
|December 31, 2004:               |  |               |         |                      |   |                       |  |                       |       |  |   |        
|                                 |  |               |         |                     
|U.S. government agencies         |  | $             | 69,135  |                      | $ |                      |  | $                     | 1,046 |  | $ | 68,089 
|Mortgage-backed securities       |  |               | 61,923  |                      |   | 473                   |  |                       | 323   |  |   | 62,073 
|State and political subdivision  |  |               | 38,336  |                      |   | 1,269                 |  |                       | 32    |  |   | 39,573 
|Other securities                 |  |               | 10      |                      |   |                      |  |                       |      |  |   | 10     
|                                 |  |               |         |                      |   |                       |  |                       |       |  |   |        
|                                 |  | $             | 169,404 |                      | $ | 1,742                 |  | $                     | 1,401 |  | $ | 169,745
|                                 |  |               |         |                      |   |                       |  |                       |       |  |   |        
|December 31, 2003:               |  |               |         |                      |   |                       |  |                       |       |  |   |        
|                                 |  |               |         |                     
|U.S. government agencies         |  | $             | 60,502  |                      | $ | 239                   |  | $                     | 308   |  | $ | 60,433 
|Mortgage-backed securities       |  |               | 84,076  |                      |   | 1,022                 |  |                       | 537   |  |   | 84,561 
|State and political subdivision  |  |               | 7,810   |                      |   | 307                   |  |                       |      |  |   | 8,117  
|Other securities                 |  |               | 10      |                      |   |                      |  |                       |      |  |   | 10     
|                                 |  |               |         |                      |   |                       |  |                       |       |  |   |        
|                                 |  | $             | 152,398 |                      | $ | 1,568                 |  | $                     | 845   |  | $ | 153,121
|                                 |  |               |         |                      |   |                       |  |                       |       |  |   |        
|                                 |  |               |         |                     
|                                 |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | ApproximateFair Value
|Held to Maturity Securities:     |  |               |         |                      |   |                       |  |                       |       |  |   |        
|December 31, 2003:               |  |               |         |                      |   |                       |  |                       |       |  |   |        
|                                 |  |               |         |                     
|State and political subdivisions |  | $             | 38,681  |                      | $ | 1,398                 |  | $                     | 20    |  | $ | 40,059 
|                                 |  |               |         |                      |   |                       |  |                       |       |  |   |        



In the third quarter
of 2004, all held-to-maturity securities, which were comprised mostly of out-of-state municipal bonds, were transferred to available-for-sale because such securities were no longer eligible for pledging against public deposits. The amortized cost of
these securities and the unrealized gain at the time of transfer was $38,160,000 and $571,000, respectively.



The amortized cost and fair value of securities available for sale at December 31, 2004, by contractual maturity, are shown below (thousands). Expected
maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                              |  |               |         |            |   |        
|----------------------------- |  | ------------- | ------- | ---------- | - | -------
|                              |  | AmortizedCost |         | Fair Value
|Within one year               |  | $             |        |            | $ |       
|One to five years             |  |               | 69,235  |            |   | 68,195 
|Five to ten years             |  |               | 1,510   |            |   | 1,496  
|After ten years               |  |               | 36,726  |            |   | 37,971 
|                              |  |               |         |            |   |        
|                              |  |               | 107,471 |            |   | 107,662
|Mortgage-backed securities    |  |               | 61,923  |            |   | 62,073 
|Other asset-backed securities |  |               | 10      |            |   | 10     
|                              |  |               |         |            |   |        
|Totals                        |  | $             | 169,404 |            | $ | 169,745
|                              |  |               |         |            |   |        



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The carrying value of securities pledged as collateral, to secure public deposits and for other purposes,
was $88,070,000 at December 31, 2004, and $14,878,000 at December 31, 2003. The book value of securities sold under agreements to repurchase amounted to $25,540,000 and $26,865,000 at December 31, 2004 and 2003, respectively.



Gross gains of $824,000, $915,000 and $420,000 and gross losses of $37,000,
$0 and $0 resulting from sales of available-for-sale securities were realized for 2004, 2003 and 2002, respectively. The tax expense for net gains on securities transactions for 2004, 2003 and 2002 was $268,000, $311,000 and $143,000, respectively.



The table below indicates the gross unrealized losses and
fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2004 and 2003.



|                                       |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|-------------------------------------- |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ------ | ---------- | - | -------------- |  | - | ------- |  | - | -----
|                                       |  | Less than 12 months |        | 12 months or more |   | Total    
|                                       |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |        | Fair Value |   | UnrealizedLoss
|December 31, 2004                      |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|U.S. Treasuries & U.S. Agency Notes    |  | $                   | 62,230 |                   | $ | 908       |  | $              | 5,859  |            | $ | 138            |  | $ | 68,089  |  | $ | 1,046
|U.S. Agency mortgage-backed securities |  |                     | 2,298  |                   |   | 6         |  |                | 3,518  |            |   | 57             |  |   | 5,816   |  |   | 63   
|Other mortgage-backed securities       |  |                     | 22,207 |                   |   | 200       |  |                | 3,241  |            |   | 60             |  |   | 25,448  |  |   | 260  
|Municipals                             |  |                     | 2,531  |                   |   | 32        |  |                | 0      |            |   | 0              |  |   | 2,531   |  |   | 32   
|Other securities                       |  |                     | 0      |                   |   | 0         |  |                | 0      |            |   | 0              |  |   | 0       |  |   | 0    
|                                       |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|Total Securities                       |  | $                   | 89,266 |                   | $ | 1,146     |  | $              | 12,618 |            | $ | 255            |  | $ | 101,884 |  | $ | 1,401
|                                       |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|December 31, 2003                      |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|U.S. Treasuries & U.S. Agency Notes    |  | $                   | 27,769 |                   | $ | 309       |  | $              | 0      |            | $ | 0              |  | $ | 27,769  |  | $ | 309  
|U.S. Agency mortgage-backed securities |  |                     | 4,648  |                   |   | 50        |  |                | 0      |            |   | 0              |  |   | 4,648   |  |   | 50   
|Other mortgage-backed securities       |  |                     | 29,198 |                   |   | 486       |  |                | 0      |            |   | 0              |  |   | 29,198  |  |   | 486  
|Municipals                             |  |                     | 1,994  |                   |   | 14        |  |                | 337    |            |   | 6              |  |   | 2,331   |  |   | 20   
|Other securities                       |  |                     | 0      |                   |   | 0         |  |                | 0      |            |   | 0              |  |   | 0       |  |   | 0    
|                                       |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|Total Securities                       |  | $                   | 63,609 |                   | $ | 859       |  | $              | 337    |            | $ | 6              |  | $ | 63,946  |  | $ | 865  
|                                       |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      



Management evaluates
securities for other-than-temporary impairment on a periodic basis. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition of the issuer; and (3) the intent and
ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At December 31, 2004, there were five securities with unrealized losses greater than 12 months old.
All of these securities were either guaranteed by the U.S. Government or its agencies or secured by mortgage loans. The unrealized losses relate principally to current interest rates for similar types of securities. As management has the ability to
hold these securities until the foreseeable future, no declines are deemed to be other-than-temporary.



|Note 4: | Loans and Allowance for Loan Losses
|------- | -----------------------------------



Categories of loans at December 31, include (thousands):



|                                                     |  |      |         |   |      |   |         |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                     |  | 2004 |         |   | 2003 |  
|Commercial and industrial                            |  | $    | 85,681  |   |      | $ | 89,621  |  
|Agricultural                                         |  |      | 22,284  |   |      |   | 22,841  |  
|Real estate construction                             |  |      | 13,114  |   |      |   | 11,296  |  
|Commercial real estate                               |  |      | 52,251  |   |      |   | 35,399  |  
|Residential real estate                              |  |      | 148,644 |   |      |   | 158,880 |  
|Consumer                                             |  |      | 80,978  |   |      |   | 88,009  |  
|Other                                                |  |      | 119     |   |      |   | 4,011   |  
|                                                     |  |      |         |   |      |   |         |  
|Total loans                                          |  |      | 403,071 |   |      |   | 410,057 |  
|                                                     |  |     
|Less: Net deferred loan fees, premiums and discounts |  |      | (232    | ) |      |   | (322    | )
|Allowance for loan losses                            |  |      | (4,212  | ) |      |   | (4,830  | )
|                                                     |  |      |         |   |      |   |         |  
|Net loans                                            |  | $    | 398,627 |   |      | $ | 404,905 |  
|                                                     |  |      |         |   |      |   |         |  





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Activity in the allowance for loan losses was as follows (thousands):



|                                   |  |      |        |   |      |   |        |      |  |   |        |  
|---------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                   |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Balance, beginning of year         |  | $    | 4,830  |   |      | $ | 4,010  |      |  | $ | 3,810  |  
|Provision charged to expense       |  |      | 1,900  |   |      |   | 3,919  |      |  |   | 2,100  |  
|Recoveries of previous charge-offs |  |      | 680    |   |      |   | 523    |      |  |   | 285    |  
|Losses charged off                 |  |      | (3,198 | ) |      |   | (3,622 | )    |  |   | (2,185 | )
|                                   |  |      |        |   |      |   |        |      |  |   |        |  
|Balance, end of year               |  | $    | 4,212  |   |      | $ | 4,830  |      |  | $ | 4,010  |  
|                                   |  |      |        |   |      |   |        |      |  |   |        |  



Impaired loans
totaled $1,017,000 and $3,827,000 at December 31, 2004 and 2003, respectively. An allowance for loan losses of $146,000 and $1,537,000 relates to impaired loans of $458,000 and $3,182,000, at December 31, 2004 and 2003, respectively. At December 31,
2004 and 2003, impaired loans of $559,000 and $645,000 had no related allowance for loan losses.



Interest of $149,000 and $5,000 was recognized on average impaired loans of $3,951,000 and $4,250,000 for 2004 and 2003. Interest of $149,000 and $98,000
was recognized on impaired loans on a cash basis during 2004 and 2003.



At December 31, 2004 and 2003, accruing loans delinquent 90 days or more totaled $-0- and $248,000, respectively. Non-accruing loans at December 31, 2004 and 2003 were $2,874,000 and $5,599,000, respectively.



|Note 5:        Premises | and Equipment
|----------------------- | -------------



Major classifications of premises and equipment, stated at cost, are as follows (thousands):



|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2004 |         |   | 2003 |  
|Land                                           |  | $    | 1,854   |   |      | $ | 1,880   |  
|Buildings and improvements                     |  |      | 12,668  |   |      |   | 12,851  |  
|Leasehold improvements                         |  |      | 430     |   |      |   | 476     |  
|Construction in progress                       |  |      | 20      |   |      |   |        |  
|Equipment                                      |  |      | 11,471  |   |      |   | 9,952   |  
|                                               |  |      |         |   |      |   |         |  
|                                               |  | $    | 26,443  |   |      | $ | 25,159  |  
|Less accumulated depreciation and amortization |  |      | (12,347 | ) |      |   | (11,102 | )
|                                               |  |      |         |   |      |   |         |  
|Net premises and equipment                     |  | $    | 14,096  |   |      | $ | 14,057  |  
|                                               |  |      |         |   |      |   |         |  



|Note 6:        Operating | Leases
|------------------------ | ------



The Bank has entered into certain operating leases for some of its branch locations. Operating lease expense was $97,000, $125,000, and $127,000 for years
2004, 2003, and 2002, respectively.



The minimum future lease
payments for each of the next five years is as follows:



|     |  |   |   
|---- |  | - | --
|2005 |  | $ | 98
|2006 |  |   | 80
|2007 |  |   | 71
|2008 |  |   | 37
|2009 |  |   | 30





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|Note 7: | Goodwill
|------- | --------



During 2002, the Company changed its method of accounting and financial reporting for goodwill and other intangible assets by adopting the provisions of
Statement of Financial Accounting Standards No. 142. There was no material impact of the adoption on the financial statements.



All goodwill is allocated to the banking segment of the business and totaled $3,625,000 at December 31, 2004 and 2003.



|Note 8: | Other Intangible Assets
|------- | -----------------------



The carrying basis and accumulated amortization of recognized intangible assets at December 31, 2004 and 2003, were (thousands):



|              |  |                      |       |                         |      |        |                      |  |                         |       |  |   |        |  
|------------- |  | -------------------- | ----- | ----------------------- | ---- | ------ | -------------------- |  | ----------------------- | ----- |  | - | ------ | -
|              |  | 2004                 |       |                         | 2003 |       
|              |  | Gross CarryingAmount |       | AccumulatedAmortization |      |        | Gross CarryingAmount |  | AccumulatedAmortization |      
|Core deposits |  | $                    | 3,051 |                         | $    | (1,603 | )                    |  | $                       | 3,051 |  | $ | (1,098 | )
|Other         |  |                      | 2,325 |                         |      | (429   | )                    |  |                         | 1,690 |  |   | (229   | )
|              |  |                      |       |                         |      |        |                      |  |                         |       |  |   |        |  
|              |  | $                    | 5,376 |                         | $    | (2,032 | )                    |  | $                       | 4,741 |  | $ | (1,327 | )
|              |  |                      |       |                         |      |        |                      |  |                         |       |  |   |        |  



Amortization expense
for the years ended December 31, 2004 and 2003, was $705,000 and $712,000, respectively. Estimated amortization expense for each of the following five years is (thousands):



|     |  |   |    
|---- |  | - | ---
|2005 |  | $ | 678
|2006 |  |   | 597
|2007 |  |   | 515
|2008 |  |   | 429
|2009 |  |   | 294



|Note 9: | Interest-Bearing Deposits
|------- | -------------------------



Interest-bearing deposits in denominations of $100,000 or more were $42,977,000 on December 31, 2004, and $35,332,000 on December 31, 2003. At December
31, 2004, the scheduled maturities of time deposits are as follows (thousands):



|           |  |   |        
|---------- |  | - | -------
|2005       |  | $ | 116,265
|2006       |  |   | 35,353 
|2007       |  |   | 13,252 
|2008       |  |   | 2,881  
|2009       |  |   | 2,525  
|Thereafter |  |   | 15,966 
|           |  |   |        
|           |  | $ | 186,242
|           |  |   |        



|Note 10: | Short-Term Borrowings
|-------- | ---------------------



Short-term borrowings included the following (thousands):



|                                            |  |      |        |      |   |       
|------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                            |  | 2004 |        | 2003
|Securities sold under repurchase agreements |  | $    | 16,864 |      | $ | 21,108
|U. S. Treasury demand notes                 |  |      | 1,159  |      |   | 801   
|                                            |  |      |        |      |   |       
|Total short-term borrowings                 |  | $    | 18,023 |      | $ | 21,909
|                                            |  |      |        |      |   |       



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Securities sold under agreements to repurchase consist of obligations of the Company to other parties.
The obligations are secured by U.S. agency notes and such collateral is held by the Federal Reserve Bank. The maximum amount of outstanding agreements and mortgage-backed securities at any month end during 2004 and 2003 totaled $38,397,000 and
$32,416,000 and the daily average of such agreements totaled $25,181,000 and $23,886,000. The agreements at December 31, 2004, mature daily.



The Bank has an unused letter of credit with the Federal Home Loan Bank in the amount of $10,000,000 expiring March 31, 2005.



|Note 11: | Long-Term Debt
|-------- | --------------



Long-term debt consisted of the following components (thousands):



|                                |  |      |         |      |   |        
|------------------------------- |  | ---- | ------- | ---- | - | -------
|                                |  | 2004 |         | 2003
|Federal Home Loan Bank Advances |  | $    | 103,425 |      | $ | 124,519
|Junior subordinated debentures  |  |      | 8,248   |      |   | 8,000  
|                                |  |      |         |      |   |        
|Total                           |  | $    | 111,673 |      | $ | 132,519
|                                |  |      |         |      |   |        



The Federal Home Loan
Bank advances are secured by mortgage loans and investment securities totaling $155,477,000 at December 31, 2004. Advances, at interest rates from 4.60 to 6.26 percent, are subject to restrictions or penalties in the event of prepayment.



On June 26, 2002, NB&T Statutory Trust I (Trust I), a
wholly owned subsidiary of the Corporation, closed a pooled private offering of 8,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Corporation in exchange for junior
subordinated debentures with terms similar to the Capital Securities. The sole assets of Trust I are the junior subordinated debentures of the Corporation and payments thereunder. The junior subordinated debentures and the back-up obligations, in
the aggregate, constitute a full and unconditional guarantee by the Corporation of the obligations of Trust I under the Capital Securities. Distributions on the Capital Securities are payable quarterly at the annual rate of 3.45% over the 3 month
LIBOR and are included in interest expense in the consolidated financial statements. These securities are considered Tier 1 capital (with certain limitations applicable) under current regulatory guidelines.



In December 2003, FASB issued a revision to FIN 46 to clarify certain
provisions which affected the accounting for trust preferred securities. As a result of the provisions in FIN 46, the trust was deconsolidated as of March 31, 2004, with the Company accounting for its investment in the trust as assets, its
subordinated debentures as debt, and the interest paid thereon as interest expense. The Company had always classified the trust preferred securities as debt but eliminated its common stock investment.



The junior subordinated debentures are subject to mandatory redemption, in
whole or in part, upon repayment of the Capital Securities at maturity or their earlier redemption at the liquidation amount. Subject to the Corporation having received prior approval of the Federal Reserve, if then required, the Capital Securities
are redeemable prior to the maturity date of June 26, 2032, at the option of the Corporation; on or after June 26, 2007 at par. Upon occurrence of specific events defined within the trust indenture, the Capital Securities may also be redeemed prior
to June 26, 2007 at a premium. The Corporation has the option to defer distributions on the Capital Securities from time to time for a period not to exceed 20 consecutive semi-annual periods.



Aggregate annual maturities of Federal Home Loan Bank Advances at December
31, 2004, are (thousands):



|           |  |      |        
|---------- |  | ---- | -------
|           |  | Debt
|2005       |  | $    |       
|2006       |  |      | 4,925  
|2007       |  |      |       
|2008       |  |      | 45,000 
|2009       |  |      |       
|Thereafter |  |      | 53,500 
|           |  |      |        
|           |  | $    | 103,425
|           |  |      |        



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##### Table of Contents

|Note 12: | Income Taxes
|-------- | ------------



The provision for income taxes includes these components (thousands):



|                        |  |      |       |      |   |       |      |  |   |       |  
|----------------------- |  | ---- | ----- | ---- | - | ----- | ---- |  | - | ----- | -
|                        |  | 2004 |       | 2003 |   |       | 2002 | 
|Taxes currently payable |  | $    | 535   |      | $ | 1,074 |      |  | $ | 1,831 |  
|Deferred income taxes   |  |      | 529   |      |   | (620  | )    |  |   | (440  | )
|                        |  |      |       |      |   |       |      |  |   |       |  
|Income tax expense      |  | $    | 1,064 |      | $ | 454   |      |  | $ | 1,391 |  
|                        |  |      |       |      |   |       |      |  |   |       |  



A reconciliation of
income tax expense at the statutory rate to the Companys actual income tax expense is shown below (thousands):



|                                     |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                     |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Computed at the statutory rate (34%) |  | $    | 2,046 |   |      | $ | 1,550 |      |  | $ | 2,693 |  
|Increase (decrease) resulting from   |  |      |       |   |      |   |       |      |  |   |       |  
|Tax exempt interest                  |  |      | (670  | ) |      |   | (788  | )    |  |   | (847  | )
|ESOP dividend                        |  |      | (161  | ) |      |   | (141  | )    |  |   | (142  | )
|Bank owned life insurance            |  |      | (177  | ) |      |   | (180  | )    |  |   | (267  | )
|Other                                |  |      | 26    |   |      |   | 13    |      |  |   | (46   | )
|                                     |  |      |       |   |      |   |       |      |  |   |       |  
|Actual tax expense                   |  | $    | 1,064 |   |      | $ | 454   |      |  | $ | 1,391 |  
|                                     |  |      |       |   |      |   |       |      |  |   |       |  



The tax effects of temporary
differences related to deferred taxes shown on the balance sheets were (thousands):



|                                                  |  |      |        |   |      |   |        |  
|------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                  |  | 2004 |        |   | 2003 |  
|Deferred tax assets                               |  |      |        |   |      |   |        |  
|Intangible asset amortization                     |  | $    | 55     |   |      | $ | 20     |  
|Allowance for loan losses                         |  |      | 1,267  |   |      |   | 1,463  |  
|Accruals not currently deductible                 |  |      | 261    |   |      |   | 401    |  
|AMT credit carry forward                          |  |      | 516    |   |      |   | 225    |  
|                                                  |  |      |        |   |      |   |        |  
|                                                  |  | $    | 2,099  |   |      | $ | 2,109  |  
|                                                  |  |      |        |   |      |   |        |  
|Deferred tax liabilities                          |  |      |        |   |      |   |        |  
|Depreciation                                      |  |      | (706   | ) |      |   | (360   | )
|FHLB stock dividends                              |  |      | (1,021 | ) |      |   | (919   | )
|Prepaid assets currently deductible               |  |      | (69    | ) |      |   |       |  
|Unrealized gains on available-for-sale securities |  |      | (116   | ) |      |   | (246   | )
|                                                  |  |      |        |   |      |   |        |  
|                                                  |  |      | (1,912 | ) |      |   | (1,525 | )
|                                                  |  |      |        |   |      |   |        |  
|Net deferred tax asset                            |  | $    | 187    |   |      | $ | 584    |  
|                                                  |  |      |        |   |      |   |        |  



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|Note 13: | Other Comprehensive Income (Loss)
|-------- | ---------------------------------



Other comprehensive income (loss) components and related taxes were as follows (thousands):



|                                                           |  |      |      |   |      |   |        |      |  |   |      
|---------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ------ | ---- |  | - | -----
|                                                           |  | 2004 |      |   | 2003 |   |        | 2002
|Unrealized gains (losses) on securities available for sale |  | $    | 405  |   |      | $ | (1,490 | )    |  | $ | 3,767
|Reclassification for realized amount included in income    |  |      | 787  |   |      |   | 915    |      |  |   | 420  
|                                                           |  |      |      |   |      |   |        |      |  |   |      
|Other comprehensive income (loss), before tax effect       |  |      | (382 | ) |      |   | (2,405 | )    |  |   | 3,347
|Tax expense (benefit)                                      |  |      | (130 | ) |      |   | (818   | )    |  |   | 1,138
|                                                           |  |      |      |   |      |   |        |      |  |   |      
|Other comprehensive income (loss)                          |  | $    | (252 | ) |      | $ | (1,587 | )    |  | $ | 2,209
|                                                           |  |      |      |   |      |   |        |      |  |   |      



|Note 14: | Regulatory Matters
|-------- | ------------------



The Company and the subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Company and the subsidiary bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.



Quantitative measures established by regulation to ensure capital adequacy
require the Company and the subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2004, that the Company and the subsidiary bank meet all capital adequacy requirements to which they are subject.



As of December 31, 2004, the most recent notification from the regulators categorized the Company as well capitalized under
the regulatory framework for prompt corrective action. To be categorized, the Company must maintain capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the
Companys category.



The Company and subsidiary
banks actual capital amounts and ratios are also presented in the following table (thousands):



|                                                   |  |        |        |       |                              |   |        |                                                               |        |  |     |        |  |       |        |  |     
|-------------------------------------------------- |  | ------ | ------ | ----- | ---------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | --- | ------ |  | ----- | ------ |  | ----
|                                                   |  | Actual |        |       | For Capital AdequacyPurposes |   |        | To Be Well CapitalizedUnder PromptCorrective ActionProvisions
|                                                   |  | Amount |        | Ratio |                              |   | Amount |                                                               | Ratio  |  |     | Amount |  | Ratio
|As of December 31, 2004                            |  |        |        |       |                              |   |        |                                                               |        |  |     |        |  |       |        |  |     
|Total Risk-Based Capital (to Risk-Weighted Assets) |  |        |        |       |                              |   |        |                                                               |        |  |     |        |  |       |        |  |     
|Consolidated                                       |  | $      | 63,619 |       | 15.06                        | % |        | $                                                             | 33,803 |  | 8.0 | %      |  | $     |        |  | NA  
|Bank                                               |  |        | 56,688 |       | 13.46                        |   |        |                                                               | 33,691 |  | 8.0 |        |  |       | 42,113 |  | 10.0
|                                                   |  |        |        |       |                              |  
|Tier I Capital (to Risk-Weighted Assets)           |  |        |        |       |                              |   |        |                                                               |        |  |     |        |  |       |        |  |     
|Consolidated                                       |  |        | 59,407 |       | 14.06                        |   |        |                                                               | 16,901 |  | 4.0 |        |  |       |        |  | NA  
|Bank                                               |  |        | 52,476 |       | 12.46                        |   |        |                                                               | 16,845 |  | 4.0 |        |  |       | 25,268 |  | 6.0 
|                                                   |  |        |        |       |                              |  
|Tier I Capital (to Average Assets)                 |  |        |        |       |                              |   |        |                                                               |        |  |     |        |  |       |        |  |     
|Consolidated                                       |  |        | 59,407 |       | 9.18                         |   |        |                                                               | 25,873 |  | 4.0 |        |  |       |        |  | NA  
|Bank                                               |  |        | 52,476 |       | 8.13                         |   |        |                                                               | 25,821 |  | 4.0 |        |  |       | 32,341 |  | 5.0 



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|                                                   |  |        |        |       |                             |   |        |                                                               |        |  |     |        |  |       |        |  |     
|-------------------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | --- | ------ |  | ----- | ------ |  | ----
|                                                   |  | Actual |        |       | For CapitalAdequacyPurposes |   |        | To Be Well CapitalizedUnder PromptCorrective ActionProvisions
|                                                   |  | Amount |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |     | Amount |  | Ratio
|As of December 31, 2003                            |  |        |        |       |                             |   |        |                                                               |        |  |     |        |  |       |        |  |     
|Total Risk-Based Capital (to Risk-Weighted Assets) |  | $      | 62,010 |       | 14.57                       | % |        | $                                                             | 34,050 |  | 8.0 | %      |  | $     |        |  | NA  
|Consolidated                                       |  |        | 55,692 |       | 13.10                       |   |        |                                                               | 34,010 |  | 8.0 |        |  |       | 42,513 |  | 10.0
|Bank                                               |  |        |        |       |                             |   |        |                                                               |        |  |     |        |  |       |        |  |     
|                                                   |  |        |        |       |                             |  
|Tier I Capital (to Risk-Weighted Assets)           |  |        | 57,180 |       | 13.44                       |   |        |                                                               | 17,018 |  | 4.0 |        |  |       |        |  | NA  
|Consolidated                                       |  |        | 50,862 |       | 11.97                       |   |        |                                                               | 17,005 |  | 4.0 |        |  |       | 25,508 |  | 6.0 
|Bank                                               |  |        |        |       |                             |   |        |                                                               |        |  |     |        |  |       |        |  |     
|                                                   |  |        |        |       |                             |  
|Tier I Capital (to Average Assets)                 |  |        |        |       |                             |   |        |                                                               |        |  |     |        |  |       |        |  |     
|Consolidated                                       |  |        | 57,180 |       | 8.61                        |   |        |                                                               | 26,562 |  | 4.0 |        |  |       |        |  | NA  
|Bank                                               |  |        | 50,862 |       | 7.66                        |   |        |                                                               | 26,562 |  | 4.0 |        |  |       | 33,971 |  | 5.0 



The Bank is subject
to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2004, approximately $3,271,000 of retained earnings were available for dividend declaration without prior regulatory approval.



|Note 15: | Related Party Transactions
|-------- | --------------------------



The Bank had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties). A summary of the related
party loan activity follows (thousands):



|                     |  |      |       |   |      |   |        |  
|-------------------- |  | ---- | ----- | - | ---- | - | ------ | -
|                     |  | 2004 |       |   | 2003 |  
|Balance, January 1   |  | $    | 3,490 |   |      | $ | 4,093  |  
|New loans            |  |      | 37    |   |      |   | 2,492  |  
|Payments             |  |      | (369  | ) |      |   | (3,095 | )
|Other changes        |  |      | (15   | ) |      |   |       |  
|                     |  |      |       |   |      |   |        |  
|Balance, December 31 |  | $    | 3,143 |   |      | $ | 3,490  |  
|                     |  |      |       |   |      |   |        |  



In managements
opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable
transactions with other persons. Further, in managements opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features.



Deposits from related parties held by the Bank at December 31, 2004 and 2003 totaled $692,000 and $656,000 respectively.



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|Note 16: | Employee Benefits
|-------- | -----------------



The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute up to 50% of their compensation. The Bank
will match up to 3% of an employees compensation for the first 8% of their compensation contributed to the plan. Employer contributions charged to expense for 2004, 2003 and 2002 were $146,000, $139,000 and $148,000, respectively.



Also, the Bank has a deferred compensation agreement with certain active
and retired officers. The agreement provides level monthly or annual payments ranging from four to twenty years after retirement. The charge to expense for the agreement was $246,000, $283,000 and $167,000 for 2004, 2003 and 2002, respectively. Such
charges reflect the straight-line accrual over the period until full eligibility of the present value of benefits due each participant on the full eligibility date, using a 6.1% discount factor.



The Company sponsors a leveraged employee stock ownership plan (ESOP) that
covers substantially all employees who meet minimum age and length of service requirements. Shares of the Companys common stock held by the ESOP were purchased with the proceeds of external borrowings and borrowings from the Company. The
Company makes annual contributions to the ESOP equal to the ESOPs debt service less dividends on unallocated shares received by the ESOP. All dividends on unallocated shares received by the ESOP are used to pay debt service. The ESOP shares
initially were pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to plan participants, based on the proportion of debt service paid in the year to total expected debt service. The Bank
accounts for its ESOP in accordance with Statement of Position 93-6, with the exception of shares acquired in 1986. All shares acquired in 1986 were fully allocated in 2003. Accordingly, the external debt of the ESOP is recorded as debt of the
Company and the shares pledged as collateral are reported as unearned ESOP shares in the balance sheet. As shares are released from collateral, the Company reports compensation expense equal to the current fair value of the shares. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.



Compensation expense for ESOP shares acquired in 1986 is equal to the principal repaid on the related borrowing plus any
additional cash contributions.



ESOP compensation expense was
$247,000, $261,000 and $201,000 for years 2004, 2003 and 2002, respectively. The ESOP shares as of December 31 were as follows:



|                                             |  |              |           |                |   |             |  |        
|-------------------------------------------- |  | ------------ | --------- | -------------- | - | ----------- |  | -------
|                                             |  | 2004         |           | 2003          
|                                             |  | Total Shares |           | SOP 93-6Shares |   | 1986 Shares
|Allocated shares                             |  |              | 526,336   |                |   | 28,546      |  | 510,201
|Shares released for allocation               |  |              | 8,292     |                |   | 6,947       |  | 15,668 
|Unearned shares                              |  |              | 68,062    |                |   | 76,355      |  | -0-    
|                                             |  |              |           |                |   |             |  |        
|Total ESOP shares                            |  |              | 602,690   |                |   | 111,848     |  | 525,869
|                                             |  |              |           |                |   |             |  |        
|Fair value of unearned shares at December 31 |  | $            | 1,923,000 |                | $ | 2,405,000   |  |        
|                                             |  |              |           |                |   |             |  |        





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|Note 17: | Stock Option Plan
|-------- | -----------------



The Company has a fixed option plan under which the Company may grant options that vest over five years to selected employees for up to 267,327 shares of
common stock. The exercise price of each option is intended to equal the fair value of the Companys stock on the date of grant. An options maximum term is ten years.



A summary of the status of the plan at December 31, 2004, 2003 and 2002, and changes during the years then ended is
presented below:



|                                 |  |         |   |      |                               |       |        |         |   |                               |   |        |  |         |                               |  |   |      
|-------------------------------- |  | ------- | - | ---- | ----------------------------- | ----- | ------ | ------- | - | ----------------------------- | - | ------ |  | ------- | ----------------------------- |  | - | -----
|                                 |  | 2004    |   | 2003 |                               | 2002 
|                                 |  | Shares  |   |      | Weighted-AverageExercisePrice |       | Shares |         |   | Weighted-AverageExercisePrice |   | Shares |  |         | Weighted-AverageExercisePrice
|Outstanding, beginning of year   |  | 112,080 |   |      | $                             | 21.52 |        | 168,976 |   |                               | $ | 18.95  |  | 141,476 |                               |  | $ | 18.06
|Granted                          |  | 35,000  |   |      |                               | 29.86 |        | 20,500  |   |                               |   | 24.50  |  | 36,500  |                               |  |   | 20.71
|Exercised                        |  | (4,780  | ) |      |                               | 18.60 |        | (44,996 | ) |                               |   | 13.18  |  | (9,000  | )                             |  |   | 12.00
|Expired                          |  | (7,200  | ) |      |                               | 20.61 |        | (32,400 | ) |                               |   | 21.69  |  |        |                               |  |   |      
|                                 |  |         |   |      |                               |       |        |         |   |                               |   |        |  |         |                               |  |   |      
|Outstanding, end of year         |  | 135,100 |   |      | $                             | 23.84 |        | 112,080 |   |                               | $ | 21.52  |  | 168,976 |                               |  | $ | 18.95
|                                 |  |         |   |      |                               |       |        |         |   |                               |   |        |  |         |                               |  |   |      
|Options exercisable, end of year |  | 61,360  |   |      | $                             | 21.72 |        | 56,400  |   |                               | $ | 21.15  |  | 82,956  |                               |  | $ | 16.96
|                                 |  |         |   |      |                               |       |        |         |   |                               |   |        |  |         |                               |  |   |      



The fair value of
options granted is estimated on the date of the grant using an option-pricing model with the following weighted-average assumptions:



|                                                               |  |      |              |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------- |  | ---- | ------------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                               |  | 2004 |              |   | 2003 |   |         | 2002 | 
|Dividend yields                                                |  |      | 3.35         | % |      |   | 3.97    | %    |  |   | 4.4     | %
|Volatility factors of expected market price of common stock    |  |      | 16.2% - 20.0 | % |      |   | 16.7    | %    |  |   | 17.0    | %
|Risk-free interest rates                                       |  |      | 1.6          | % |      |   | 2.0%    |      |  |   | 2.0     | %
|Expected life of options                                       |  |      | 9 years      |   |      |   | 9 years |      |  |   | 9 years |  
|                                                               |  |      |             
|Weighted-average fair value of options granted during the year |  | $    | 2.65  3.51  |   |      | $ | 2.27    |      |  | $ | 1.62    |  



The following table
summarizes information about stock options under the plan outstanding at December 31, 2004:



|                         |  |                     |  |                                             |  |                                  |       |        |        |                                  |   |      
|------------------------ |  | ------------------- |  | ------------------------------------------- |  | -------------------------------- | ----- | ------ | ------ | -------------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                        
|Range of Exercise Prices |  | NumberOutstanding   |  | Weighted- Average RemainingContractual Life |  | Weighted- Average Exercise Price |       | Shares |        | Weighted- Average Exercise Price
|$12.00 to $17.25         |  | 24,400              |  | 4.6 years                                   |  | $                                | 15.95 |        | 17,200 |                                  | $ | 15.41
|                         |  |                     |  |                                             | 
|$20.50 to $23.25         |  | 34,500              |  | 6.4 years                                   |  |                                  | 21.54 |        | 19,200 |                                  |   | 22.02
|                         |  |                     |  |                                             | 
|$24.50 to $30.00         |  | 76,200              |  | 7.6 years                                   |  |                                  | 26.56 |        | 24,960 |                                  |   | 24.89



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|Note 18: | Earnings Per Share
|-------- | ------------------



Earnings per share (EPS) were computed as follows (thousands, except per share amounts):



|                                                    |  |      |           |      |   |           |  |   |          
|--------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                                    |  | 2004 |           | 2003 |   | 2002     
|Basic earnings per share:                           |  |      |           |      |   |           |  |   |          
|                                                    |  |      |          
|Net income                                          |  | $    | 4,954     |      | $ | 4,104     |  | $ | 6,531    
|                                                    |  |      |           |      |   |           |  |   |          
|Weighted average common shares outstanding          |  |      | 3,148,241 |      |   | 3,132,791 |  |   | 3,088,976
|                                                    |  |      |          
|Basic earnings per share                            |  | $    | 1.57      |      | $ | 1.31      |  | $ | 2.11     
|                                                    |  |      |           |      |   |           |  |   |          
|Diluted earnings per share:                         |  |      |           |      |   |           |  |   |          
|                                                    |  |      |          
|Net income                                          |  | $    | 4,954     |      | $ | 4,104     |  | $ | 6,531    
|                                                    |  |      |           |      |   |           |  |   |          
|Weighted average common shares outstanding          |  |      | 3,148,241 |      |   | 3,132,791 |  |   | 3,088,976
|                                                    |  |      |          
|Effect of dilutive securities  stock options       |  |      | 17,708    |      |   | 18,977    |  |   | 27,926   
|                                                    |  |      |           |      |   |           |  |   |          
|Average shares and dilutive potential common shares |  |      | 3,165,949 |      |   | 3,151,768 |  |   | 3,116,902
|                                                    |  |      |           |      |   |           |  |   |          
|Diluted earnings per share                          |  | $    | 1.56      |      | $ | 1.30      |  | $ | 2.10     
|                                                    |  |      |           |      |   |           |  |   |          



Options to purchase
39,500 shares of common stock at $28.00 to $30.50 per share were outstanding at December 31, 2004, but were not include in the computation of diluted EPS because the options exercise price was greater than the average market price of the
common shares.



Options to purchase 7,100 shares of common
stock at $28.00 per share were outstanding at December 31, 2003, but were not included in the computation of diluted EPS because the options exercise price was greater than the average market price of the common shares.



Options to purchase 51,700 shares of common stock at $21.375 to $28.00 per
share were outstanding at December 31, 2002, but were not included in the computation of diluted EPS because the options exercise price was greater than the average market price of the common shares.



|Note 19: | Disclosures about Fair Value of Financial Instruments
|-------- | -----------------------------------------------------



The following table presents estimated fair values of the Companys financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair
values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate. (thousands):





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|                                         |  |                   |         |                   |   |                |  |            |         |  |   |        
|---------------------------------------- |  | ----------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                                         |  | December 31, 2004 |         | December 31, 2003
|                                         |  | CarryingAmount    |         | Fair Value        |   | CarryingAmount |  | Fair Value
|Financial assets                         |  |                   |         |                   |   |                |  |            |         |  |   |        
|Cash and cash equivalents                |  | $                 | 30,051  |                   | $ | 30,051         |  | $          | 22,218  |  | $ | 22,218 
|Available-for-sale securities            |  |                   | 169,745 |                   |   | 169,745        |  |            | 153,121 |  |   | 153,121
|Held-to-maturity securities              |  |                   |        |                   |   |               |  |            | 38,681  |  |   | 40,059 
|Loans including loans held for sale, net |  |                   | 398,627 |                   |   | 394,850        |  |            | 404,991 |  |   | 405,457
|Stock in FRB and FHLB                    |  |                   | 8,176   |                   |   | 8,176          |  |            | 7,877   |  |   | 7,877  
|Cash surrender value of life insurance   |  |                   | 12,150  |                   |   | 12,150         |  |            | 11,631  |  |   | 11,631 
|Interest receivable                      |  |                   | 3,393   |                   |   | 3,393          |  |            | 3,492   |  |   | 3,492  
|                                         |  |                   |         |                  
|Financial liabilities                    |  |                   |         |                   |   |                |  |            |         |  |   |        
|Deposits                                 |  |                   | 452,593 |                   |   | 451,487        |  |            | 450,500 |  |   | 413,237
|Short-term borrowings                    |  |                   | 18,023  |                   |   | 18,023         |  |            | 21,909  |  |   | 21,909 
|Long-term debt                           |  |                   | 111,673 |                   |   | 117,676        |  |            | 132,519 |  |   | 142,481
|Interest payable                         |  |                   | 715     |                   |   | 715            |  |            | 802     |  |   | 802    



For purposes of the
above disclosures of estimated fair value, the following assumptions were used as of December 31, 2004 and 2003. The estimated fair value for cash and cash equivalents, interest-bearing deposits, FRB and FHLB stock, cash surrender value of life
insurance, accrued interest receivable, demand deposits, savings accounts, NOW accounts, certain money market deposits, short-term borrowings, and interest payable is considered to approximate cost. The estimated fair value for securities is based
on quoted market values for the individual securities or for equivalent securities. The estimated fair value for loans receivable, including loans held for sale, net, is based on estimates of the rate the Bank would charge for similar loans at
December 31, 2004 and 2003 applied for the time period until the loans are assumed to reprice or be paid. The estimated fair value for fixed-maturity time deposits as well as borrowings is based on estimates of the rate the Bank would pay on such
liabilities at December 31, 2004 and 2003, applied for the time period until maturity. The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and
lines of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.



|Note 20: | Commitments and Credit Risk
|-------- | ---------------------------



Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Each customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on managements credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.



At December 31, 2004 and 2003, the Bank had outstanding commitments to originate business loans aggregating approximately $3,381,000 and $4,771,000,
respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at fixed rates of interest amounted to $215,000 and $793,000 at December 31, 2004 and 2003,
respectively, with the remainder at floating market rates.



Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial
paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.



The Bank had total outstanding letters of credit amounting to $1,046,000 and $949,000, at December 31, 2004 and 2003,
respectively, with terms ranging from 30 days to 4 years.



47



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##### Table of Contents

Mortgage loans in the process of origination represent amounts that the Bank plans to fund within a
normal period of 60 to 90 days, some of which are intended for sale to investors in the secondary market. Forward commitments to sell mortgage loans are obligations to deliver loans at a specified price on or before a specified future date. The Bank
acquires such commitments to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale.



Total mortgage loans in the process of origination amounted to $1,155,000 and $1,328,000 and mortgage loans held for sale amounted to $0 and $86,000, at
December 31, 2004 and 2003, respectively. Included in mortgage loans in the process of origination were commitments to originate loans at fixed rates of interest of $160,000 and $0 at December 31, 2004 and 2003, respectively.



Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash
requirements. Each customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on managements credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.



At December 31, 2004, the Bank had granted unused lines of credit to
borrowers aggregating approximately $22,996,000 and $21,820,000 for commercial lines and open-end consumers lines, respectively. At December 31, 2003, unused lines of credit to borrowers aggregated approximately $37,206,000 for commercial lines and
$20,258,000 for open-end consumer lines.



At December 31,
2004, the Bank had approximately $436,000 on deposit with US Bank. In addition, the Bank had $16,000,000 in Federal Funds sold invested at Southwest Bank of St. Louis at December 31, 2004.





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##### Table of Contents

|Note 21: | Condensed Financial Information (Parent Company Only)
|-------- | -----------------------------------------------------



Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company (thousands):



Condensed Balance Sheets

|                                                 |  |      |        |      |   |       
|------------------------------------------------ |  | ---- | ------ | ---- | - | ------
|                                                 |  | 2004 |        | 2003
|Assets                                           |  |      |        |      |   |       
|Cash and due from banks                          |  | $    | 6,354  |      | $ | 6,317 
|Investment in common stock of banking subsidiary |  |      | 59,427 |      |   | 58,126
|Investment in nonbanking subsidiary              |  |      | 264    |      |   | 256   
|Due from bank subsidiary                         |  |      | 247    |      |   |      
|Other assets                                     |  |      | 1,364  |      |   | 1,018 
|                                                 |  |      |        |      |   |       
|Total assets                                     |  | $    | 67,656 |      | $ | 65,717
|                                                 |  |      |        |      |   |       
|Liabilities                                      |  |      |        |      |   |       
|Long-term debt                                   |  | $    | 8,248  |      | $ | 8,248 
|Other liabilities                                |  |      | 807    |      |   | 773   
|                                                 |  |      |        |      |   |       
|Total liabilities                                |  |      | 9,055  |      |   | 9,021 
|                                                 |  |     
|Stockholders Equity                             |  |      | 58,601 |      |   | 56,696
|                                                 |  |      |        |      |   |       
|Total liabilities and stockholders equity       |  | $    | 67,656 |      | $ | 65,717
|                                                 |  |      |        |      |   |       





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Condensed Statements of Income



|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|--------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                                  |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Income                                                                            |  |      |       |   |      |   |       |      |  |   |        |  
|Dividends from banking subsidiary                                                 |  | $    | 3,500 |   |      | $ | 2,500 |      |  | $ | 8,000  |  
|Other income                                                                      |  |      |      |   |      |   |      |      |  |   | 8      |  
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|Total income                                                                      |  |      | 3,500 |   |      |   | 2,500 |      |  |   | 8,008  |  
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|Expenses                                                                          |  |      |       |   |      |   |       |      |  |   |        |  
|Interest expense                                                                  |  |      | 411   |   |      |   | 390   |      |  |   | 215    |  
|Amortization of loan costs                                                        |  |      | 9     |   |      |   | 9     |      |  |   | 4      |  
|Other expenses                                                                    |  |      | 26    |   |      |   | 35    |      |  |   | 4      |  
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|Total expenses                                                                    |  |      | 446   |   |      |   | 434   |      |  |   | 223    |  
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|Income Before Income Tax and Equity in Undistributed Income of Banking Subsidiary |  |      | 3,054 |   |      |   | 2,066 |      |  |   | 7,785  |  
|Income Tax Expense (Benefit)                                                      |  |      | (339  | ) |      |   | (312  | )    |  |   | (251   | )
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|Income Before Equity in Undistributed Income of Banking Subsidiary                |  |      | 3,393 |   |      |   | 2,378 |      |  |   | 8,036  |  
|                                                                                  |  |      |      
|Equity in Undistributed Income of Banking Subsidiary                              |  |      | 1,553 |   |      |   | 1,718 |      |  |   | (1,505 | )
|                                                                                  |  |      |      
|Equity in Undistributed Income of Nonbanking Subsidiary                           |  |      | 8     |   |      |   | 8     |      |  |   |       |  
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  
|Net Income                                                                        |  | $    | 4,954 |   |      | $ | 4,104 |      |  | $ | 6,531  |  
|                                                                                  |  |      |       |   |      |   |       |      |  |   |        |  





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Condensed Statements of Cash Flows



|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                       |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Operating Activities                                   |  |      |        |   |      |   |        |      |  |   |         |  
|Net income                                             |  | $    | 4,954  |   |      | $ | 4,104  |      |  | $ | 6,531   |  
|Items not requiring (providing) cash                   |  |      | (1,857 | ) |      |   | (1,634 | )    |  |   | 1,150   |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) by operating activities |  |      | 3,097  |   |      |   | 2,470  |      |  |   | 7,681   |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Investing Activities                                   |  |      |        |   |      |   |        |      |  |   |         |  
|Investment in banking subsidiary                       |  |      |       |   |      |   |       |      |  |   | (12,500 | )
|Investment in nonbanking subsidiary                    |  |      |       |   |      |   |       |      |  |   | (248    | )
|Proceeds from sale of securities available for sale    |  |      |       |   |      |   |       |      |  |   | 5,992   |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) investing activities    |  |      |       |   |      |   |       |      |  |   | (6,756  | )
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Financing Activities                                   |  |      |        |   |      |   |        |      |  |   |         |  
|Cash dividends paid                                    |  |      | (3,149 | ) |      |   | (3,013 | )    |  |   | (2,848  | )
|Proceeds from the issuance of subordinated debt        |  |      |       |   |      |   |       |      |  |   | 8,248   |  
|Repayment of long-term debt                            |  |      |       |   |      |   | (108   | )    |  |   | (108    | )
|Proceeds from stock options exercised                  |  |      | 89     |   |      |   | 593    |      |  |   | 108     |  
|Sale/(Purchase) of treasury stock                      |  |      |       |   |      |   | (1,138 | )    |  |   | 132     |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) financing activities    |  |      | (3,060 | ) |      |   | (3,666 | )    |  |   | 5,532   |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Net Change in Cash and Cash Equivalents                |  |      | 37     |   |      |   | (1,196 | )    |  |   | 6,457   |  
|                                                       |  |      |       
|Cash and Cash Equivalents at Beginning of Year         |  |      | 6,317  |   |      |   | 7,513  |      |  |   | 1,056   |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  
|Cash and Cash Equivalents at End of Year               |  | $    | 6,354  |   |      | $ | 6,317  |      |  | $ | 7,513   |  
|                                                       |  |      |        |   |      |   |        |      |  |   |         |  





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|Note 22: | Selected Quarterly Data (Unaudited)
|-------- | -----------------------------------



The following tables summarize selected quarterly results of operations for 2004 and 2003 (thousands, except per share amounts):



|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|--------------------------------------------------- |  | ----- | ----- | ---- | - | --------- |  | -------- | ----- |  | - | ----- | -
|December 31, 2004                                   |  | March |       | June |   | September |  | December |      
|Interest and dividend income                        |  | $     | 8,142 |      | $ | 8,023     |  | $        | 7,989 |  | $ | 7,981 |  
|Interest expense                                    |  |       | 2,950 |      |   | 2,934     |  |          | 2,978 |  |   | 3,042 |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Net interest income                                 |  |       | 5,192 |      |   | 5,089     |  |          | 5,011 |  |   | 4,939 |  
|Provision for loan losses                           |  |       | 450   |      |   | 450       |  |          | 450   |  |   | 550   |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Net interest income after provision for loan losses |  |       | 4,742 |      |   | 4,639     |  |          | 4,561 |  |   | 4,389 |  
|Noninterest income                                  |  |       | 2,632 |      |   | 2,162     |  |          | 2,211 |  |   | 2,234 |  
|Noninterest expense                                 |  |       | 5,623 |      |   | 5,203     |  |          | 5,378 |  |   | 5,348 |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Income before income tax                            |  |       | 1,751 |      |   | 1,598     |  |          | 1,394 |  |   | 1,275 |  
|Income tax expense                                  |  |       | 330   |      |   | 328       |  |          | 219   |  |   | 187   |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Net income                                          |  | $     | 1,421 |      | $ | 1,270     |  | $        | 1,175 |  | $ | 1,088 |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Earnings per share                                  |  |       |       |      |   |           |  |          |       |  |   |       |  
|Basic                                               |  | $     | 0.45  |      | $ | 0.40      |  | $        | 0.37  |  | $ | 0.35  |  
|Diluted                                             |  |       | 0.45  |      |   | 0.40      |  |          | 0.37  |  |   | 0.34  |  
|                                                    |  |       |       |     
|Dividends per share                                 |  |       | 0.25  |      |   | 0.25      |  |          | 0.25  |  |   | 0.25  |  
|                                                    |  |       |       |     
|December 31, 2003                                   |  | March |       | June |   | September |  | December |      
|Interest and dividend income                        |  | $     | 9,256 |      | $ | 8,959     |  | $        | 8,311 |  | $ | 8,378 |  
|Interest expense                                    |  |       | 3,655 |      |   | 3,531     |  |          | 3,171 |  |   | 3,014 |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Net interest income                                 |  |       | 5,601 |      |   | 5,428     |  |          | 5,140 |  |   | 5,364 |  
|Provision for loan losses                           |  |       | 540   |      |   | 487       |  |          | 1,289 |  |   | 1,603 |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Net interest income after provision for loan losses |  |       | 5,061 |      |   | 4,941     |  |          | 3,851 |  |   | 3,761 |  
|Noninterest income                                  |  |       | 2,635 |      |   | 2,637     |  |          | 2,118 |  |   | 2,025 |  
|Noninterest expense                                 |  |       | 5,710 |      |   | 5,526     |  |          | 5,157 |  |   | 6,078 |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Income before income tax                            |  |       | 1,986 |      |   | 2,052     |  |          | 812   |  |   | (292  | )
|Income tax expense                                  |  |       | 349   |      |   | 461       |  |          | 2     |  |   | (358  | )
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Net income                                          |  | $     | 1,637 |      | $ | 1,591     |  | $        | 810   |  | $ | 66    |  
|                                                    |  |       |       |      |   |           |  |          |       |  |   |       |  
|Earnings per share                                  |  |       |       |      |   |           |  |          |       |  |   |       |  
|Basic                                               |  | $     | 0.52  |      | $ | 0.51      |  | $        | 0.26  |  | $ | 0.02  |  
|Diluted                                             |  |       | 0.52  |      |   | 0.50      |  |          | 0.26  |  |   | 0.02  |  
|                                                    |  |       |       |     
|Dividends per share                                 |  |       | 0.24  |      |   | 0.24      |  |          | 0.24  |  |   | 0.24  |  



During the fourth quarter of 2003, the
Company increased its provision for loan losses to $1.6 million based on charge-offs during the quarter and managements evaluation of the allowance for loan losses. Non-interest expense also included $704,000 of reorganization costs associated
with the closing of three branch facilities announced October 2003 and closed January 31, 2004.



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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure



None.



Item 9A. Controls and Procedures



(a) The
Companys principal executive officer and principal financial officer have concluded, based upon their evaluation of the Companys disclosure controls and procedures as of December 31, 2004, that the Companys disclosure controls and
procedures were effective.



(b) During the quarter ended June 30, 2004, the
Company changed its core data processing system, including its core financial reporting system. This change was implemented to improve both long-term operating and financial reporting efficiencies. Management has been actively involved in the system
conversion and continues to implement additional controls and procedures. At this time, the changes in the Companys internal controls over financial reporting are not believed to have materially affected, nor to be reasonably likely to
materially affect, the Companys internal control over financial reporting.



Item 9B. Other Information



None.



PART III



Item 10. Directors and Executive Officers of the Registrant



The information contained in the Proxy Statement under the captions BOARD OF DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE is
incorporated herein by reference.



The Board of Directors has determined that
it does not have an audit committee financial expert, as defined in 17 C.F.R. Section 229.401(h). Although the Board is actively searching for such an individual to serve on its Board of Directors, it has not yet secured such a person.



The NB&T Financial Group, Inc. Code of Ethics is attached to this Form
10-K as Exhibit 14. Amendments to the Code of Ethics and waivers of the provisions of the Code of Ethics will be posted on the registrants web site at www.nbtdirect.com.



Item 11. Executive Compensation



The information
contained in the Proxy Statement under the caption COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS is incorporated herein by reference.



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters



The information contained in the Proxy Statement under the caption VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT is incorporated
herein by reference.



Item 13. Certain Relationships and Related Transactions



The information contained in the Proxy Statement under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS is incorporated herein by reference.



Item 14. Principal Accountant Fees and Services



The information contained in the Proxy Statement under the caption Auditors is incorporated herein by reference.





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PART IV



Item 15. Exhibits and Financial Statement Schedules



(1) Financial Statements - See Index to Consolidated Financial Statements on page 27 of this Form 10-K.



(2) Financial Statement Schedules - None



INDEX TO EXHIBITS



|              |  |                                                                                                              
|------------- |  | -------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                  
|3.1           |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.                           
|              | 
|3.2           |  | Amended and Restated Code of Regulations of NB&T Financial Group, Inc.                                       
|              | 
|10.1          |  | InterCounty Bancshares, Inc. 1993 Stock Option Plan                                                          
|              | 
|10.2          |  | InterCounty Bancshares, Inc. Non-qualified Stock Option Plan:                                                
|              | 
|10.3          |  | NB&T Financial Group, Inc. Supplemental Executive Retirement Plan                                            
|              | 
|10.4          |  | NB&T Financial Group, Inc. Supplemental Executive Retirement Plan Participation Agreement  Timothy L. Smith 
|              | 
|10.5          |  | NB&T Financial Group, Inc. Supplemental Executive Retirement Plan Participation Agreement  Charles L. Dehner
|              | 
|10.6          |  | Severance Agreement with Andrew J. McCreanor                                                                 
|              | 
|10.7          |  | Severance Agreement with Craig F. Fortin                                                                     
|              | 
|10.8          |  | Severance Agreement with Stephen G. Klumb                                                                    
|              | 
|10.9          |  | Severance Agreement with Walter R. Rowsey                                                                    
|              | 
|10.10         |  | Severance Agreement with Howard T. Witherby                                                                  
|              | 
|10.11         |  | Management Annual Incentive Plan                                                                             
|              | 
|14            |  | NB&T Financial Group, Inc. Amended Code of Ethics:                                                           
|              | 
|21            |  | Subsidiaries of NB&T Financial Group, Inc.                                                                   
|              | 
|23            |  | Consent of Independent Accountants  BKD, LLP                                                                
|              | 
|31.1          |  | Rule 13a-14(a)/Section 302 Certification of Chief Executive Officer                                          
|              | 
|31.2          |  | Rule 13a-14(b)/Section 302 Certification of Chief Financial Officer                                          
|              | 
|32.1          |  | Rule 13a-14(b)/Section 906 Certification of Chief Executive Officer                                          
|              | 
|32.2          |  | Rule 13a-14(b)/Section 906 Certification of Chief Financial Officer                                          
|              | 
|99.1          |  | Safe Harbor Under the Private Securities Litigation Reform Act of 1995                                       
|              | 
|99.2          |  | Proxy Statement for 2005 annual meeting of shareholders                                                      





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SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|               |  |                            |  |                                      
|-------------- |  | -------------------------- |  | -------------------------------------
|               |  | NB&T Financial Group, Inc.
|               |  |                           
|March 15, 2005 |  | By                         |  | /s/ Timothy L. Smith                 
|               |  |                            |  | Timothy L. Smith                     
|               |  |                            |  | President and Chief Executive Officer
|               |  |                            |  | (Principal Executive Officer)        



Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|   |  |                                                                                |  |    |  |                                                                       
|-- |  | ------------------------------------------------------------------------------ |  | -- |  | ----------------------------------------------------------------------
|By |  | /s/ Craig F. Fortin                                                            |  | By |  | /s/ Timothy L. Smith                                                  
|   |  | Craig F. Fortin                                                                |  |    |  | Timothy L. Smith                                                      
|   |  | Senior Vice President andChief Financial Officer(Principal Accounting Officer) |  |    |  | President, Chief Executive Officer and a Director Date: March 15, 2005
|   |  | Date: March 15, 2005                                                           |  |    |  |                                                                       
|   |  |                                                                                | 
|By |  | /s/ Daniel A. DiBiasio                                                         |  | By |  | /s/ G. David Hawley                                                   
|   |  | Daniel A. DiBiasio                                                             |  |    |  | G. David Hawley                                                       
|   |  | Director                                                                       |  |    |  | Director                                                              
|   |  | Date: March 15, 2005                                                           |  |    |  | Date: March 15, 2005                                                  
|   |  |                                                                                | 
|By |  | /s/ S. Craig Beam                                                              |  | By |  | /s/ Janet M. Williams                                                 
|   |  | S. Craig Beam                                                                  |  |    |  | Janet M. Williams                                                     
|   |  | Director                                                                       |  |    |  | Director                                                              
|   |  | Date: March 15, 2005                                                           |  |    |  | Date: March 15, 2005                                                  
|   |  |                                                                                | 
|By |  | /s/ Robert A. Raizk                                                            |  | By |  | /s/ Charles L. Dehner                                                 
|   |  | Robert A. Raizk                                                                |  |    |  | Charles L. Dehner                                                     
|   |  | Director                                                                       |  |    |  | Director                                                              
|   |  | Date: March 15, 2005                                                           |  |    |  | Date: March 15, 2005                                                  
|   |  |                                                                                | 
|By |  | /s/ Darleen M. Myers                                                           |  |    |  |                                                                       
|   |  | Darleen M. Myers                                                               |  |    |  |                                                                       
|   |  | Director                                                                       |  |    |  |                                                                       
|   |  | Date: March 15, 2005                                                           |  |    |  |                                                                       



55



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INDEX TO EXHIBITS



|              |  |                                                                                                               |  |                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                   |  | PAGE REFERENCE                                                                                                                                        
|3.1           |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.                            |  | Incorporated by reference to Definitive Proxy Statement filed on March 31, 2003, Exhibit A.                                                           
|              |  |                                                                                                              
|3.2           |  | Amended and Restated Code of Regulations of NB&T Financial Group, Inc.                                        |  | Incorporated by reference to Definitive Proxy Statement filed on March 31, 2003.                                                                      
|              |  |                                                                                                              
|10.1          |  | InterCounty Bancshares, Inc. 1993 Stock Option Plan                                                           |  | Incorporated by reference to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 23, 1995, Exhibit 4(c).
|              |  |                                                                                                              
|10.2          |  | InterCounty Bancshares, Inc. Non-qualified Stock Option Plan                                                  |  | Incorporated by reference to the S-1, Exhibit 10.1                                                                                                    
|              |  |                                                                                                              
|10.3          |  | NB&T Financial Group, Inc. Supplemental Executive Retirement Plan                                             |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002, Exhibit 10.1.                                    
|              |  |                                                                                                              
|10.4          |  | NB&T Financial Group, Inc. Supplemental Executive Retirement Plan Participation Agreement  Timothy L. Smith  |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002, Exhibit 10.2.                                    
|              |  |                                                                                                              
|10.5          |  | NB&T Financial Group, Inc. Supplemental Executive Retirement Plan Participation Agreement  Charles L. Dehner |  | Incorporated by reference to Annual Report on Form 10-K for the Year Ended December 31, 2002, Exhibit 10.5.                                           
|              |  |                                                                                                              
|10.6          |  | Severance Agreement with Andrew J. McCreanor                                                                  |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004, Exhibit 10.1                                          
|              |  |                                                                                                              
|10.7          |  | Severance Agreement with Craig F. Fortin                                                                      |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004, Exhibit 10.2                                          
|              |  |                                                                                                              
|10.8          |  | Severance Agreement with Stephen G. Klumb                                                                     |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004, Exhibit 10.3                                          
|              |  |                                                                                                              
|10.9          |  | Severance Agreement with Walter R. Rowsey                                                                     |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004, Exhibit 10.4                                          
|              |  |                                                                                                              
|10.10         |  | Severance Agreement with Howard T. Witherby                                                                   |  | Incorporated by reference to Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004, Exhibit 10.5                                          
|              |  |                                                                                                              
|10.11         |  | Management Annual Incentive Plan                                                                              |  | Incorporated by reference to Amendment to Quarterly Report on Form 10-Q/A filed on November 9, 2004, Exhibit 10.6                                     
|              |  |                                                                                                              
|14            |  | NB&T Financial Group, Inc. Amended Code of Ethics                                                             |  | Incorporated by reference to Annual Report on Form 10-K for the Year Ended December 31, 2003, Exhibit 14.                                             
|              |  |                                                                                                              
|21            |  | Subsidiaries of NB&T Financial Group, Inc.                                                                    |  | 57                                                                                                                                                    
|              |  |                                                                                                              
|23            |  | Consent of Independent Accountants  BKD, LLP                                                                 |  | 58                                                                                                                                                    
|              |  |                                                                                                              
|31.1          |  | Rule 13a-14(a)/Section 302 Certification of Chief Executive Officer                                           |  | 59                                                                                                                                                    
|              |  |                                                                                                              
|31.2          |  | Rule 13a-14(b)/Section 302 Certification of Chief Financial Officer                                           |  | 60                                                                                                                                                    
|              |  |                                                                                                              
|32.1          |  | Rule 13a-14(b)/Section 906 Certification of Chief Executive Officer                                           |  | 61                                                                                                                                                    
|              |  |                                                                                                              
|32.2          |  | Rule 13a-14(b)/Section 906 Certification of Chief Financial Officer                                           |  | 62                                                                                                                                                    
|              |  |                                                                                                              
|99.1          |  | Safe Harbor Under the Private Securities Litigation Reform Act of 1995                                        |  | 63                                                                                                                                                    
|              |  |                                                                                                              
|99.2          |  | Proxy Statement for 2005 annual meeting of shareholders                                                       |  | Incorporated by reference to definitive proxy statement to be filed on or before March 28, 2005.                                                      





56