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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended September 30, 2010

OR



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

For the transition period from/to





NB&T
FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|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: (937) 382-1441





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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated Filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller Reporting Company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

Indicate
the number of shares outstanding of each of the issuers classes of common stock, as of the last practicable date: As of November 2, 2010, 3,410,664 common shares were issued and outstanding.









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NB&T FINANCIAL GROUP, INC.

September 30, 2010 Form 10-Q

Table of Contents



|                  |  |                                                                                       |    |      |    | 
|----------------- |  | ------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                  |  |                                                                                       |    | Page |   
|                  |  | PART I                                                                                |    |      |    | 
|                  |  |                                                                                      
|Item 1:           |  | Financial Statements                                                                  |    |      | 3  | 
|                  |  | Condensed Consolidated Balance Sheets                                                 |    |      | 3  | 
|                  |  | Condensed Consolidated Statements of Income                                           |    |      | 4  | 
|                  |  | Condensed Consolidated Statements of Cash Flows                                       |    |      | 5  | 
|                  |  | Notes to Condensed Consolidated Financial Statements                                  |    |      | 6  | 
|                  |  | Report of Independent Registered Public Accounting Firm                               |    |      | 18 | 
|                  |  |                                                                                      
|Item 2:           |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |    |      | 19 | 
|Item 3:           |  | Quantitative and Qualitative Disclosures about Market Risk                            |    |      | 24 | 
|Item 4:           |  | Controls and Procedures                                                               |    |      | 25 | 
|                  |  |                                                                                      
|                  |  | Part II                                                                               |    |      |    | 
|                  |  |                                                                                      
|Item 1:           |  | Legal Proceedings                                                                     |    |      | 26 | 
|Item 1A:          |  | Risk Factors                                                                          |    |      | 26 | 
|Item 2:           |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |    |      | 27 | 
|Item 3:           |  | Defaults Upon Senior Securities                                                       |    |      | 27 | 
|Item 4:           |  | Reserved                                                                              |    |      | 27 | 
|Item 5:           |  | Other Information                                                                     |    |      | 27 | 
|Item 6:           |  | Exhibits and Reports on Form 8-K                                                      |    |      | 27 | 
|                  | 
|Signatures        |  |                                                                                       | 28 |     
|                  | 
|Index to Exhibits |  |                                                                                       | 29 |     



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NB&T Financial Group, Inc.

Condensed Consolidated Balance Sheets



|                                                                                   |  |                   |         |   |                  |   |         |  
|---------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|(Dollars in thousands)                                                             |  | September 30,2010 |         |   | December 31,2009 |  
|                                                                                   |  | (Unaudited)       |         |   |                  |  
|Assets                                                                             |  |                   |         |   |                  |   |         |  
|Cash and due from banks                                                            |  | $                 | 9,543   |   |                  | $ | 12,392  |  
|Interest-bearing deposits                                                          |  |                   | 47,388  |   |                  |   | 40,759  |  
|Federal funds sold                                                                 |  |                   | 434     |   |                  |   | 448     |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                          |  |                   | 57,365  |   |                  |   | 53,599  |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Securities - available-for-sale                                                    |  |                   | 146,060 |   |                  |   | 142,424 |  
|Loans held for sale                                                                |  |                   | 432     |   |                  |   | 274     |  
|Loans, net of allowance for loan losses of $3,935 and $3,776                       |  |                   | 422,907 |   |                  |   | 391,772 |  
|Premises and equipment                                                             |  |                   | 20,776  |   |                  |   | 20,455  |  
|Federal Reserve and Federal Home Loan Bank stock                                   |  |                   | 10,021  |   |                  |   | 9,847   |  
|Earned income receivable                                                           |  |                   | 2,952   |   |                  |   | 3,053   |  
|Goodwill                                                                           |  |                   | 3,625   |   |                  |   | 3,825   |  
|Core deposit and other intangibles                                                 |  |                   | 1,412   |   |                  |   | 1,956   |  
|Bank-owned life insurance                                                          |  |                   | 14,880  |   |                  |   | 14,522  |  
|Other real estate owned                                                            |  |                   | 3,995   |   |                  |   | 3,455   |  
|FDIC loss share receivable                                                         |  |                   | 2,232   |   |                  |   |        |  
|Other assets                                                                       |  |                   | 4,542   |   |                  |   | 4,158   |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Total assets                                                                       |  | $                 | 691,199 |   |                  | $ | 649,340 |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|                                                                                   |  |                  
|Liabilities and Stockholders Equity                                               |  |                   |         |   |                  |   |         |  
|Liabilities                                                                        |  |                   |         |   |                  |   |         |  
|Deposits                                                                           |  |                   |         |   |                  |   |         |  
|Demand                                                                             |  | $                 | 90,173  |   |                  | $ | 89,827  |  
|Savings, NOW and Money Market                                                      |  |                   | 289,023 |   |                  |   | 262,629 |  
|Time                                                                               |  |                   | 192,527 |   |                  |   | 188,966 |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Total deposits                                                                     |  |                   | 571,723 |   |                  |   | 541,422 |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Short-term borrowings                                                              |  |                   | 24,950  |   |                  |   | 406     |  
|Long-term debt                                                                     |  |                   | 15,310  |   |                  |   | 39,810  |  
|Interest payable and other liabilities                                             |  |                   | 7,915   |   |                  |   | 3,217   |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                  |  |                   | 619,898 |   |                  |   | 584,855 |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|                                                                                   |  |                  
|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                                                         |  |                   | 11,851  |   |                  |   | 11,765  |  
|Retained earnings                                                                  |  |                   | 60,531  |   |                  |   | 55,390  |  
|Unearned employee stock ownership plan (ESOP) shares                               |  |                   | (214    | ) |                  |   | (359    | )
|Accumulated other comprehensive income                                             |  |                   | 2,784   |   |                  |   | 1,340   |  
|Treasury stock; 408,276 shares - 2010 and 408,262 shares - 2009                    |  |                   | (4,651  | ) |                  |   | (4,651  | )
|                                                                                   |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                         |  |                   | 71,301  |   |                  |   | 64,485  |  
|                                                                                   |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                         |  | $                 | 691,199 |   |                  | $ | 649,340 |  
|                                                                                   |  |                   |         |   |                  |   |         |  

See Notes to Condensed Consolidated Financial Statements



3



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NB&T Financial Group, Inc.

Condensed Consolidated Statements of Income



|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|------------------------------------------------------------ |  | ------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ------ | - |  | - | ------ | 
|                                                             |  | Three Months EndedSeptember 30, |       |  | Nine Months EndedSeptember 30, |  
|(Dollars in thousands, except per share amounts)             |  | 2010                            |       |  | 2009                           |   |       | 2010 |  |   | 2009   |  
|                                                             |  | (Unaudited)                     |       |  | (Unaudited)                    |  
|Interest and Dividend Income                                 |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Loans                                                        |  | $                               | 6,757 |  |                                | $ | 5,053 |      |  | $ | 19,774 |   |  | $ | 15,053 | 
|Securities-taxable                                           |  |                                 | 1,057 |  |                                |   | 1,183 |      |  |   | 3,200  |   |  |   | 3,235  | 
|Securities-tax-exempt                                        |  |                                 | 115   |  |                                |   | 223   |      |  |   | 477    |   |  |   | 746    | 
|Federal funds sold and other                                 |  |                                 | 27    |  |                                |   | 28    |      |  |   | 90     |   |  |   | 131    | 
|Dividends on Federal Home Loan & Federal Reserve Bank stock  |  |                                 | 113   |  |                                |   | 119   |      |  |   | 341    |   |  |   | 334    | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Total interest and dividend income                           |  |                                 | 8,069 |  |                                |   | 6,606 |      |  |   | 23,882 |   |  |   | 19,499 | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|                                                             |  |                                 |       | 
|Interest Expense                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Deposits                                                     |  |                                 | 1,350 |  |                                |   | 1,330 |      |  |   | 4,046  |   |  |   | 4,124  | 
|Short-term debt                                              |  |                                 | 199   |  |                                |   |      |      |  |   | 300    |   |  |   |       | 
|Long-term debt                                               |  |                                 | 322   |  |                                |   | 521   |      |  |   | 1,250  |   |  |   | 1,550  | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Total interest expense                                       |  |                                 | 1,871 |  |                                |   | 1,851 |      |  |   | 5,596  |   |  |   | 5,674  | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Net Interest Income                                          |  |                                 | 6,198 |  |                                |   | 4,755 |      |  |   | 18,286 |   |  |   | 13,825 | 
|Provision for Loan Losses                                    |  |                                 | 225   |  |                                |   | 175   |      |  |   | 1,185  |   |  |   | 650    | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Net Interest Income After Provision for Loan Losses          |  |                                 | 5,973 |  |                                |   | 4,580 |      |  |   | 17,101 |   |  |   | 13,175 | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Non-interest Income                                          |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Trust income                                                 |  |                                 | 234   |  |                                |   | 221   |      |  |   | 690    |   |  |   | 654    | 
|Service charges and fees                                     |  |                                 | 1,169 |  |                                |   | 1,027 |      |  |   | 3,430  |   |  |   | 2,733  | 
|Insurance agency commissions                                 |  |                                 |      |  |                                |   | 590   |      |  |   |       |   |  |   | 1,751  | 
|Net gains on sales of securities                             |  |                                 |      |  |                                |   | 5     |      |  |   |       |   |  |   | 43     | 
|Gain on bargain purchase                                     |  |                                 |      |  |                                |   |      |      |  |   | 7,572  |   |  |   |       | 
|Gain on sale of insurance agency                             |  |                                 |      |  |                                |   |      |      |  |   | 1,390  |   |  |   |       | 
|Other-than-temporary losses on investments:                  |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Total other-than-temporary losses                            |  |                                 |      |  |                                |   |      |      |  |   | (181   | ) |  |   |       | 
|Loss recognized in other comprehensive income (before taxes) |  |                                 |      |  |                                |   |      |      |  |   | 131    |   |  |   |       | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Net impairment losses recognized in earnings                 |  |                                 |      |  |                                |   |      |      |  |   | (50    | ) |  |   |       | 
|Other                                                        |  |                                 | 485   |  |                                |   | 373   |      |  |   | 1,473  |   |  |   | 1,089  | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Total non-interest income                                    |  |                                 | 1,888 |  |                                |   | 2,216 |      |  |   | 14,505 |   |  |   | 6,270  | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Non-interest Expense                                         |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Salaries and employee benefits                               |  |                                 | 3,003 |  |                                |   | 2,807 |      |  |   | 10,521 |   |  |   | 8,464  | 
|Net occupancy expense                                        |  |                                 | 632   |  |                                |   | 479   |      |  |   | 1,895  |   |  |   | 1,467  | 
|Equipment and data processing expense                        |  |                                 | 746   |  |                                |   | 703   |      |  |   | 2,328  |   |  |   | 2,128  | 
|FDIC insurance                                               |  |                                 | 214   |  |                                |   | 162   |      |  |   | 642    |   |  |   | 722    | 
|Professional fees                                            |  |                                 | 481   |  |                                |   | 461   |      |  |   | 1,502  |   |  |   | 1,212  | 
|Marketing expense                                            |  |                                 | 153   |  |                                |   | 168   |      |  |   | 477    |   |  |   | 410    | 
|State franchise tax                                          |  |                                 | 218   |  |                                |   | 192   |      |  |   | 614    |   |  |   | 578    | 
|Amortization of intangibles                                  |  |                                 | 103   |  |                                |   | 41    |      |  |   | 292    |   |  |   | 126    | 
|Other                                                        |  |                                 | 644   |  |                                |   | 522   |      |  |   | 1,685  |   |  |   | 1,371  | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Total non-interest expense                                   |  |                                 | 6,194 |  |                                |   | 5,535 |      |  |   | 19,956 |   |  |   | 16,478 | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Income Before Income Tax                                     |  |                                 | 1,667 |  |                                |   | 1,261 |      |  |   | 11,650 |   |  |   | 2,967  | 
|Provision for Income Taxes                                   |  |                                 | 450   |  |                                |   | 269   |      |  |   | 3,559  |   |  |   | 507    | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Net Income                                                   |  | $                               | 1,217 |  |                                | $ | 992   |      |  | $ | 8,091  |   |  | $ | 2,460  | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Basic Earnings Per Share                                     |  | $                               | .36   |  |                                | $ | .32   |      |  | $ | 2.38   |   |  | $ | .79    | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Diluted Earnings Per Share                                   |  | $                               | .36   |  |                                | $ | .32   |      |  | $ | 2.38   |   |  | $ | .79    | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 
|Dividends Declared Per Share                                 |  | $                               | .29   |  |                                | $ | .29   |      |  | $ | .87    |   |  | $ | .87    | 
|                                                             |  |                                 |       |  |                                |   |       |      |  |   |        |   |  |   |        | 

See Notes to Condensed Consolidated Financial Statements



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NB&T Financial Group, Inc.

Condensed Consolidated Statements of Cash Flows



|                                                               |  |                                |         |   |      |   |         |  
|-------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                               |  | Nine Months
Ended,September 30 |        
|(Dollars in thousands)                                         |  | 2010                           |         |   | 2009 |  
|                                                               |  | (Unaudited)                    |        
|Operating Activities                                           |  |                                |         |  
|Net income                                                     |  | $                              | 8,091   |   |      | $ | 2,460   |  
|Items not requiring (providing) cash                           |  |                                |         |   |      |   |         |  
|Depreciation and amortization                                  |  |                                | 1,328   |   |      |   | 1,210   |  
|Provision for loan losses                                      |  |                                | 1,185   |   |      |   | 650     |  
|Amortization of premiums and discounts on securities           |  |                                | 1,054   |   |      |   | (68     | )
|Other-than-temporary impairment of securities                  |  |                                | 50      |   |      |   |        |  
|Gain on bargain purchase                                       |  |                                | (7,572  | ) |      |   |        |  
|Gain on sale of insurance agency                               |  |                                | (1,390  | ) |      |   |        |  
|Gain on sale of securities                                     |  |                                |        |   |      |   | (43     | )
|Net change in:                                                 |  |                                |         |   |      |   |         |  
|Loans held for sale                                            |  |                                | (158    | ) |      |   | (39     | )
|Other assets and liabilities                                   |  |                                | 4,557   |   |      |   | (58     | )
|                                                               |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                      |  |                                | 7,145   |   |      |   | 4,112   |  
|                                                               |  |                                |         |   |      |   |         |  
|                                                               |  |                               
|Investing Activities                                           |  |                                |         |   |      |   |         |  
|Purchases of available-for-sale securities                     |  |                                | (89,115 | ) |      |   | (82,660 | )
|Proceeds from maturities of available-for-sale securities      |  |                                | 86,565  |   |      |   | 47,277  |  
|Purchase of Federal Reserve Bank Stock                         |  |                                | (174    | ) |      |   |        |  
|Net cash from acquisition, including $9,493 proceeds from FDIC |  |                                | 25,821  |   |      |   |        |  
|Proceeds from sale of insurance agency                         |  |                                | 2,276   |   |      |   |        |  
|Net change in loans                                            |  |                                | 9,895   |   |      |   | (1,136  | )
|Purchase of premises and equipment                             |  |                                | (1,371  | ) |      |   | (654    | )
|                                                               |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) investing activities            |  |                                | 33,897  |   |      |   | (37,173 | )
|                                                               |  |                                |         |   |      |   |         |  
|                                                               |  |                               
|Financing Activities                                           |  |                                |         |   |      |   |         |  
|Net change in:                                                 |  |                                |         |   |      |   |         |  
|Deposits                                                       |  |                                | (34,370 | ) |      |   | 27,869  |  
|Short-term borrowings and long-term debt                       |  |                                | 44      |   |      |   | (1,439  | )
|Purchase of treasury shares                                    |  |                                |        |   |      |   | (23     | )
|Cash dividends                                                 |  |                                | (2,950  | ) |      |   | (2,736  | )
|                                                               |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities            |  |                                | (37,276 | ) |      |   | 23,671  |  
|                                                               |  |                                |         |   |      |   |         |  
|                                                               |  |                               
|Increase (Decrease) in Cash and Cash Equivalents               |  |                                | 3,766   |   |      |   | (9,390  | )
|                                                               |  |                               
|Cash and Cash Equivalents, Beginning of Year                   |  |                                | 53,599  |   |      |   | 54,639  |  
|                                                               |  |                                |         |   |      |   |         |  
|                                                               |  |                               
|Cash and Cash Equivalents, End of Period                       |  | $                              | 57,365  |   |      | $ | 45,249  |  
|                                                               |  |                                |         |   |      |   |         |  
|                                                               |  |                               
|Supplemental Cash Flows Information                            |  |                                |         |   |      |   |         |  
|Interest paid                                                  |  | $                              | 5,634   |   |      | $ | 5,757   |  
|Income taxes paid (net of refunds)                             |  |                                | 595     |   |      |   | 164     |  
|Assets acquired in business combination                        |  |                                | 72,313  |   |      |   |        |  
|Liabilities assumed in business combination                    |  |                                | 67,316  |   |      |   |        |  

See Notes to Condensed
Consolidated Financial Statements



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##### Table of Contents



Note 1:
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q. The Form 10-Q does not include all the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. Only material changes in financial condition and results of operations are discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations.

The condensed consolidated balance sheet as of December 31, 2009 has been derived from the audited consolidated
balance sheet of that date.

In the opinion of management, the condensed consolidated financial statements contain all adjustments necessary
to present fairly the financial condition of NB&T Financial Group, Inc. (the Company) as of September 30, 2010, and December 31, 2009, the results of its operations for the three-month and nine-month periods ended
September 30, 2010 and 2009 and the results of its cash flows for the nine-month periods ended September 30, 2010 and 2009. Those adjustments consist of only normal recurring adjustments. The results of operations for the interim periods
reported herein are not necessarily indicative of results of operation to be expected for the entire year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting
policies and financial notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Commission.

Note 2: Business Combination

On March 19, 2010, the Company acquired through its
subsidiary, The National Bank and Trust Company (NB&T), the banking operations of American National Bank (American National), based in Parma, Ohio, under a Purchase and Assumption agreement with the Federal Deposit
Insurance Corporation (FDIC). The Office of the Comptroller of the Currency declared American National closed and appointed the FDIC as receiver. NB&T did not pay the FDIC a premium for the deposits of American National. In addition
to assuming all of the deposits of the failed bank, NB&T agreed to purchase essentially all of the assets. The book value of the net assets of American National were acquired from the FDIC at a $10.0 million discount. The acquisition did not
include the mortgage servicing business conducted by American National by its division Leader Financial Services. The FDIC and NB&T entered into a loss-share transaction on $48.2 million of American National assets. NB&T will share in the
losses on the asset pools covered under the loss-share agreement. Under the loss-share agreement, NB&T shares in 20% of losses for the first $8.0 million in losses and 5% for any losses in excess of $8.0 million.

The Company engaged in the transaction in the expectation that it would realize increased profits through increasing its loans receivable and deposits
within a new market area.

During the first nine months of 2010, the Company incurred $118,000 of third-party acquisition-related costs. The
expenses are included in professional fees in the Companys condensed consolidated statement of income for the nine months ended September 30, 2010.

The acquisition was accounted for under the acquisition method of accounting in accordance with the Business Combinations topic of the FASB Accounting Standards Codification (Codification).
The statement of net assets acquired as of March 19, 2010, proceeds from the FDIC and the computation of the gain on bargain purchase related to the merger are presented in the table below. The assets and liabilities of American National were
recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. The pro forma consolidated condensed statements of income for the Company and American National for the periods ended
September 30, 2010 and 2009, are also presented below. The unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the merger been completed at the beginning of the
applicable periods presented, nor does it indicate the results of operations in future periods.



6



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Statement of Net
Assets Acquired (at fair value and in thousands)



|                                                                              |  |   |        |  
|----------------------------------------------------------------------------- |  | - | ------ | -
|ASSETS                                                                        |  |   |        |  
|                                                                              | 
|Cash and cash equivalents                                                     |  | $ | 16,328 |  
|Receivable from FDIC                                                          |  |   | 9,493  |  
|Covered loans                                                                 |  |   | 42,215 |  
|                                                                              | 
|Core deposit intangible                                                       |  |   | 280    |  
|FDIC loss share receivable                                                    |  |   | 3,309  |  
|Other assets                                                                  |  |   | 688    |  
|                                                                              |  |   |        |  
|Total assets                                                                  |  |   | 72,313 |  
|                                                                              |  |   |        |  
|                                                                              | 
|LIABILITIES                                                                   |  |   |        |  
|Deposits                                                                      |  |   | 64,671 |  
|Other liabilities                                                             |  |   | 2,645  |  
|                                                                              |  |   |        |  
|Total liabilities                                                             |  |   | 67,316 |  
|                                                                              |  |   |        |  
|Net assets acquired                                                           |  | $ | 4,997  |  
|                                                                              |  |   |        |  
|                                                                              | 
|Proceeds from FDIC & Gain on Purchase                                         |  |   |        |  
|                                                                              | 
|Proceeds from FDIC                                                            |  | $ | 9,493  |  
|ANB carrying value of net assets acquired                                     |  |   | 507    |  
|                                                                              |  |   |        |  
|Total Asset Discount                                                          |  |   | 10,000 |  
|                                                                              |  |   |        |  
|                                                                              | 
|Adjustments to reflect assets acquired and liabilities assumed at fair value: |  |   |        |  
|Covered loans                                                                 |  |   | (5,424 | )
|FDIC Loss share receivable                                                    |  |   | 3,309  |  
|Intangible assets                                                             |  |   | 280    |  
|Other assets                                                                  |  |   | (593   | )
|                                                                              |  |   |        |  
|Fair value of net assets acquired                                             |  |   | (2,428 | )
|                                                                              |  |   |        |  
|Gain on bargain purchase                                                      |  | $ | 7,572  |  
|                                                                              |  |   |        |  

The fair value of the loans acquired, excluding those considered impaired under the Receivables topic of the Codification,
is $39,892,000. The gross amount due under the contracts is $43,341,000, of which $2,572,000 is expected to be uncollectible. The fair value of impaired loans acquired is outlined in Note 4.



|                           |  |                             |       |  |                            |   |       |                   |  |   |                   |  |  |   |        | 
|-------------------------- |  | --------------------------- | ----- |  | -------------------------- | - | ----- | ----------------- |  | - | ----------------- |  |  | - | ------ | 
|                           |  | Pro formaThree Months
Ended |       |  | Pro formaNine Months
Ended |  
|                           |  | September 30,2010           |       |  | September 30,2009          |   |       | September 30,2010 |  |   | September 30,2009 | 
|                           |  | (thousands)                 |      
|Interest income            |  | $                           | 8,069 |  |                            | $ | 7,566 |                   |  | $ | 24,545            |  |  | $ | 22,445 | 
|Interest expense           |  |                             | 1,871 |  |                            |   | 2,209 |                   |  |   | 5,773             |  |  |   | 6,917  | 
|                           |  |                             |       |  |                            |   |       |                   |  |   |                   |  |  |   |        | 
|Net interest income        |  |                             | 6,198 |  |                            |   | 5,357 |                   |  |   | 18,772            |  |  |   | 15,528 | 
|Provision for loan losses  |  |                             | 225   |  |                            |   | 600   |                   |  |   | 1,243             |  |  |   | 1,532  | 
|Non-interest income        |  |                             | 1,888 |  |                            |   | 2,473 |                   |  |   | 14,563            |  |  |   | 14,319 | 
|Non-interest expenses      |  |                             | 6,194 |  |                            |   | 6,195 |                   |  |   | 20,520            |  |  |   | 18,242 | 
|                           |  |                             |       |  |                            |   |       |                   |  |   |                   |  |  |   |        | 
|Income before income taxes |  |                             | 1,667 |  |                            |   | 1,035 |                   |  |   | 11,572            |  |  |   | 10,073 | 
|                           |  |                             |       | 
|Income taxes               |  |                             | 450   |  |                            |   | 269   |                   |  |   | 3,559             |  |  |   | 3,081  | 
|                           |  |                             |       |  |                            |   |       |                   |  |   |                   |  |  |   |        | 
|Net income                 |  | $                           | 1,217 |  |                            | $ | 766   |                   |  | $ | 8,013             |  |  | $ | 6,992  | 
|                           |  |                             |       |  |                            |   |       |                   |  |   |                   |  |  |   |        | 

The pro forma consolidated condensed statements of income do not reflect any adjustments to American Nationals
historical provision for loan losses and goodwill impairment charges.



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Note 3: Securities

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



|                                               |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|---------------------------------------------- |  | ------------- | ------- |  | -------------------- | - | ----- | --------------------- |  | - | --------------------- | - |  | - | ------- | 
|Available-for-Sale Securities:                 |  | AmortizedCost |         |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | ApproximateFair Value |  
|September 30, 2010:                            |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|U.S. government sponsored entities             |  |               | 29,462  |  |                      |   | 27    |                       |  |   |                      |   |  |   | 29,489  | 
|Mortgage-backed securities:                    |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|U.S. Government sponsored entities-residential |  |               | 84,894  |  |                      |   | 3,276 |                       |  |   | (31                   | ) |  |   | 88,139  | 
|Private label-residential                      |  |               | 11,355  |  |                      |   | 469   |                       |  |   | (185                  | ) |  |   | 11,639  | 
|State and political subdivisions               |  |               | 16,131  |  |                      |   | 662   |                       |  |   |                      |   |  |   | 16,793  | 
|                                               |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|                                               |  | $             | 141,842 |  |                      | $ | 4,434 |                       |  | $ | (216                  | ) |  | $ | 146,060 | 
|                                               |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|                                               |  |               |         | 
|December 31, 2009:                             |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|U.S. government sponsored entities             |  |               | 14,633  |  |                      |   | 10    |                       |  |   | (17                   | ) |  |   | 14,626  | 
|Mortgage-backed securities:                    |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|U.S. Government sponsored entities-residential |  |               | 95,298  |  |                      |   | 2,083 |                       |  |   | (220                  | ) |  |   | 97,161  | 
|Private label-residential                      |  |               | 13,030  |  |                      |   | 364   |                       |  |   | (623                  | ) |  |   | 12,771  | 
|State and political subdivisions               |  |               | 17,431  |  |                      |   | 438   |                       |  |   | (3                    | ) |  |   | 17,866  | 
|                                               |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 
|                                               |  | $             | 140,392 |  |                      | $ | 2,895 |                       |  | $ | (863                  | ) |  | $ | 142,424 | 
|                                               |  |               |         |  |                      |   |       |                       |  |   |                       |   |  |   |         | 

The amortized cost and fair value of securities available for sale at September 30, 2010, 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 penalties.



|                                   |  |               |         |  |           |   |         | 
|---------------------------------- |  | ------------- | ------- |  | --------- | - | ------- | 
|                                   |  | AmortizedCost |         |  | FairValue |  
|One year or less                   |  | $             | 29,463  |  |           | $ | 29,489  | 
|After one year through five years  |  |               | 3,601   |  |           |   | 3,787   | 
|After five years through ten years |  |               | 5,316   |  |           |   | 5,550   | 
|After ten years                    |  |               | 7,213   |  |           |   | 7,456   | 
|                                   |  |               |         |  |           |   |         | 
|                                   |  |               | 45,593  |  |           |   | 46,282  | 
|                                   |  |              
|Mortgage-backed securities         |  |               | 96,249  |  |           |   | 99,778  | 
|                                   |  |               |         |  |           |   |         | 
|Totals                             |  | $             | 141,842 |  |           | $ | 146,060 | 
|                                   |  |               |         |  |           |   |         | 

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $48,890,000 at
September 30, 2010 and $49,966,000 at December 31, 2009.

No securities were sold in the first nine months of 2010; however, there
was a write down on one collateral mortgage obligation of $50,000 in 2010 due to an other-than-temporary impairment charge. Gross gains of $38,000 were realized on premium calls on municipal bonds in 2009.



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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 September 30, 2010 and December 31, 2009. (Thousands)



|                                               |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|---------------------------------------------- | --------- | ------------------- | ------ | -------------- | ----------------- | - | --------- | ----- |  | -------------- | ----- |  | --------- | - | ---- | -------------- |  | - | ------ |  |  | - | ---- | -
|                                               |           | Less than 12 months |        |                | 12 months or more |   |           | Total | 
|                                               | FairValue |                     |        | UnrealizedLoss |                   |   | FairValue |       |  | UnrealizedLoss |       |  | FairValue |   |      | UnrealizedLoss | 
|September 30, 2010                             |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|                                               |           |                     |        |                |                   |  
|Mortgage-backed securities:                    |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|U.S. Government-sponsored entities-residential |           | $                   | 4,773  |                |                   | $ | (31       | )     |  | $              |      |  |           | $ |     |                |  | $ | 4,773  |  |  | $ | (31  | )
|Private label-residential                      |           |                     |       |                |                   |   |          |       |  |                | 1,421 |  |           |   | (185 | )              |  |   | 1,421  |  |  |   | (185 | )
|                                               |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|Total Securities                               |           | $                   | 4,773  |                |                   | $ | (31       | )     |  | $              | 1,421 |  |           | $ | (185 | )              |  | $ | 6,194  |  |  | $ | (216 | )
|                                               |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|                                               |           |                     |        |                |                   |  
|December 31, 2009                              |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|                                               |           |                     |        |                |                   |  
|U.S. Government sponsored entity notes         |           | $                   | 9,517  |                |                   | $ | (17       | )     |  | $              |      |  |           | $ |     |                |  | $ | 9,517  |  |  | $ | (17  | )
|                                               |           |                     |        |                |                   |  
|Mortgage-backed securities:                    |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|U.S. Government-sponsored entities-residential |           |                     | 11,632 |                |                   |   | (220      | )     |  |                |       |  |           |   |      |                |  |   | 11,632 |  |  |   | (220 | )
|Private label-residential                      |           |                     | 10,485 |                |                   |   | (90       | )     |  |                | 2,288 |  |           |   | (533 | )              |  |   | 12,773 |  |  |   | (623 | )
|States and political subdivisions              |           |                     | 1,008  |                |                   |   | (3        | )     |  |                |      |  |           |   |     |                |  |   | 1,008  |  |  |   | (3   | )
|                                               |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  
|Total Securities                               |           | $                   | 32,642 |                |                   | $ | (330      | )     |  | $              | 2,288 |  |           | $ | (533 | )              |  | $ | 34,930 |  |  | $ | (863 | )
|                                               |           |                     |        |                |                   |   |           |       |  |                |       |  |           |   |      |                |  |   |        |  |  |   |      |  

The unrealized losses of $216,000 at September 30, 2010 is primarily due to one private-label collateralized mortgage
obligation with an unrealized loss of $181,000, which has been downgraded by three major bond rating agencies. Based on managements review of the underlying collateral performance and estimate of projected future cash flows, the bank
recognized an additional temporary impairment charge of $50,000 in the first quarter of 2010. An impairment charge of $150,000 was recognized on the same security in the fourth quarter of 2009. During the third quarter of 2010, approximately $16,000
of losses were realized on this security. These initial losses were in line with prior period loss projections.

Other-than-temporary Impairment

Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment
under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized
financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities. For securities where the security is a beneficial interest in securitized
financial assets, the Company uses the beneficial interests in securitized financial asset impairment model. For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity
securities impairment model.

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine
whether an other-than-temporary impairment has occurred. Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities. While all securities are considered, the securities primarily impacted by
other-than-temporary impairment testing are private-label mortgage-backed securities. For each private-label mortgage-backed security in the investment portfolio (including but not limited to those whose fair value is less than their amortized cost
basis), an extensive, regular review is conducted to determine if an other-than-temporary impairment has occurred. Various inputs to the economic models are used to determine if an unrealized loss is other-than-temporary.



9



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The most significant inputs are the
following:



| |  |  | Default Rate
| | - |  | ------------



| |  |  | Severity
| | - |  | --------



| |  |  | Prepayments
| | - |  | -----------

Other inputs
may include the actual collateral attributes, which include geographic concentrations, credit ratings and other performance indicators of the underlying asset.

To determine if the unrealized loss for private label mortgage-backed securities is other-than-temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies
that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates the current credit enhancement underlying the bond to determine the
impact on cash flows. If the Company determines that a given mortgage-backed security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

For the security for which an other-than-temporary impairment was determined to have occurred as of September 30, 2010 (that is, a determination was
made that the entire amortized cost bases will not likely be recovered), the following table presents the inputs used to estimate the securitys projected cash flows and projected credit losses. The table shows the projected weighted average
default rates and loss severities for the recent-vintage private-label mortgage-backed securities portfolios at September 30, 2010.



|                                                  |  |              |      |   |          |  |      |  
|------------------------------------------------- |  | ------------ | ---- | - | -------- |  | ---- | -
|                                                  |  | Default Rate |      |   | Severity | 
|Alt-A Subprime collateralized mortgage obligation |  |              | 21.3 | % |          |  | 56.1 | %

Credit Losses
Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to
other market factors, but are not otherwise other-than-temporarily impaired.

The following table provides information about debt securities
for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (thousands):



|                                                                           |  |                               |      |  
|-------------------------------------------------------------------------- |  | ----------------------------- | ---- | -
|                                                                           |  | AccumulatedCredit 
Losses2010 |     
|Credit losses on debt securities held                                      |  |                               |      |  
|Balance, beginning of year                                                 |  | $                             | (150 | )
|Additions related to other-than-temporary losses not previously recognized |  |                               | (50  | )
|Reductions related to losses realized which were previously recognized     |  |                               | 16   |  
|                                                                           |  |                               |      |  
|Balance, end of period                                                     |  | $                             | (184 | )
|                                                                           |  |                               |      |  



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Note 4: Loans

Categories of loans include (thousands):



|                                                     |  |                   |         |   |                  |   |         |  
|---------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                     |  | September 30,2010 |         |   | December 31,2009 |  
|Commercial and industrial                            |  | $                 | 67,569  |   |                  | $ | 58,013  |  
|Agricultural                                         |  |                   | 30,740  |   |                  |   | 28,130  |  
|Real estate construction                             |  |                   | 4,420   |   |                  |   | 6,732   |  
|Commercial real estate                               |  |                   | 180,158 |   |                  |   | 133,545 |  
|Residential real estate                              |  |                   | 131,116 |   |                  |   | 153,172 |  
|Consumer                                             |  |                   | 12,877  |   |                  |   | 15,995  |  
|                                                     |  |                   |         |   |                  |   |         |  
|Total loans                                          |  |                   | 426,880 |   |                  |   | 395,587 |  
|                                                     |  |                  
|Less: Net deferred loan fees, premiums and discounts |  |                   | (38     | ) |                  |   | (39     | )
|Allowance for loan losses                            |  |                   | (3,935  | ) |                  |   | (3,776  | )
|                                                     |  |                   |         |   |                  |   |         |  
|Net loans                                            |  | $                 | 422,907 |   |                  | $ | 391,772 |  
|                                                     |  |                   |         |   |                  |   |         |  

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



|                           |  |                                 |        |   |      |   |        |  
|-------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                           |  | Nine Months Ended September 30, |       
|                           |  | 2010                            |        |   | 2009 |  
|Balance, beginning of year |  | $                               | 3,776  |   |      | $ | 3,411  |  
|Provision for loan losses  |  |                                 | 1,185  |   |      |   | 650    |  
|Recoveries                 |  |                                 | 178    |   |      |   | 209    |  
|Charge-offs                |  |                                 | (1,204 | ) |      |   | (1,261 | )
|                           |  |                                 |        |   |      |   |        |  
|Balance, end of period     |  | $                               | 3,935  |   |      | $ | 3,009  |  
|                           |  |                                 |        |   |      |   |        |  

The following table sets forth information regarding the Companys investment in impaired loans (thousands):



|                                                    |  |                   |       |  |                  |   |       | 
|--------------------------------------------------- |  | ----------------- | ----- |  | ---------------- | - | ----- | 
|                                                    |  | September 30,2010 |       |  | December 31,2009 |  
|Impaired loans requiring an allowance valuation     |  | $                 | 3,987 |  |                  | $ | 9,200 | 
|Impaired loans not requiring an allowance valuation |  |                   | 2,984 |  |                  |   | 790   | 
|                                                    |  |                   |       |  |                  |   |       | 
|Total impaired loans                                |  |                   | 6,971 |  |                  |   | 9,990 | 
|                                                    |  |                   |       |  |                  |   |       | 
|Valuation allowance on impaired loans               |  |                   | 1,213 |  |                  |   | 1,635 | 
|                                                    |  |                   |       |  |                  |   |       | 

Non-accruing loans and accruing loans delinquent 90 days or more were as follows (thousands):



|                                          |  |                   |       |  |                  |   |       | 
|----------------------------------------- |  | ----------------- | ----- |  | ---------------- | - | ----- | 
|                                          |  | September 30,2010 |       |  | December 31,2009 |  
|Non-accruing loans                        |  | $                 | 8,847 |  |                  | $ | 6,857 | 
|                                          |  |                   |       |  |                  |   |       | 
|Accruing loans delinquent 90 days or more |  | $                 |      |  |                  | $ | 19    | 
|                                          |  |                   |       |  |                  |   |       | 

The Company acquired loans in the American National acquisition on March 19, 2010 and the acquisition by merger of The
Community National Bank on December 31, 2009. At the time of each acquisition, there was evidence of deterioration of credit quality since origination for which it was probable, at acquisition, that all contractually required payments would not



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be collected. Accounting Codification Standard (ASC) 310-30 requires that acquired credit-impaired loans be recorded at fair value and prohibits carryover of the related allowance for
loan losses. Loans within the scope of this accounting standard were initially recorded by the Company at fair value. The process of estimating fair value involves estimating the principal and interest cash flows expected to be collected on the
credit impaired loans and discounting those cash flows at a market rate of interest. Under this accounting standard, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is
recognized into interest income over the remaining life of the loan in situations where there is reasonable expectation about the timing and amount of cash flows collected. The difference between contractually required payments at acquisition and
the cash flows expected at acquisition to be collected, considering the impact of prepayments, is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a charge to the provision for
loan losses resulting in an increase to the allowance for loan losses. Subsequent increases in cash flows result in reversal of non-accretable discount (or allowance for loan losses to the extent any had been recorded) with a positive impact on
interest income. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower, foreclosure, or troubled debt restructurings result in removal of the loan from the impaired loan portfolio at its carrying amount.
Loans subject to this accounting standard are written down to an amount estimated to be collectible. Accordingly, such loans are no longer classified as nonaccrual even though they may be contractually past due. We expect to fully collect the new
carrying values of such loans. If a loan, or a pool of loans, deteriorates post acquisition, a provision for loan losses is recorded. Acquired loans subject to this accounting standard are also excluded from the disclosure of loans 90 days or more
past due and still accruing interest; however, the Banks regulatory reporting instructions require these loans to be reported as past due based upon the borrowers contractual obligations. Even though substantially all of them are 90 days
or more contractually past due, they are considered to be accruing because the interest income on these loans relates to the establishment of an accretable yield.

The carrying amount of those loans is included in the balance sheet amounts of loans receivable at September 30, 2010. The amounts are as follows (thousands):



|                                         |  |   |       | 
|---------------------------------------- |  | - | ----- | 
|Commercial                               |  | $ | 6,553 | 
|Consumer                                 |  |   | 112   | 
|                                         |  |   |       | 
|Outstanding balance                      |  | $ | 6,665 | 
|                                         |  |   |       | 
|Carrying amount, net of discount of $704 |  | $ | 5,288 | 
|                                         |  |   |       | 
|Accretable yield                         |  | $ | 207   | 
|                                         |  |   |       | 

Accretable yield, or income expected to be collected, is as follows (thousands):



|                              |  |   |      |  
|----------------------------- |  | - | ---- | -
|Balance at December 31, 2009  |  | $ | 169  |  
|Additions                     |  |   | 247  |  
|Accretion                     |  |   | (209 | )
|                              |  |   |      |  
|Balance at September 30, 2010 |  | $ | 207  |  
|                              |  |   |      |  

Loans acquired during 2010 for which it was probable at acquisition that all contractually required payments would not be
collected are as follows (thousands):



|                                                           |  |      |       | 
|---------------------------------------------------------- |  | ---- | ----- | 
|                                                           |  | 2010 |      
|Contractually required payments receivable at acquisition: |  |      |       | 
|Commercial                                                 |  | $    | 6,485 | 
|Consumer                                                   |  |      | 435   | 
|                                                           |  |      |       | 
|Subtotal                                                   |  | $    | 6,920 | 
|                                                           |  |      |       | 
|Cash flows expected to be collected at acquisition         |  | $    | 2,442 | 
|                                                           |  |      |       | 
|Basis in acquired loans at acquisition                     |  | $    | 2,304 | 
|                                                           |  |      |       | 



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Note 5: Goodwill

Goodwill was $3,625,000 at September 30, 2010 and $3,825,000 at December 31, 2009. The decline in goodwill relates to the sale of the insurance
agency in the first quarter of 2010.

Note 6: Long-Term Debt

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



|                                |  |                   |        |  |                  |   |        | 
|------------------------------- |  | ----------------- | ------ |  | ---------------- | - | ------ | 
|                                |  | September 30,2010 |        |  | December 31,2009 |  
|Federal Home Loan Bank advances |  | $                 | 5,000  |  |                  | $ | 29,500 | 
|Junior subordinated debentures  |  |                   | 10,310 |  |                  |   | 10,310 | 
|                                |  |                   |        |  |                  |   |        | 
|Total                           |  | $                 | 15,310 |  |                  | $ | 39,810 | 
|                                |  |                   |        |  |                  |   |        | 

On June 25, 2007, NB&T Statutory Trust III (Trust III), a wholly owned subsidiary of the Corporation,
closed a pooled private offering of 10,000 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 III 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 III under the Capital Securities. Distributions on the Capital Securities are payable quarterly at a fixed interest rate of 7.071% through September 6, 2012 and thereafter at the annual
rate of 1.50% over the 3 month LIBOR. Distributions on the Capital Securities are included in interest expense in the consolidated financial statements. These securities are considered Tier I capital (with certain limitations applicable) under
current regulatory guidelines.

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 September 6, 2037, at the option of the Corporation. On or after September 6, 2012, the Capital Securities are redeemable at par. Upon occurrence of specific events defined within the trust indenture, the Capital Securities may
also be redeemed prior to September 6, 2012 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.

As of September 30, 2010 and December 31, 2009, the outstanding principal balance of the Capital Securities was $10,000,000. As required by the
Consolidation Topic of the Codification, the Company accounts for its investment in the trust as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense.

Note 7: Commitments

Outstanding
commitments to extend credit as of September 30, 2010 totaled $69,462,000. Standby letters of credit as of September 30, 2010 totaled $2,234,000.



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Note 8: Earnings Per Share

The factors used in the earnings per share computation were as follows (thousands, except share and per share amounts):



|                                                     |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|---------------------------------------------------- |  | -------------------------------- | --------- |  | ------------------------------- | - | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                                                     |  | Three Months Ended September 30, |           |  | Nine Months Ended September 30, |  
|                                                     |  | 2010                             |           |  | 2009                            |   |           | 2010 |  |   | 2009      | 
|Numerator:                                           |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|Net income                                           |  | $                                | 1,217     |  |                                 | $ | 992       |      |  | $ | 8,091     |  |  | $ | 2,460     | 
|                                                     |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|                                                     |  |                                  |           | 
|Denominator:                                         |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|Weighted-average common shares outstanding (basic)   |  |                                  | 3,398,773 |  |                                 |   | 3,151,546 |      |  |   | 3,398,781 |  |  |   | 3,151,751 | 
|Effect of stock options                              |  |                                  | 1,457     |  |                                 |   |          |      |  |   | 902       |  |  |   |          | 
|                                                     |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|                                                     |  |                                  |           | 
|Weighted-average common shares outstanding (diluted) |  |                                  | 3,400,230 |  |                                 |   | 3,151,546 |      |  |   | 3,399,683 |  |  |   | 3,151,751 | 
|                                                     |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|                                                     |  |                                  |           | 
|Earnings per share:                                  |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|Basic                                                |  | $                                | .36       |  |                                 | $ | .32       |      |  | $ | 2.38      |  |  | $ | .79       | 
|                                                     |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 
|Diluted                                              |  | $                                | .36       |  |                                 | $ | .32       |      |  | $ | 2.38      |  |  | $ | .79       | 
|                                                     |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   |           | 

For the three months ended September 30, 2010 and September 30, 2009, stock options covering 248,000 and 225,000
shares of common stock, respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair market value of the Companys common shares.

Note 9: Comprehensive Income

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



|                                                                                                                                             |  |                                  |     |  |                                |   |       |      |  |   |       |  |  |   |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | --- |  | ------------------------------ | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                                                                                                             |  | Three Months 
EndedSeptember 30, |     |  | Nine Months
EndedSeptember 30, |  
|                                                                                                                                             |  | 2010                             |     |  | 2009                           |   |       | 2010 |  |   | 2009  | 
|Unrealized gains on securities available for sale                                                                                            |  | $                                | 439 |  |                                | $ | 1,148 |      |  | $ | 2,079 |  |  | $ | 2,134 | 
|                                                                                                                                             |  |                                  |     | 
|Net unrealized gain on available-for-sale securities for which a portion of an other-than-temporary impairment has been
recognized in income |  |                                  |    |  |                                |   |      |      |  |   | 59    |  |  |   |      | 
|                                                                                                                                             |  |                                  |     | 
|Reclassification for realized amount included in income                                                                                      |  |                                  |    |  |                                |   | 5     |      |  |   | 50    |  |  |   | 43    | 
|                                                                                                                                             |  |                                  |     |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Other comprehensive income, before tax effect                                                                                                |  |                                  | 439 |  |                                |   | 1,153 |      |  |   | 2,188 |  |  |   | 2,177 | 
|Tax expense                                                                                                                                  |  |                                  | 149 |  |                                |   | 392   |      |  |   | 744   |  |  |   | 740   | 
|                                                                                                                                             |  |                                  |     |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Other comprehensive income                                                                                                                   |  | $                                | 290 |  |                                | $ | 761   |      |  | $ | 1,444 |  |  | $ | 1,437 | 
|                                                                                                                                             |  |                                  |     |  |                                |   |       |      |  |   |       |  |  |   |       | 



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Total comprehensive income was as
follows (thousands):



|                           |  |                                  |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|-------------------------- |  | -------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                           |  | Three Months 
EndedSeptember 30, |       |  | Nine Months
EndedSeptember 30, |  
|                           |  | 2010                             |       |  | 2009                           |   |       | 2010 |  |   | 2009  | 
|Net Income                 |  | $                                | 1,217 |  |                                | $ | 992   |      |  | $ | 8,091 |  |  | $ | 2,460 | 
|Other Comprehensive Income |  |                                  | 290   |  |                                |   | 761   |      |  |   | 1,444 |  |  |   | 1,437 | 
|                           |  |                                  |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Total Comprehensive Income |  | $                                | 1,507 |  |                                | $ | 1,753 |      |  | $ | 9,535 |  |  | $ | 3,897 | 
|                           |  |                                  |       |  |                                |   |       |      |  |   |       |  |  |   |       | 

Note 10: Accounting for Uncertainty in Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal and Ohio jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local
examinations by tax authorities for years before 2007.

The Income Taxes Topic of the Codification prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. As of September 30, 2010, the Company did not identify any uncertain tax positions that it believes should be recognized in the financial statements.

Note 11: Fair Value of Assets and Liabilities

The Company has adopted Fair Value Measurements as prescribed under the Financial Instruments Topic of the Codification. The Codification defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements, and the updated standard has been applied prospectively as of the beginning of the period.

The Financial Instruments Topic of the Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The accounting standard also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
accounting standard describes three levels of inputs that may be used to measure fair value:



|        |  |                                                                                                                                                                                                                                                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | Quoted prices in active markets for identical assets or liabilities                                                                                                                                                                                                                                  
|        | 
|Level 2 |  | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
|        | 
|Level 3 |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities                                                                                                                                                       

Available-for-Sale Securities

The fair values of available-for-sale securities are determined by various valuation methodologies. Level 2 securities include U.S. government agencies, mortgage-backed securities, and obligations of
political and state subdivisions. Level 2 inputs do not include quoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observable for the individual security being valued.
Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates. Also included are inputs derived principally from or corroborated by observable market data
by correlation or other means.



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The following table presents the fair
value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2010 and December 31, 2009 (thousands):



|                               |  |           |         |  |                                                             |   |   |                                             |  |   |                                          |  |  |   |   | 
|------------------------------ |  | --------- | ------- |  | ----------------------------------------------------------- | - | - | ------------------------------------------- |  | - | ---------------------------------------- |  |  | - | - | 
|                               |  |           |         |  | Fair Value Measurements at Report Date Using                |  
|Description                    |  | FairValue |         |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |   | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservable 
Inputs(Level 3) | 
|Available-for-sale securities: |  |           |         |  |                                                             |   |   |                                             |  |   |                                          |  |  |   |   | 
|September 30, 2010             |  | $         | 146,060 |  |                                                             | $ |  |                                             |  | $ | 146,060                                  |  |  | $ |  | 
|December 31, 2009              |  | $         | 142,424 |  |                                                             | $ |  |                                             |  | $ | 142,424                                  |  |  | $ |  | 

The following is a description of the
valuation methodologies used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Impaired Loans

At
September 30, 2010 and December 31, 2009, collateral-dependent impaired loans consisted primarily of loans secured by commercial real estate. Management has determined fair value measurements on impaired loans primarily through evaluations
of appraisals performed. As of September 30, 2010, impaired loans of approximately $802,000 are secured by accounts receivable and equipment. In addition, there are three mortgage loans secured by residential properties where fair value
measurements have been derived primarily through evaluations of appraisals performed. Management has determined fair value measurements based on managements assessment of the collectability of current receivables and research of current
equipment values.

Foreclosed assets

Real estate acquired through, or in lieu of, loan foreclosure is held for sale and initially recorded at fair value (based on current appraised 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 estimated costs to sell. Management has determined fair value measurements on real
estate owned primarily through evaluations of appraisals performed.

The following table presents the fair value measurements of assets and
liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2010 and December 31, 2009 (thousands):



|                       |  |           |       |  |                                                             |   |   |                                            |  |   |                                          |  |  |   |       | 
|---------------------- |  | --------- | ----- |  | ----------------------------------------------------------- | - | - | ------------------------------------------ |  | - | ---------------------------------------- |  |  | - | ----- | 
|                       |  |           |       |  | Fair Value Measurements at Report Date Using                |  
|Description            |  | FairValue |       |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |   | Significant OtherObservableInputs(Level 2) |  |   | SignificantUnobservable 
Inputs(Level 3) | 
|September 30, 2010:    |  |           |       |  |                                                             |   |   |                                            |  |   |                                          |  |  |   |       | 
|Impaired loans         |  | $         | 3,587 |  |                                                             | $ |  |                                            |  | $ |                                         |  |  | $ | 3,587 | 
|Foreclosed assets, net |  |           | 1,614 |  |                                                             |   |  |                                            |  |   |                                         |  |  |   | 1,614 | 
|                       |  |           |       | 
|December 31, 2009:     |  |           |       |  |                                                             |   |   |                                            |  |   |                                          |  |  |   |       | 
|Impaired loans         |  | $         | 7,565 |  |                                                             | $ |  |                                            |  | $ |                                         |  |  | $ | 7,565 | 
|Foreclosed assets, net |  |           | 3,405 |  |                                                             |   |  |                                            |  |   |                                         |  |  |   | 3,405 | 

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



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know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate (thousands):



|                                         |  |                    |         |  |                   |   |         |                |  |   |           |  |  |   |         | 
|---------------------------------------- |  | ------------------ | ------- |  | ----------------- | - | ------- | -------------- |  | - | --------- |  |  | - | ------- | 
|                                         |  | September 30, 2010 |         |  | December 31, 2009 |  
|                                         |  | CarryingAmount     |         |  | FairValue         |   |         | CarryingAmount |  |   | FairValue | 
|Financial assets                         |  |                    |         |  |                   |   |         |                |  |   |           |  |  |   |         | 
|Cash and cash equivalents                |  | $                  | 57,365  |  |                   | $ | 57,365  |                |  | $ | 53,599    |  |  | $ | 53,599  | 
|Available-for-sale securities            |  |                    | 146,060 |  |                   |   | 146,060 |                |  |   | 142,424   |  |  |   | 142,424 | 
|Loans including loans held for sale, net |  |                    | 423,339 |  |                   |   | 430,964 |                |  |   | 392,046   |  |  |   | 397,425 | 
|Stock in FRB and FHLB                    |  |                    | 10,021  |  |                   |   | 10,021  |                |  |   | 9,847     |  |  |   | 9,847   | 
|Earned income receivable                 |  |                    | 2,952   |  |                   |   | 2,952   |                |  |   | 3,053     |  |  |   | 3,053   | 
|FDIC loss share receivable               |  |                    | 2,232   |  |                   |   | 2,232   |                |  |   |          |  |  |   |        | 
|                                         |  |                    |         | 
|Financial liabilities                    |  |                    |         |  |                   |   |         |                |  |   |           |  |  |   |         | 
|Deposits                                 |  |                    | 571,723 |  |                   |   | 576,045 |                |  |   | 541,422   |  |  |   | 543,226 | 
|Short-term borrowings                    |  |                    | 24,950  |  |                   |   | 24,950  |                |  |   | 406       |  |  |   | 406     | 
|Long-term debt                           |  |                    | 15,310  |  |                   |   | 16,179  |                |  |   | 39,810    |  |  |   | 41,173  | 
|Interest payable                         |  |                    | 450     |  |                   |   | 450     |                |  |   | 488       |  |  |   | 488     | 

For purposes of the above disclosures
of estimated fair value, the following assumptions were used as of September 30, 2010 and December 31, 2009. The estimated fair value for cash and cash equivalents, interest-bearing deposits, FRB and FHLB stock, earned income 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 loans receivable, including loans held for sale, net, is
based on estimates of the rate the Bank would charge for similar loans at September 30, 2010 and December 31, 2009 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 September 30, 2010 and December 31, 2009, 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. At September 30, 2010 and December 31, 2009, the fair value of commitments was not material.

The FDIC loss share receivable is measured separately from the related covered assets as it is not contractually embedded in the assets and is not transferable with the assets should the Bank choose to
dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreement based on the expected reimbursements for losses and the applicable loss sharing percentages. These expected reimbursements do not include
reimbursable amounts related to future covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC.

Note 12: Effect of Recent Accounting Standards

In July 2010, the FASB issued an update to the Financial Accounting Standards Codification (ASU No. 2010-20), which requires companies to provide more information in their financial statement
disclosures about the credit quality of their loans and the credit reserves held against them. The additional disclosures include aging of past-due loans, credit quality indicators and modifications of loans. For public companies, the amendments
that require disclosures as of the end of a reporting period are effective for periods ending on or after Dec. 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning
on or after Dec. 15, 2010.



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Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

NB&T Financial Group, Inc.

Wilmington, Ohio

We have reviewed the accompanying condensed consolidated balance sheet of NB&T Financial Group, Inc. as of September 30, 2010 and the related
condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2010 and 2009 and cash flows for the nine-month periods ended September 30, 2010 and 2009. These interim financial statements are
the responsibility of the Companys management.

We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to
the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2009 and the related
consolidated statements of income, stockholders equity and cash flows for the year then ended (not presented herein); and in our report dated March 16, 2010, we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ BKD, LLP

Cincinnati, Ohio

November 11, 2010



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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net income for the third quarter of 2010 increased 22.7% to $1.2 million, or $.36 per share, from net income of $992,000, or $.32 per share, for the third quarter of 2009. Average earning assets for the
third quarter of 2010 were $639.7 million, compared to $506.8 million for the third quarter of 2009. These increases are primarily attributable to the acquisitions of Community National Bank (CNB) in December 2009 and American National
Bank (ANB) in March 2010. These acquisitions also contributed to net income for the first nine months of 2010, increasing to $8.1 million, or $2.38 per share, from net income of $2.5 million, or $.79 per share, for the first nine months
of 2009. The increase in net income over the same nine months of last year is primarily due to the bargain purchase pre-tax gain of approximately $7.6 million in the Federal Deposit Insurance Corporation (FDIC) assisted acquisition of
certain of the assets and liabilities of ANB, as well as a $4.5 million increase in net interest income largely offset by a $3.5 million increase in non-interest expenses, and a $3.1 million increase in income taxes. In addition, the Company
realized a pre-tax gain of $1.4 million on the sale of its insurance agency in January 2010.

Net Interest Income

Net interest income was $6.2 million for the third quarter of 2010, compared to $4.8 million for the third quarter of 2009. Net interest
margin increased to 3.84% for the third quarter of 2010, compared to 3.72% for the same quarter last year. The net interest margin increased primarily due to two factors. First, average loans outstanding for 2010, which had an average rate of 6.20%,
increased $99.5 million, largely a result of the CNB and ANB acquisitions. Second, the average cost of interest-bearing liabilities declined from 1.73% in the third quarter of 2009 to 1.40% in the third quarter of 2010 on increased average deposits
of $129.9 million. Due to increased liquidity, the Company was able to lower rates on non-transaction accounts over the last year.

Provision for Loan Losses

The provision for loan losses for the third quarter of 2010 was
$225,000, compared to $175,000 in the same quarter last year. Net charge-offs were $133,000 in the third quarter of 2010, compared to $78,000 in the third quarter of 2009. The provision for loan losses was higher due to an increased general
allowance related to the estimated negative impact of current economic conditions on commercial real estate collateral values and an increased level of non-performing loans. Non-performing loans increased approximately $1.30 million during the third
quarter of 2010 to $8.8 million, primarily due to one mortgage loan of $655,000 and two commercial real estate relationships of approximately $510,000. The provision for loan losses for the first nine months of 2010 was $1.2 million, compared to
$650,000 for the first nine months of 2009.

Non-interest Income

Total non-interest income was $1.9 million for the third quarter of 2010, compared to $2.2 million for the third quarter of 2009. The decline in
non-interest income is largely the result of lost commission income from the sale of the Companys insurance agency subsidiary in January 2010, offset by increased service charges, NSF fees and debit card interchange income from the deposit
accounts acquired in December 2009 and March 2010. Total non-interest income was $14.5 million for the first nine months of 2010, compared to $6.3 million for the first nine months of 2009. The increase is due to the bargain purchase gain of $7.6
million from the ANB acquisition and the $1.4 million pre-tax gain on the sale of the Companys insurance agency subsidiary.

Non-interest Expense

Total non-interest expense was $6.2 million for the third quarter of
2010, compared to $5.5 million for the third quarter of 2009. The increase for the quarter was due to increased personnel and operating expenses of approximately $494,000 related to the acquired CNB and ANB branches and increased FDIC insurance
assessments and core deposit amortization expense related to the acquired deposits. Non-interest expense was $20.0 million for the first nine months of 2010, compared to $16.5 million for the first nine months of 2009, again primarily due to the
recent acquisitions. Personnel and occupancy costs have increased with the addition of the six branches. Data processing expense is up due to the systems conversions and number of accounts processed. FDIC insurance expense and professional fees have
increased with additional deposits and acquisition-related services, respectively. Finally, the Company has also accrued a bonus provision for 2010, compared to no bonus provision in 2009.



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Income Taxes

The provision for income taxes for the third quarter of 2010 was $450,000, or 27.0%, compared to $269,000, or 21.3%, for the third quarter
of 2009. The provision for income taxes for the first nine months of 2010 was $3.6 million, or 30.5%, compared to $507,000, or 17.1% for the first nine months of 2009. The increase in the effective tax rate for the third quarter and first nine
months of 2010 is primarily due to the increase in taxable income at the full 34% marginal rate.

Financial Condition

The changes that have occurred in the Companys financial condition during 2010 are as follows (in thousands):



|                            |  |                   |         |  |                  |   |         |             |  |   |         |   |  |  |       |  
|--------------------------- |  | ----------------- | ------- |  | ---------------- | - | ------- | ----------- |  | - | ------- | - |  |  | ----- | -
|                            |  |                   |         |  |                  |   |         | 2010 Change | 
|                            |  | September 30,2010 |         |  | December 31,2009 |   |         | Amount      |  |   | Percent |  
|Total assets                |  | $                 | 691,199 |  |                  | $ | 649,340 |             |  | $ | 41,859  |   |  |  | 6.5   |  
|Interest-bearing deposits   |  |                   | 47,388  |  |                  |   | 40,759  |             |  |   | 6,629   |   |  |  | 16.3  |  
|Federal funds sold          |  |                   | 434     |  |                  |   | 448     |             |  |   | (14     | ) |  |  | (3.1  | )
|Loans, net*                 |  |                   | 423,339 |  |                  |   | 392,046 |             |  |   | 31,293  |   |  |  | 8.0   |  
|Securities                  |  |                   | 146,060 |  |                  |   | 142,424 |             |  |   | 3,636   |   |  |  | 2.6   |  
|Demand deposits             |  |                   | 90,173  |  |                  |   | 89,827  |             |  |   | 346     |   |  |  | .4    |  
|Savings, NOW, MMDA deposits |  |                   | 289,023 |  |                  |   | 262,629 |             |  |   | 26,394  |   |  |  | 10.1  |  
|CDs $100,000 and over      |  |                   | 48,531  |  |                  |   | 42,318  |             |  |   | 6,213   |   |  |  | 14.7  |  
|Other time deposits         |  |                   | 143,996 |  |                  |   | 146,648 |             |  |   | (2,652  | ) |  |  | (1.8  | )
|Total deposits              |  |                   | 571,723 |  |                  |   | 541,422 |             |  |   | 30,301  |   |  |  | 5.6   |  
|Short-term borrowings       |  |                   | 24,950  |  |                  |   | 406     |             |  |   | 24,544  |   |  |  | NM    |  
|Long-term borrowings        |  |                   | 15,310  |  |                  |   | 39,810  |             |  |   | (24,500 | ) |  |  | (61.5 | )
|Stockholders equity        |  |                   | 71,301  |  |                  |   | 64,485  |             |  |   | 6,816   |   |  |  | 10.6  |  



|* | Includes loans held for sale
|- | ----------------------------

At
September 30, 2010, total assets were $691.2 million, an increase of $41.9 million from December 31, 2009. The increase is primarily attributable to the purchase on March 19, 2010, of approximately $72.3 million in total assets of
ANB. Since acquisition, out-of-state time deposits have been redeemed, reducing total time deposits acquired and available cash on hand.

Average total assets increased $145.9 million, or 26.3%, to $699.8 million from the third quarter of 2009. Average total gross loans increased to $432.2
million, an increase of $99.5 million from the same quarter last year. The increase is largely the result of the acquisition of CNB on December 31, 2009 with $59.2 million in loans acquired. The loans acquired from CNB consisted of $22.6
million in commercial loans and $36.6 million in 1-4 family mortgage loans. In addition, the purchase of ANBs business added $42.2 million in loans on March 19, 2010. A majority of the loans acquired from ANB were commercial real estate
loans. Although commercial real estate loan volume increased throughout 2009 and 2010 as many business borrowers sought out new lenders, outstanding balances for residential mortgages and consumer loans declined. Residential mortgage balances,
excluding those acquired from CNB, declined due to increased sales of fixed-rate loans into the secondary market, and consumer loans continued to decline due to the Companys departure from the indirect lending market in 2006. The excess funds
from the slower loan volume were reinvested in securities, which increased to $151.5 million on average in the third quarter of 2010, an increase of $26.2 million from the same quarter last year. In addition, excess funds have been invested in
interest-bearing deposits and federal funds sold, which have increased $6.4 million on average, from the same quarter last year.

Average
total deposit liabilities increased $130.0 million for the third quarter of 2010 to $580.8 million, compared to an average of $451.0 million for the same quarter last year. Deposits of $75.5 million, including transaction accounts of $22.5 million
and $53.0 million in non-transaction accounts, were acquired from CNB in December of 2009, and $64.7 million, including $8.0 million in transaction accounts and $56.7 million in non-transaction accounts, were acquired from ANB in March of 2010.
ANBs deposits included approximately $40.0 million in out-of-state deposits, which the Company did not expect to retain long term. As of September 30, 2010, approximately $17.4 million in average deposits acquired from ANB remain with the
Bank as part of the Banks strategy to lower the pricing on certain high-rate accounts and manage its overall liquidity position. The Company has experienced little runoff in the deposits acquired from CNB.



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Allowance for
Loan Losses

The following table is a summary of the Companys loan loss experience for the periods ended September 30, 2010
and 2009 (dollars in thousands):



|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|------------------------------ |  | ------------------------------- | ----- | - | ----------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                               |  | Three Months 
EndedSeptember 30 |       |   | Nine Months
EndedSeptember 30 |  
|                               |  | 2010                            |       |   | 2009                          |   |       | 2010 |  |   | 2009   |  
|Balance at beginning of period |  | $                               | 3,842 |   |                               | $ | 2,912 |      |  | $ | 3,776  |   |  | $ | 3,411  |  
|                               |  |                                 |       |  
|Charge-offs:                   |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Commercial and industrial      |  |                                 | (77   | ) |                               |   | (20   | )    |  |   | (77    | ) |  |   | (206   | )
|Commercial real estate         |  |                                 | (9    | ) |                               |   | (9    | )    |  |   | (540   | ) |  |   | (574   | )
|Real estate construction       |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Agricultural                   |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   | (4     | )
|Residential real estate        |  |                                 | (84   | ) |                               |   | (20   | )    |  |   | (439   | ) |  |   | (130   | )
|Consumer                       |  |                                 | (44   | ) |                               |   | (96   | )    |  |   | (148   | ) |  |   | (347   | )
|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Total charge-offs              |  |                                 | (214  | ) |                               |   | (145  | )    |  |   | (1,204 | ) |  |   | (1,261 | )
|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|                               |  |                                 |       |  
|Recoveries:                    |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Commercial and industrial      |  |                                 | 2     |   |                               |   |      |      |  |   | 4      |   |  |   | 16     |  
|Commercial real estate         |  |                                 | 55    |   |                               |   | 1     |      |  |   | 74     |   |  |   | 8      |  
|Real estate construction       |  |                                 | 2     |   |                               |   | 4     |      |  |   | 4      |   |  |   | 7      |  
|Agricultural                   |  |                                 | 1     |   |                               |   | 2     |      |  |   | 6      |   |  |   | 22     |  
|Residential real estate        |  |                                 |      |   |                               |   | 17    |      |  |   | 9      |   |  |   | 32     |  
|Consumer                       |  |                                 | 22    |   |                               |   | 43    |      |  |   | 81     |   |  |   | 124    |  
|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Total recoveries               |  |                                 | 82    |   |                               |   | 67    |      |  |   | 178    |   |  |   | 209    |  
|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|                               |  |                                 |       |  
|Net charge-offs                |  |                                 | (132  | ) |                               |   | (78   | )    |  |   | (1,026 | ) |  |   | (1,052 | )
|Provision for loan losses      |  |                                 | 225   |   |                               |   | 175   |      |  |   | 1,185  |   |  |   | 650    |  
|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Balance at end of period       |  | $                               | 3,935 |   |                               | $ | 3,009 |      |  | $ | 3,935  |   |  | $ | 3,009  |  
|                               |  |                                 |       |   |                               |   |       |      |  |   |        |   |  |   |        |  

The following table sets forth selected information regarding the Companys loan quality at the dates indicated (in
thousands):



|                                                                 |  |                   |        |   |                  |   |        |  
|---------------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                                                 |  | September 30,2010 |        |   | December 31,2009 |  
|Loans accounted for on non-accrual basis                         |  | $                 | 8,847  |   |                  | $ | 6,857  |  
|Accruing loans which are past due 90 days                        |  |                   |       |   |                  |   | 19     |  
|Renegotiated loans                                               |  |                   |       |   |                  |   |       |  
|Other real estate owned                                          |  |                   | 3,995  |   |                  |   | 3,455  |  
|                                                                 |  |                   |        |   |                  |   |        |  
|Total non-performing assets                                      |  | $                 | 12,842 |   |                  | $ | 10,331 |  
|                                                                 |  |                   |        |   |                  |   |        |  
|                                                                 |  |                  
|Ratios:                                                          |  |                   |        |   |                  |   |        |  
|Allowance to total loans                                         |  |                   | 0.92   | % |                  |   | 0.95   | %
|Net charge-offs to average loans (annualized)                    |  |                   | 0.33   | % |                  |   | 0.36   | %
|Non-performing assets to total loans and other real estate owned |  |                   | 2.98   | % |                  |   | 2.95   | %

The allowance is maintained to absorb
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 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.



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

During the first quarter of 2010, the Company foreclosed on a $1.2 million commercial real estate loan for which specific reserves of
$300,000 had been previously allocated. Approximately $300,000 was charged off with the balance of $900,000 transferred to other real estate owned. As of September 30, 2010, there was $6.8 million in small business relationships on nonaccrual.
The majority of this amount consisted of nine relationships.

Nonaccrual residential real estate loans totaled $1,964,000 with the
largest balance being $270,000. Non-accrual consumer loans totaled $111,000, and home equity credit loans totaled $109,000.

Liquidity and Capital Resources

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 September 30, 2010 was 74.7%, compared to 73.1% at December 31, 2009 and 75.0% at September 30, 2009. Loans to total assets were 61.8% at the end of the first quarter of 2010,
compared to 61.0% at December 31, 2009 and 60.6% at September 30, 2009. At September 30, 2010, the Company had $47.4 million in interest-bearing deposits, most of which was held in on deposit with the Federal Reserve Bank of
Cleveland. The Company has $146.1 million in available-for-sale securities that are readily marketable. Approximately 34.2% 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 91.5% 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 Federal Home Loan Bank (FHLB). The Company has the ability to
obtain deposits in the brokered certificate of deposit market to help provide liquidity to fund loan growth.

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). At September 30, 2010 and December 31, 2009, the
Company had the following risk-based capital ratios, which are well above the regulatory minimum requirements (dollar amounts in thousands):



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|                                                 |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|------------------------------------------------ |  | ------ | ------ |  | ----------------------------- |  | ----- | -------------------------------------------------------------- |  | - | ------ |  |  | ------ | --- | - | ----- | - | ------ |  |  |  | ---- | -
|                                                 |  | Actual |        |  | For Capital 
AdequacyPurposes |  |       | To Be Well CapitalizedUnder Prompt CorrectiveAction Provisions | 
|                                                 |  | Amount |        |  | Ratio                         |  |       | Amount                                                         |  |   | Ratio  |  |  | Amount |     |   | Ratio |  
|As of September 30, 2010                         |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Total Risk-Based Capital to Risk-Weighted Assets |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated                                     |  | $      | 78,202 |  |                               |  | 18.10 | %                                                              |  | $ | 34,568 |  |  |        | 8.0 | % |       |   | N/A    |  |  |  | N/A  |  
|Bank                                             |  |        | 76,693 |  |                               |  | 17.78 |                                                                |  |   | 34,514 |  |  |        | 8.0 |   |       | $ | 43,142 |  |  |  | 10.0 | %
|                                                 |  |        |        |  |                               | 
|Tier I Capital to Risk-Weighted Assets           |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated                                     |  |        | 74,267 |  |                               |  | 17.19 |                                                                |  |   | 17,284 |  |  |        | 4.0 |   |       |   | N/A    |  |  |  | N/A  |  
|Bank                                             |  |        | 72,758 |  |                               |  | 16.86 |                                                                |  |   | 17,257 |  |  |        | 4.0 |   |       |   | 25,885 |  |  |  | 6.0  |  
|                                                 |  |        |        |  |                               | 
|Tier I Capital to Average Assets                 |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated                                     |  |        | 74,267 |  |                               |  | 10.68 |                                                                |  |   | 27,821 |  |  |        | 4.0 |   |       |   | N/A    |  |  |  | N/A  |  
|Bank                                             |  |        | 72,758 |  |                               |  | 10.52 |                                                                |  |   | 27,660 |  |  |        | 4.0 |   |       |   | 34,575 |  |  |  | 5.0  |  
|                                                 |  |        |        |  |                               | 
|As of December 31, 2009                          |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Total Risk-Based Capital to Risk-Weighted Assets |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated                                     |  | $      | 67,338 |  |                               |  | 18.80 | %                                                              |  | $ | 28,649 |  |  |        | 8.0 | % |       |   | N/A    |  |  |  | N/A  |  
|Bank                                             |  |        | 59,489 |  |                               |  | 16.66 |                                                                |  |   | 28,568 |  |  |        | 8.0 |   |       | $ | 35,710 |  |  |  | 10.0 | %
|                                                 |  |        |        |  |                               | 
|Tier I Capital to Risk-Weighted Assets           |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated                                     |  |        | 63,927 |  |                               |  | 17.85 |                                                                |  |   | 14,324 |  |  |        | 4.0 |   |       |   | N/A    |  |  |  | N/A  |  
|Bank                                             |  |        | 56,078 |  |                               |  | 15.70 |                                                                |  |   | 14,284 |  |  |        | 4.0 |   |       |   | 21,426 |  |  |  | 6.0  |  
|                                                 |  |        |        |  |                               | 
|Tier I Capital to Average Assets                 |  |        |        |  |                               |  |       |                                                                |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated                                     |  |        | 63,927 |  |                               |  | 12.21 |                                                                |  |   | 20,935 |  |  |        | 4.0 |   |       |   | N/A    |  |  |  | N/A  |  
|Bank                                             |  |        | 56,078 |  |                               |  | 10.72 |                                                                |  |   | 20,931 |  |  |        | 4.0 |   |       |   | 26,164 |  |  |  | 5.0  |  

The decrease in the Companys
capital ratios from December 31, 2009 is largely due to the increase in assets from the purchase of ANB. Under the loss-sharing agreement with the FDIC, the loans acquired from ANB are subject to a lower risk weighting than other loans in the
Companys portfolio; however, there was still some impact on total risk-weighted assets. The impact of the increased assets was cushioned, though, by the additional net income from the gain on bargain purchase related to the ANB purchase and
the gain on sale of the insurance agency.

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, 2009. 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.



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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.

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 the Intangibles  Goodwill & Other topic of the
FASB Accounting Standards Codification. Goodwill is subject, at a minimum, to annual tests for impairment. Testing includes evaluating the current market price of the stock versus book value, the current economic value of equity versus current book
value, and recent market sales of financial institutions. Based on the review of all three factors, management has concluded goodwill is not impaired. 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.

Item 3  Quantitative and Qualitative Disclosures about
Market Risk

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 Bank manages its interest rate risk
regularly through its Asset/Liability Committee. The Committee meets on a monthly basis and reviews various asset and liability management information, including, but not limited to, the Banks interest rate risk position, liquidity position,
projected sources and uses of funds and economic conditions.

The Bank uses simulation models to manage interest rate risk. In the Banks
simulation models, each asset and liability balance is projected over a two-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 monthly 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 Banks current one-year simulation model under
stable rates indicates increasing yields on interest-earning assets will exceed increasing costs of interest-bearing liabilities. This position could have a positive effect on projected net interest margin over the next twelve months.

Prior to this quarter, simulation models were also performed for ramped 100, 200, and 300 basis point increases. Historically, simulation models were
also performed for ramped 100, 200 and 300 basis point decreases. However, these decreasing rate changes are not calculated because the rates would be less than zero for most of the Banks liabilities in todays current low interest rate
environment. Beginning this quarter, simulation models are performed for 100, 200, 300 and 400 basis point increases ramped up over a two year period and also for immediate rate shocks. Again, due to the low interest rate environment, the down rate
changes were not modeled. These rate changes are modeled using both projected dynamic balance sheets and a flat static balance sheet over a two year period. The results of these simulation models are compared with the stable rate simulation. 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 the table below



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indicates at September 30, 2010, the Bank is within the guidelines established by the Board for net interest income changes and economic value of equity changes for increasing rate changes
of 100, 200 and 300 basis points. The Bank is in the process of updating its guidelines for the additional 400 basis point and rate shock changes.

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 Banks rate ramp simulation models provide results in extreme interest rate environments and results are used accordingly. Reacting to changes in economic conditions, interest rates and market
forces, the Bank 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.



|          |  |                                    |  |                                |  |         |  |              
|--------- |  | ---------------------------------- |  | ------------------------------ |  | ------- |  | -------------
|          |  | One Year Net InterestIncome
Change |  | Economic Value of
EquityChange
|Rate Ramp |  | 9/30/10                            |  | ALCOGuideline                  |  | 9/30/10 |  | ALCOGuideline
|+ 300     |  | 1.06%                              |  | ± 15%                          |  | 14.10%  |  | ± 20%        
|+ 200     |  | .28                                |  | ± 10                           |  | 11.46   |  | ± 15         
|+ 100     |  | -.08                               |  | ± 5                            |  | 7.16    |  | ± 10         

Item 4  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 September 30, 2010, that the Companys disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Companys
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) During the quarter ended September 30, 2010, there were no changes in the Companys internal controls over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.



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PART II  OTHER
INFORMATION

Item 1  Legal Proceedings

Not applicable

Item 1A  Risk Factors

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank
Act). This new law will significantly change the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations with significant
discretion, many of the details of the new law and the effects they will have on our company will not be known for months and even years.

Many of the provisions of the Dodd-Frank Act apply directly only to institutions much larger than ours, and some will affect only institutions with
different charters than ours or institutions that engage in activities in which we do not engage. Among the changes to occur pursuant to the Dodd-Frank Act that can be expected to have an effect on our business are the following:



| |  |  | the Dodd-Frank Act creates a Consumer Financial Protection Bureau with broad powers to adopt and enforce consumer protection regulations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | new capital regulations for bank holding companies will be adopted, which may impose stricter requirements, and any new trust preferred securities will
no longer count toward Tier I capital;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the federal law prohibition on the payment of interest on commercial demand deposit accounts will be eliminated effective in July 2011;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the standard maximum amount of deposit insurance per customer is permanently increased to $250,000, and non-interest bearing transaction accounts will
have unlimited insurance through December 31, 2012;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the assessment base for determining deposit insurance premiums will be expanded to include liabilities other than just deposits; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | new corporate governance requirements applicable generally to all public companies in all industries will require new compensation practices, including
requiring companies to claw back incentive compensation under certain circumstances, to provide shareholders the opportunity to cast a non-binding vote on executive compensation, and to consider the independence of compensation advisers,
and new executive compensation disclosure requirements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although it is impossible for us to predict at this time all the
effects the Dodd-Frank Act will have on us and the rest of our industry, it is possible that our interest expense could increase and deposit insurance premiums could change, and steps may need to be taken to increase qualifying capital. We expect
that our operating and compliance costs will increase and could adversely affect our financial condition and results of operations.

In
addition to the above risk factor, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the
SEC on March 16, 2010, and available at www.sec.gov. These risk factors could materially affect the Companys business, financial condition or future results. The risk factors described in the Annual Report on Form 10-K are not the only
risks facing the Company. Additional risks and uncertainties not currently known to the Company or that management currently deems to be immaterial also may adversely affect the Companys business, financial condition and/or operating results.
Moreover, the Company undertakes no obligation and disclaims any intention to publish revised information or updates to forward-looking statements contained in such risk factors or in any other statement made at any



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time by any director, officer, employee or other representative of the Company unless and until any such revisions or updates are expressly required to be disclosed by applicable securities laws
or regulations.

Item 2  Unregistered Sales of Equity Securities and Use of Proceeds



| | (a) | Not applicable
| | --- | --------------



| | (b) | Not applicable
| | --- | --------------



| | (c) | Not applicable
| | --- | --------------

Item 3  Defaults Upon Senior Securities

Not applicable

Item 4  Reserved

Item 5  Other Information

Not applicable

Item 6  Exhibits



|               |  |                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------
|Exhibit
Number |  | Index to Exhibits                                                                           
|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.                      
|               | 
|4              |  | Agreement to furnish instruments and agreements defining rights of holders of long-term debt
|               | 
|15             |  | Accountants acknowledgement                                                                
|               | 
|31.1           |  | Certification by CEO.                                                                       
|               | 
|31.2           |  | Certification by CFO.                                                                       
|               | 
|32.1           |  | Certification by CEO Pursuant to 18 U.S.C. Section 1350.                                    
|               | 
|32.2           |  | Certification by CFO Pursuant to 18 U.S.C. Section 1350.                                    



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SIGNATURES

Pursuant to the requirements 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.                                                    
|                        |  | 
|Date: November 12, 2010 |  |  |  | /s/ Craig F. Fortin                                                           
|                        |  |  |  | Craig F. Fortin                                                               
|                        |  |  |  | Senior Vice President and Chief Financial Officer(Principal Financial Officer)



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Index to Exhibits



|               |  |                                                                                              |  |                                                                                                                                 
|-------------- |  | -------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                  |  | Location                                                                                                                        
|3.1            |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.           |  | Incorporated by reference to registrants Definitive Proxy Statement filed on March 21, 2003, Exhibit A (SEC File No. 000-23134)
|               |  |                                                                                             
|3.2            |  | Amended and Restated Code of Regulations of NB&T Financial Group, Inc.                       |  | Incorporated by reference to registrants Definitive Proxy Statement filed on March 21, 2003, Exhibit B                         
|               |  |                                                                                             
|4              |  | Agreement to furnish instruments and agreements defining rights of holders of long-term debt |  | (SEC File No. 000-23134)
Included herewith                                                                                      
|               |  |                                                                                             
|15             |  | Accountants acknowledgement.                                                                |  | Included herewith                                                                                                               
|               |  |                                                                                             
|31.1           |  | Certification by CEO.                                                                        |  | Included herewith                                                                                                               
|               |  |                                                                                             
|31.2           |  | Certification by CFO.                                                                        |  | Included herewith                                                                                                               
|               |  |                                                                                             
|32.1           |  | Certification by CEO Pursuant to 18 U.S.C Section 1350.                                      |  | Included herewith                                                                                                               
|               |  |                                                                                             
|32.2           |  | Certification by CFO Pursuant to 18 U.S.C. Section 1350.                                     |  | Included herewith                                                                                                               



29