##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the quarterly period ended June 30, 2005



OR



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



For the transition period from/to



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NB&T FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)



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



48 N. South Street,
Wilmington, Ohio 45177

(Address of principal executive offices) (Zip Code)



Registrants telephone number: (937) 382-1441



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
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 August 5, 2005, 3,231,263 common shares were issued and outstanding.



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##### Table of Contents

NB&T FINANCIAL GROUP, INC.

June 30, 2005 Form 10-Q

Table of Contents



|                  |  |                                                                                       |  |     
|----------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I           
|                  |  |                                                                                       |  | Page
|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 Accounting Firm                                      |  | 10  
|                  |  |                                                                                      
|Item 2:           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|Item 3:           |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 16  
|Item 4:           |  | Controls and Procedures                                                               |  | 16  
|                 
|Part II          
|                  |  |                                                                                      
|Item 1:           |  | Legal Proceedings                                                                     |  | 17  
|Item 2:           |  | Changes in Securities and Use of Proceeds                                             |  | 17  
|Item 3:           |  | Defaults Upon Senior Securities                                                       |  | 17  
|Item 4:           |  | Submission of Matters to a Vote of Security Holders                                   |  | 17  
|Item 5:           |  | Other Information                                                                     |  | 17  
|Item 6:           |  | Exhibits and Reports on Form 8-K                                                      |  | 17  
|                  | 
|Signatures        |  | 18                                                                                   
|                  | 
|Index to Exhibits |  | 19                                                                                   



2



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Balance Sheets



|                                                                                   |  |               |         |   |                   |   |         |  
|---------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|(Dollars in thousands)                                                             |  | June 30, 2005 |         |   | December 31, 2004 |  
|                                                                                   |  | (Unaudited)   |         |   |                   |  
|Assets                                                                             |  |               |         |   |                   |   |         |  
|                                                                                   |  |              
|Cash and due from banks                                                            |  | $             | 13,223  |   |                   | $ | 13,248  |  
|Interest-bearing demand deposits                                                   |  |               | 395     |   |                   |   | 563     |  
|Federal funds sold                                                                 |  |               | 1,349   |   |                   |   | 16,240  |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                          |  |               | 14,967  |   |                   |   | 30,051  |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Securities - available-for-sale                                                    |  |               | 180,578 |   |                   |   | 169,745 |  
|Loans, net of allowance for loan losses of $4,067 and $4,212                       |  |               | 404,808 |   |                   |   | 398,627 |  
|Premises and equipment                                                             |  |               | 13,946  |   |                   |   | 14,096  |  
|Federal Reserve and Federal Home Loan Bank stock                                   |  |               | 8,350   |   |                   |   | 8,176   |  
|Earned income receivable                                                           |  |               | 3,706   |   |                   |   | 3,393   |  
|Goodwill and other intangibles                                                     |  |               | 6,834   |   |                   |   | 6,969   |  
|Bank-owned life insurance                                                          |  |               | 12,388  |   |                   |   | 12,150  |  
|Other assets                                                                       |  |               | 2,772   |   |                   |   | 2,116   |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total assets                                                                       |  | $             | 648,349 |   |                   | $ | 645,323 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                               |  |               |         |   |                   |   |         |  
|                                                                                   |  |              
|Liabilities                                                                        |  |               |         |   |                   |   |         |  
|Deposits                                                                           |  |               |         |   |                   |   |         |  
|Demand                                                                             |  | $             | 53,007  |   |                   | $ | 58,451  |  
|Savings, NOW and Money Market                                                      |  |               | 201,339 |   |                   |   | 207,900 |  
|Time                                                                               |  |               | 191,424 |   |                   |   | 186,242 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total deposits                                                                     |  |               | 445,770 |   |                   |   | 452,593 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Short-term borrowings                                                              |  |               | 28,091  |   |                   |   | 18,023  |  
|Long-term debt                                                                     |  |               | 110,371 |   |                   |   | 111,673 |  
|Interest payable and other liabilities                                             |  |               | 4,895   |   |                   |   | 4,433   |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total liabilities                                                                  |  |               | 589,127 |   |                   |   | 586,722 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Commitments and Contingencies                                                      |  |               |         |   |                   |   |         |  
|                                                                                   |  |              
|Stockholders Equity                                                               |  |               |         |   |                   |   |         |  
|Preferred stock, no par value, authorized 100,000 shares; none issued              |  |               |         |   |                   |   |         |  
|Common stock, no par value; authorized 6,000,000 shares; issued  3,818,950 shares |  |               | 1,000   |   |                   |   | 1,000   |  
|Additional paid-in capital                                                         |  |               | 9,895   |   |                   |   | 9,828   |  
|Retained earnings                                                                  |  |               | 55,408  |   |                   |   | 54,688  |  
|Unearned employee stock ownership plan (ESOP) shares                               |  |               | (1,243  | ) |                   |   | (1,337  | )
|Accumulated other comprehensive income                                             |  |               | (76     | ) |                   |   | 225     |  
|Treasury stock; 587,687 and 591,887 shares at cost in 2005 and 2004                |  |               | (5,762  | ) |                   |   | (5,803  | )
|                                                                                   |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                         |  |               | 59,222  |   |                   |   | 58,601  |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                         |  | $             | 648,349 |   |                   | $ | 645,323 |  
|                                                                                   |  |               |         |   |                   |   |         |  



See Notes to Condensed Consolidated
Financial Statements



3



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Income



|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|------------------------------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                                              |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|(Dollars in thousands, except per share amounts)              |  | 2005                       |       | 2004                     |   | 2005  |  | 2004
|                                                              |  | (Unaudited)                |       | (Unaudited)             
|Interest and Dividend Income                                  |  |                            |       |                          |   |       |  |      |        |  |   |       
|Loans                                                         |  | $                          | 6,327 |                          | $ | 6,231 |  | $    | 12,387 |  | $ | 12,511
|Securities-taxable                                            |  |                            | 1,189 |                          |   | 1,203 |  |      | 2,288  |  |   | 2,359 
|Securities-tax-exempt                                         |  |                            | 478   |                          |   | 483   |  |      | 951    |  |   | 1,077 
|Federal funds sold and other                                  |  |                            | 73    |                          |   | 23    |  |      | 239    |  |   | 53    
|Dividends on Federal Home Loan and Federal Reserve Bank stock |  |                            | 103   |                          |   | 83    |  |      | 196    |  |   | 165   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total interest and dividend income                            |  |                            | 8,168 |                          |   | 8,023 |  |      | 16,061 |  |   | 16,165
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Interest Expense                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Deposits                                                      |  |                            | 1,647 |                          |   | 1,342 |  |      | 3,168  |  |   | 2,684 
|Short-term borrowings                                         |  |                            | 165   |                          |   | 47    |  |      | 340    |  |   | 95    
|Long-term debt                                                |  |                            | 1,459 |                          |   | 1,545 |  |      | 2,897  |  |   | 3,104 
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total interest expense                                        |  |                            | 3,271 |                          |   | 2,934 |  |      | 6,405  |  |   | 5,883 
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Net Interest Income                                           |  |                            | 4,897 |                          |   | 5,089 |  |      | 9,656  |  |   | 10,282
|                                                              |  |                            |       |                         
|Provision for Loan Losses                                     |  |                            | 125   |                          |   | 450   |  |      | 200    |  |   | 900   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Net Interest Income After Provision for Loan Losses           |  |                            | 4,772 |                          |   | 4,639 |  |      | 9,456  |  |   | 9,382 
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Non-interest Income                                           |  |                            |       |                          |   |       |  |      |        |  |   |       
|Trust income                                                  |  |                            | 236   |                          |   | 257   |  |      | 517    |  |   | 510   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Service charges and fees                                      |  |                            | 831   |                          |   | 887   |  |      | 1,577  |  |   | 1,683 
|ATM network fees                                              |  |                            | 57    |                          |   | 87    |  |      | 113    |  |   | 168   
|Insurance agency commissions                                  |  |                            | 627   |                          |   | 649   |  |      | 1,379  |  |   | 1,313 
|Net gains on sales of securities                              |  |                            | 7     |                          |   | 0     |  |      | 7      |  |   | 527   
|Other                                                         |  |                            | 338   |                          |   | 282   |  |      | 622    |  |   | 593   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total non-interest income                                     |  |                            | 2,096 |                          |   | 2,162 |  |      | 4,215  |  |   | 4,794 
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Non-interest Expense                                          |  |                            |       |                          |   |       |  |      |        |  |   |       
|Salaries and employee benefits                                |  |                            | 2,884 |                          |   | 2,832 |  |      | 5,761  |  |   | 5,676 
|Net occupancy expense                                         |  |                            | 455   |                          |   | 412   |  |      | 910    |  |   | 868   
|Equipment and data processing expense                         |  |                            | 719   |                          |   | 719   |  |      | 1,359  |  |   | 1,516 
|Professional fees                                             |  |                            | 392   |                          |   | 346   |  |      | 781    |  |   | 681   
|Marketing expense                                             |  |                            | 175   |                          |   | 95    |  |      | 282    |  |   | 217   
|State franchise tax                                           |  |                            | 188   |                          |   | 167   |  |      | 378    |  |   | 342   
|Amortization of intangibles                                   |  |                            | 170   |                          |   | 166   |  |      | 340    |  |   | 333   
|Other                                                         |  |                            | 524   |                          |   | 466   |  |      | 605    |  |   | 1,193 
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total non-interest expense                                    |  |                            | 5,507 |                          |   | 5,203 |  |      | 10,806 |  |   | 10,826
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Income Before Income Tax                                      |  |                            | 1,361 |                          |   | 1,598 |  |      | 2,865  |  |   | 3,350 
|Provision for Income Taxes                                    |  |                            | 223   |                          |   | 328   |  |      | 500    |  |   | 658   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Net Income                                                    |  | $                          | 1,138 |                          | $ | 1,270 |  | $    | 2,365  |  | $ | 2,692 
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Basic Earnings Per Share                                      |  | $                          | .36   |                          | $ | .40   |  | $    | .75    |  | $ | .86   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Diluted Earnings Per Share                                    |  | $                          | .36   |                          | $ | .40   |  | $    | .75    |  | $ | .85   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       
|Dividends Declared Per Share                                  |  | $                          | .26   |                          | $ | .25   |  | $    | .52    |  | $ | .50   
|                                                              |  |                            |       |                          |   |       |  |      |        |  |   |       



See Notes to Condensed Consolidated
Financial Statements



4



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Cash Flows



|                                                          |  |                          |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                          |  | Six Months Ended,June 30 |        
|(Dollars in thousands)                                    |  | 2005                     |         |   | 2004 |  
|                                                          |  | (Unaudited)              |        
|Operating Activities                                      |  |                          |         |   |      |   |         |  
|Net income                                                |  | $                        | 2,365   |   |      | $ | 2,692   |  
|Items not requiring (providing) cash                      |  |                          |         |   |      |   |         |  
|Depreciation and amortization                             |  |                          | 1,137   |   |      |   | 1,218   |  
|Provision for loan losses                                 |  |                          | 200     |   |      |   | 900     |  
|Amortization of premiums and discounts on securities      |  |                          | 513     |   |      |   | 684     |  
|Net realized gains on available-for-sale securities       |  |                          | (7      | ) |      |   | (527    | )
|FHLB stock dividends                                      |  |                          | (174    | ) |      |   | (142    | )
|Net change in:                                            |  |                          |         |   |      |   |         |  
|Loans held for sale                                       |  |                          |        |   |      |   | 86      |  
|Other assets and liabilities                              |  |                          | (677    | ) |      |   | (237    | )
|                                                          |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                 |  |                          | 3,357   |   |      |   | 4,674   |  
|                                                          |  |                          |         |   |      |   |         |  
|Investing Activities                                      |  |                          |         |   |      |   |         |  
|Purchases of available-for-sale securities                |  |                          | (21,465 | ) |      |   | (35,723 | )
|Proceeds from sales of available-for-sale securities      |  |                          | 3,764   |   |      |   | 20,814  |  
|Proceeds from maturities of available-for-sale securities |  |                          | 5,906   |   |      |   | 23,354  |  
|Proceeds from maturities of held-to-maturity securities   |  |                          |        |   |      |   | 499     |  
|Net change in loans                                       |  |                          | (6,381  | ) |      |   | (2,602  | )
|Purchase of premises and equipment                        |  |                          | (659    | ) |      |   | (1,748  | )
|Proceeds from sales of premises and equipment             |  |                          | 12      |   |      |   |        |  
|                                                          |  |                          |         |   |      |   |         |  
|Net cash provided by (used) in investing activities       |  |                          | (18,823 | ) |      |   | 4,594   |  
|                                                          |  |                          |         |   |      |   |         |  
|Financing Activities                                      |  |                          |         |   |      |   |         |  
|Net change in:                                            |  |                          |         |   |      |   |         |  
|Deposits                                                  |  |                          | (6,823  | ) |      |   | (16,144 | )
|Short-term borrowings                                     |  |                          | 10,068  |   |      |   | 2,838   |  
|Repayment of FHLB advances                                |  |                          | (1,302  | ) |      |   | (1,585  | )
|Cash dividends                                            |  |                          | (1,645  | ) |      |   | (1,574  | )
|Proceeds from exercise of stock options                   |  |                          | 84      |   |      |   | 34      |  
|                                                          |  |                          |         |   |      |   |         |  
|Net cash provided by (used in) financing activities       |  |                          | 382     |   |      |   | (16,431 | )
|                                                          |  |                          |         |   |      |   |         |  
|Decrease in Cash and Cash Equivalents                     |  |                          | (15,084 | ) |      |   | (7,163  | )
|                                                          |  |                         
|Cash and Cash Equivalents, Beginning of Year              |  |                          | 30,051  |   |      |   | 22,218  |  
|                                                          |  |                          |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                  |  | $                        | 14,967  |   |      | $ | 15,055  |  
|                                                          |  |                          |         |   |      |   |         |  



See Notes to Condensed Consolidated
Financial Statements



5



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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 consolidated balance sheet as of December 31, 2004 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. as of June 30, 2005, and December 31, 2004, and the results of its operations for the three and six month periods and cash flows for the six months ended June 30, 2005 and 2004. 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 and Form 10-K for the year ended December 31, 2004 filed with the
Commission.



Stock Options



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



|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----- | - | ------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                               |  | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |  
|                                                                                                               |  | 2005                       |       |   | 2004                     |   |       | 2005 |  |   | 2004  |  
|Net income, as reported                                                                                        |  | $                          | 1,138 |   |                          | $ | 1,270 |      |  | $ | 2,365 |   |  | $ | 2,692 |  
|Less: Total stock-based employee compensation cost determined under the fair value method, net of income taxes |  |                            | (93   | ) |                          |   | (17   | )    |  |   | (103  | ) |  |   | (37   | )
|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Pro forma net income                                                                                           |  | $                          | 1,045 |   |                          | $ | 1,253 |      |  | $ | 2,262 |   |  | $ | 2,655 |  
|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Earnings per share:                                                                                            |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Basic  as reported                                                                                            |  | $                          | .36   |   |                          | $ | .40   |      |  | $ | .75   |   |  | $ | .86   |  
|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Basic  pro forma                                                                                              |  | $                          | .33   |   |                          | $ | .40   |      |  | $ | .72   |   |  | $ | .84   |  
|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Diluted  as reported                                                                                          |  | $                          | .36   |   |                          | $ | .40   |      |  | $ | .75   |   |  | $ | .85   |  
|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Diluted  pro forma                                                                                            |  | $                          | .33   |   |                          | $ | .40   |      |  | $ | .71   |   |  | $ | .84   |  
|                                                                                                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  



6



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##### Table of Contents

Note 2: Securities



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



|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|-------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | --------------------- | - |  | - | -------
|                                 |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | ApproximateFair Value
|June 30, 2005:                   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|Available-for-Sale Securities:   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|U.S. government agencies         |  | $             | 80,537  |                      | $ | 38                    |  | $ | (1,397                | ) |  | $ | 79,178 
|Mortgage-backed securities       |  |               | 61,705  |                      |   | 248                   |  |   | (401                  | ) |  |   | 61,552 
|State and political subdivisions |  |               | 38,391  |                      |   | 1,410                 |  |   | (13                   | ) |  |   | 39,788 
|Other securities                 |  |               | 60      |                      |   |                      |  |   |                      |   |  |   | 60     
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|                                 |  | $             | 180,693 |                      | $ | 1,696                 |  | $ | (1,811                | ) |  | $ | 180,578
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|December 31, 2004:               |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|Available-for-Sale Securities:   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|U.S. government agencies         |  | $             | 69,135  |                      | $ |                      |  | $ | (1,046                | ) |  | $ | 68,089 
|Mortgage-backed securities       |  |               | 61,923  |                      |   | 473                   |  |   | (323                  | ) |  |   | 62,073 
|State and political subdivisions |  |               | 38,336  |                      |   | 1,269                 |  |   | (32                   | ) |  |   | 39,573 
|Other securities                 |  |               | 10      |                      |   |                      |  |   |                      |   |  |   | 10     
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|                                 |  | $             | 169,404 |                      | $ | 1,742                 |  | $ | (1,401                | ) |  | $ | 169,745
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        



Note 3: Loans



Categories of loans include (thousands):



|                                               |  |               |         |   |                  |   |         |  
|---------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                               |  | June 30, 2005 |         |   | December 31,2004 |  
|Commercial and industrial                      |  | $             | 82,961  |   |                  | $ | 85,681  |  
|Agricultural                                   |  |               | 25,527  |   |                  |   | 22,284  |  
|Real estate construction                       |  |               | 15,870  |   |                  |   | 13,114  |  
|Commercial real estate                         |  |               | 55,779  |   |                  |   | 52,251  |  
|Residential real estate                        |  |               | 150,412 |   |                  |   | 148,644 |  
|Consumer                                       |  |               | 78,441  |   |                  |   | 80,978  |  
|Other                                          |  |               | 144     |   |                  |   | 119     |  
|                                               |  |               |         |   |                  |   |         |  
|Total loans                                    |  |               | 409,134 |   |                  |   | 403,071 |  
|                                               |  |              
|Less                                           |  |               |         |   |                  |   |         |  
|Net deferred loan fees, premiums and discounts |  |               | (259    | ) |                  |   | (232    | )
|Allowance for loan losses                      |  |               | (4,067  | ) |                  |   | (4,212  | )
|                                               |  |               |         |   |                  |   |         |  
|Net loans                                      |  | $             | 404,808 |   |                  | $ | 398,627 |  
|                                               |  |               |         |   |                  |   |         |  



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##### Table of Contents

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



|                           |  |                          |       |   |      |   |        |  
|-------------------------- |  | ------------------------ | ----- | - | ---- | - | ------ | -
|                           |  | Six Months EndedJune 30, |      
|                           |  | 2005                     |       |   | 2004 |  
|Balance, beginning of year |  | $                        | 4,212 |   |      | $ | 4,830  |  
|Provision for loan losses  |  |                          | 200   |   |      |   | 900    |  
|Recoveries                 |  |                          | 354   |   |      |   | 307    |  
|Charge-offs                |  |                          | (699  | ) |      |   | (1,356 | )
|                           |  |                          |       |   |      |   |        |  
|Balance, end of period     |  | $                        | 4,067 |   |      | $ | 4,681  |  
|                           |  |                          |       |   |      |   |        |  



Impaired loans totaled $1,837,000 and
$1,017,000 at June 30, 2005 and December 31, 2004, respectively. An allowance for loan losses of $112,000 and $146,000 relates to impaired loans of $312,000 and $458,000 at June 30, 2005 and December 31, 2004, respectively. At June 30, 2005 and
December 31, 2004, impaired loans of $1,525,000 and $559,000 had no related allowance for loan losses.



At June 30, 2005 and December 31, 2004, accruing loans delinquent 90 days or more totaled $103,000 and $0, respectively. Non-accruing loans at June 30, 2005 and December 31, 2004 were $3,816,000 and $2,874,000,
respectively.



Note 4: Commitments



Outstanding commitments to extend credit as of June 30, 2005 total $51,158,000. Standby
letters of credit as of June 30, 2005 total $1,402,000.



Note 5: 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 June 30, |           | Six Months Ended June 30,
|                                                     |  | 2005                        |           | 2004                      |   | 2005      |  | 2004
|Numerator:                                           |  |                             |           |                           |   |           |  |      |           |  |   |          
|Net income                                           |  | $                           | 1,138     |                           | $ | 1,270     |  | $    | 2,365     |  | $ | 2,692    
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Denominator:                                         |  |                             |           |                           |   |           |  |      |           |  |   |          
|Weighted-average common shares outstanding (basic)   |  |                             | 3,159,172 |                           |   | 3,147,129 |  |      | 3,159,087 |  |   | 3,146,958
|Effect of stock options                              |  |                             | 6,565     |                           |   | 26,015    |  |      | 8,799     |  |   | 25,809   
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Weighted-average common shares outstanding (diluted) |  |                             | 3,165,737 |                           |   | 3,173,144 |  |      | 3,167,886 |  |   | 3,172,767
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Earnings per share:                                  |  |                             |           |                           |   |           |  |      |           |  |   |          
|Basic                                                |  | $                           | .36       |                           | $ | .40       |  | $    | .75       |  | $ | .86      
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Diluted                                              |  | $                           | .36       |                           | $ | .40       |  | $    | .75       |  | $ | .85      
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          



For the three and six months ended
June 30, 2005, stock options covering 82,200 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. For the three and six
months ended June 30, 2004, all stock options were considered in computing earnings per share



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##### Table of Contents

Note 6: Trust Preferred Securities



On June 26, 2002, NB&T Statutory Trust I (Trust I), a wholly owned subsidiary of the Corporation, closed a pooled private
offering of 8,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Corporation in exchange for junior subordinated debentures with terms similar to the Capital Securities. The sole
assets of Trust I are the junior subordinated debentures of the Corporation and payments thereunder. The junior subordinated debentures and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Corporation
of the obligations of Trust I under the Capital Securities. Distributions on the Capital Securities are payable quarterly at the annual rate of 3.45% over the 3 month LIBOR and are included in interest expense in the consolidated financial
statements. These securities are considered Tier 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 June 26, 2032, at the option of the
Corporation; on or after June 26, 2007 at par. Upon occurrence of specific events defined within the trust indenture, the Capital Securities may also be redeemed prior to June 26, 2007 at a premium. The Corporation has the option to defer
distributions on the Capital Securities from time to time for a period not to exceed 20 consecutive semi-annual periods.



As of June 30, 2005 and December 31, 2004, the outstanding principal balance of the Capital Securities was $8,000,000. In accordance with the provisions in FIN 46, the
Company accounts for its investment in the trust as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense.



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##### Table of Contents

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 June 30, 2005 and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2005 and 2004 and cash flows
for the six-month periods ended June 30, 2005 and 2004. 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, 2004 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 February 5, 2005, 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, 2004 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

August 1, 2005



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##### Table of Contents

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



Results of Operations



Net income for the second quarter of 2005 was $1.14 million, a decrease of $132,000, or 10.4%, from the second quarter of 2004 net income of $1.27 million. Net income per share-basic was $.36 for the second quarter of
2005, compared to $.40 per share for the second quarter of 2004, a decrease of 10.0%. Net income for the first six months of 2005 was $2.37 million, a decrease of $327,000, or 12.1%, from the first six months of 2004 net income of $2.69 million. Net
income per share-basic was $.75 for the first six months of 2005, compared to $.86 per share for the first six months of 2004, a decrease of 12.8%. The decrease in earnings for both the second quarter and the first six months of 2005 was due to
lower net interest income resulting from increased deposit and borrowing costs and relatively flat residential and consumer loan rates; lower non-interest income, primarily in service charges and fees; and lower security gains, offset by improved
loan quality and lower loan loss provisions.



Return on average equity and
return on average assets for the second quarter of 2005 were 7.85% and 0.70%, respectively, compared to 8.80% and .76% for the same period in 2004. Return on average equity and return on average assets for the first six months of 2005 were 8.15% and
0.73%, respectively, compared to 9.42% and .81% for the same period in 2004.



Net Interest Income



Net interest income was $4.90 million for
the second quarter of 2005 and $9.7 million for the first six months of 2005, a decrease of $192,000 and $626,000 respectively, compared to the same periods last year. The net interest margin decreased to 3.27% for the second quarter of this year
from 3.31% for the second quarter of last year, and the net interest margin decreased to 3.22% for the first six months of 2005 from 3.34% for the same period last year.



Interest income totaled $8.17 million and $16.06 million for the second quarter of 2005, an increase of $145,000, or 1.8%, from $8.02
million during the same period last year. Interest income for the first six months of 2005 totaled $16.06 million, a decrease of $104,000, or .64%, from $16.17 million during the same period last year. Unfortunately, interest expense increased
$338,000, or 11.5%, during the second quarter of 2005 and $522,000, or 8.9%, during the first six months of 2005. As evidenced by the yields below, the difference in yield between short-term and long-term rates has diminished over the past year, and
the deposit and borrowing costs more closely associated with the short end of the yield curve have increased, while residential mortgage and consumer loan pricing associated with the middle to long-end of the curve have remained relatively flat.
Additionally, loan yields have been reduced by lower average volumes of non-mortgage consumer loans. The yield on average earning assets increased from 5.21% in the second quarter of 2004 to 5.46% in the second quarter of 2005 and from 6.25% for the
first six months of 2004 to 6.36% for the same period in 2005. At the same time, the cost of interest-bearing liabilities increased by a greater amount from 2.14% during the second quarter of last year to 2.47% in the second quarter of 2005, and
their cost increased from 2.14% during the first six months of 2004 to 2.42% for the first six months of 2005.



Average loans outstanding for the second quarter and the first six months decreased 1.74% and 2.09%, compared to the prior year. Average securities outstanding, including federal funds sold and other interest-bearing
deposits, for the second quarter and the first six months of 2005 decreased 5.1% and 3.0%, compared to the prior year. Average interest-bearing liabilities for the second quarter decreased 3.5% from last year to $531.5 million, and average
interest-bearing liabilities for the first six months of 2005 decreased 3.2% from last year to $534.8 million.



Provision for Loan Losses



The
provision for credit losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents managements assessment of the estimated probable credit losses inherent in the Banks loan
portfolio at each balance sheet date. The provision for loan losses decreased 72.2% to $125,000 during the second quarter of 2005 from $450,000 during the second quarter of last year. For the first six months of 2005, the provision decreased 77.8%
to $200,000 from $900,000 for the same period last year. The lower provision for loan losses is a result of lower net charge-offs and non-performing loans. Net charge-offs were $176,000, or 0.17% of total average loans (annualized) in the second
quarter of 2005, compared to $509,000, or 0.50% (annualized) for the same period in 2004. Net charge-offs were $345,000, or 0.17% of total average loans (annualized) during the first six months of 2005, compared to $1.05 million, or 0.51%
(annualized) for the same period in 2004. Non-performing loans totaled $3.9 million at June 30, 2005, down $2.8 million from $ 6.7million at June 30, 2004. The percentage of the allowance for loan losses to total loans was .99% at June 30, 2005 and
1.14% at June 30, 2004.



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##### Table of Contents

Non-interest Income



Non-interest income was $2.10 million for the second quarter of 2005, a decrease of 3.1% from the $2.16 million earned in the second quarter of 2004. Non-interest income
was $4.22 million for the first six months of 2005, compared to $4.79 million for the same period in 2004. Non-interest income for the first six months of 2004 includes $527,000 in realized securities gains from the sale of $6.4 million in municipal
securities, compared to only $7,000 in realized securities gains in the first six months of 2005. Excluding the securities gains, the primary reasons for the decrease for the quarter and six months are lower service charge income and ATM network
fees. Service charge income decreased 6.3% from the second quarter of last year as customers sought out the Companys free checking product. In addition, the Company collected less overdraft fees in the second quarter of 2005, compared to the
same quarter in 2004. ATM network fees decreased 34.5% from the second quarter of last year as a result of fewer units in operation and higher costs.



Non-interest Expense



Non-interest expense was $5.51 million for the second quarter of 2005, compared to $5.20 million for the second quarter of 2004. Salaries and employee benefits expense increased 1.8% during the second quarter of 2005
due to merit increases and increased cost of health insurance. In addition, the Company incurred additional professional fees in the second quarter of 2005 related to corporate marketing and educational initiatives. For the first six months of 2005,
non-interest expense was $10.81 million, compared to $10.83 million for the same period in 2004.



Income Taxes



The provision for income
taxes for the second quarter of 2005 was $223,000, compared to $328,000 for the same period in 2004. The provision for income taxes for the first six months of 2005 was $500,000, compared to $658,000 for the same period last year. The effective tax
rate for the three months ended and six months ended June 30, 2005 was 16.4% and 17.5%, respectively, compared to 20.5% and 19.6% for the same periods in 2004.



Financial Condition



The changes that have occurred in NB&T Financial Group, Inc.s financial condition during 2005 are as follows (in thousands):



|                            |  |              |         |                  |   |         |  |   |         |   |  |       |  
|--------------------------- |  | ------------ | ------- | ---------------- | - | ------- |  | - | ------- | - |  | ----- | -
|                            |  | June 30 2005 |         | December 31 2004 |   | Amount  |  |   | Percent |  
|Total Assets                |  | $            | 648,349 |                  | $ | 645,323 |  | $ | 3,026   |   |  | .5    |  
|Federal funds sold          |  |              | 1,349   |                  |   | 16,240  |  |   | (14,891 | ) |  | (91.7 | )
|Loans, gross                |  |              | 408,875 |                  |   | 402,839 |  |   | 6,036   |   |  | 1.5   |  
|Securities                  |  |              | 180,578 |                  |   | 169,745 |  |   | 10,833  |   |  | 6.4   |  
|Demand deposits             |  |              | 53,007  |                  |   | 58,451  |  |   | (5,444  | ) |  | (9.3  | )
|Savings, NOW, MMDA deposits |  |              | 201,339 |                  |   | 207,900 |  |   | (6.561  | ) |  | (3.2  | )
|CDs $100,000 and over      |  |              | 48,721  |                  |   | 42,977  |  |   | 5,744   |   |  | 13.4  |  
|Other time deposits         |  |              | 142,703 |                  |   | 143,265 |  |   | (562    | ) |  | (.4   | )
|Total deposits              |  |              | 445,770 |                  |   | 452,593 |  |   | (6,823  | ) |  | (1.5  | )
|Short-term borrowing        |  |              | 28,091  |                  |   | 18,023  |  |   | 10,068  |   |  | 55.9  |  
|Long-term borrowing         |  |              | 110,371 |                  |   | 111,673 |  |   | (1,302  | ) |  | (1.2  | )
|Stockholders Equity         |  |              | 59,222  |                  |   | 58,601  |  |   | 621     |   |  | 1.1   |  



At June 30, 2005, total assets were
$648.3 million, a decrease of $3.0 million from December 31, 2004. The increase is primarily attributable to an increase in the loan portfolio of $6.0 million. Securities and federal funds sold decreased $4.6 million during 2005. Deposits decreased
$6.8 million primarily in the public fund demand deposits and money market accounts. Stockholders equity increased $621,000 during the year to $59.2 million due to an increase in retained earnings, offset by a decrease in other comprehensive
income of $301,000 resulting from a change in market value of securities.



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##### Table of Contents

Average total loans decreased to $403.6 million, a decrease of 1.7% from the same quarter of last year. The real estate
loan average declined $4.2 million, a decrease of 3.7%, and the personal loan average declined $11.0 million, a decrease of 12.4%. Commercial loans grew $4.4 million and home equity loans grew $3.3 million. The securities portfolio average has
decreased $9.9 million from the second quarter of 2004 to $186.8 million due to security sales and accelerated prepayments.



Average total deposits increased $1.7 million for the second quarter of 2005 to $457.1 million, compared to an average of $455.3 million for the same quarter last year.
Average short-term borrowings increased $1.3 million, or 5.5%, from the second quarter of 2004 due to increased public fund balances in repurchase agreements. Average Federal Home Loan Bank borrowings decreased $21.4 million, or 16.2%, due to early
payoff of $17.0 million in advances in the third quarter of 2004 and regular principal payments on amortizing advances.



Allowance for Loan Losses



The following table is a summary of the Companys loan loss experience for the periods ended June 30, 2005 and 2004:



|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|------------------------------ |  | ------------------------- | ----- | - | ----------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ------ | -
|                               |  | Three Months EndedJune 30 |       |   | Six Months EndedJune 30 |  
|                               |  | 2005                      |       |   | 2004                    |   |       | 2005 |  |   | 2004  |  
|Balance at beginning of period |  | $                         | 4,118 |   |                         | $ | 4,740 |      |  | $ | 4,212 |   |  | $ | 4,830  |  
|                               |  |                           |       |  
|Charge-offs:                   |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Commercial and industrial      |  |                           | (12   | ) |                         |   | (324  | )    |  |   | (47   | ) |  |   | (417   | )
|Commercial real estate         |  |                           |      |   |                         |   |      |      |  |   | (28   | ) |  |   | (42    | )
|Agricultural                   |  |                           |      |   |                         |   | (76   | )    |  |   |      |   |  |   | (92    | )
|Residential real estate        |  |                           | (51   | ) |                         |   | (51   | )    |  |   | (73   | ) |  |   | (261   | )
|Consumer                       |  |                           | (284  | ) |                         |   | (185  | )    |  |   | (551  | ) |  |   | (544   | )
|Other                          |  |                           |      |   |                         |   |      |      |  |   |      |   |  |   |       |  
|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Total charge-offs              |  |                           | (347  | ) |                         |   | (636  | )    |  |   | (699  | ) |  |   | (1,356 | )
|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Recoveries:                    |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Commercial and industrial      |  |                           | 1     |   |                         |   |      |      |  |   | 24    |   |  |   | 148    |  
|Commercial real estate         |  |                           | 19    |   |                         |   |      |      |  |   | 36    |   |  |   | 2      |  
|Agricultural                   |  |                           | 6     |   |                         |   | 37    |      |  |   | 6     |   |  |   | 88     |  
|Residential real estate        |  |                           | 25    |   |                         |   | 10    |      |  |   | 34    |   |  |   | 48     |  
|Consumer                       |  |                           | 120   |   |                         |   | 80    |      |  |   | 254   |   |  |   | 163    |  
|Other                          |  |                           |      |   |                         |   |      |      |  |   |      |   |  |   |       |  
|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Total recoveries               |  |                           | 171   |   |                         |   | 127   |      |  |   | 354   |   |  |   | 307    |  
|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Net charge-offs                |  |                           | (176  | ) |                         |   | (509  | )    |  |   | (345  | ) |  |   | (1,049 | )
|Provision for loan losses      |  |                           | 125   |   |                         |   | 450   |      |  |   | 200   |   |  |   | 900    |  
|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  
|Balance at end of period       |  | $                         | 4,067 |   |                         | $ | 4,681 |      |  | $ | 4,067 |   |  | $ | 4,681  |  
|                               |  |                           |       |   |                         |   |       |      |  |   |       |   |  |   |        |  



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##### Table of Contents

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



|                                                                 |  |              |       |   |                  |   |       |              |  |   |       |  
|---------------------------------------------------------------- |  | ------------ | ----- | - | ---------------- | - | ----- | ------------ |  | - | ----- | -
|                                                                 |  | June 30 2005 |       |   | December 31 2004 |   |       | June 30 2004 | 
|Loans accounted for on non-accrual basis                         |  | $            | 3,816 |   |                  | $ | 2,874 |              |  | $ | 6,692 |  
|Accruing loans which are past due 90 days                        |  |              | 103   |   |                  |   |      |              |  |   |      |  
|Renegotiated loans                                               |  |              | 0     |   |                  |   | 0     |              |  |   | 0     |  
|Other real estate owned                                          |  |              | 238   |   |                  |   | 389   |              |  |   | 873   |  
|                                                                 |  |              |       |   |                  |   |       |              |  |   |       |  
|Total non-performing assets                                      |  | $            | 4,157 |   |                  | $ | 3,263 |              |  | $ | 7,565 |  
|                                                                 |  |              |       |   |                  |   |       |              |  |   |       |  
|Ratios:                                                          |  |              |       |   |                  |   |       |              |  |   |       |  
|Allowance to total loans                                         |  |              | .99   | % |                  |   | 1.05  | %            |  |   | 1.14  | %
|Net charge-offs to average loans (annualized)                    |  |              | .17   | % |                  |   | 0.87  | %            |  |   | .51   | %
|Non-performing assets to total loans and other real estate owned |  |              | 1.02  | % |                  |   | .81   | %            |  |   | 1.84  | %



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



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



The increase in non-accrual loans from $2.87
million at December 31, 2004 to $3.82 million at June 30, 2005 is primarily the result of two relationships. The first is a worship center and the second is an estate recently added due to the death of the owner. The total of these two relationships
is $819,000. No loss is expected with either relationship.



As of June 30,
2005, there were $1.8 million in twenty-seven non-accrual small business relationships, previously discussed. Nonaccrual residential real estate loans consisted of twenty-one loans that total $1.5 million with the largest balance being
$154,000. Non-accrual personal loans consisted of forty-six loans that total $217,000, and home equity credit lines consisted of 9 loans totaling $219,000.



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 June 30, 2005, was 91.7%, compared to 94.7% at the same date in 2004. Loans to total assets were 63.1% at the end of the second quarter of 2005, compared to
63.3% at the same time last year. Management strives to keep this ratio below 70%. The Company has $180.6 million in available-for-sale securities that are readily marketable. Approximately 72.8% 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
89.1% 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). Bank holding companies must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 8%, 4% and 3%, respectively. At June 30, 2005, NB&T Financial
Group, Inc. had a total risk-based capital ratio of 14.95%, a Tier 1 risk-based capital ratio of 14.01%, and a Tier 1 leverage ratio of 9.44%.



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CRITICAL ACCOUNTING POLICIES



The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States
and conform to general practices within the banking industry. The Companys significant accounting policies are described in detail in the notes to the Companys consolidated financial statements for the year ended December 31, 2004. The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and
assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Companys financial condition and results, and they
require management to make estimates that are difficult, subjective, or complex.



Allowance for Loan Losses- The allowance for loan losses provides coverage for probable losses inherent in the Companys loan portfolio. Management evaluates the adequacy of the allowance for loan losses each quarter based on
changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation
is inherently subjective, as it requires the use of significant management estimates. Many factors can affect managements estimates of specific and expected losses, including volatility of default probabilities, collateral values, rating
migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.



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



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



Goodwill and Other Intangibles-The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by SFAS 141. Goodwill is subject, at a minimum, to
annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the
carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors
that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.



EFFECT OF RECENT ACCOUNTING STANDARDS



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



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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.



Techniques used to measure interest rate risk include both interest rate
gap management and simulation modeling that measures the effect of rate changes on net interest income and market value of equity under different rate scenarios. At June 30, 2005, the Companys simulation model indicated the twelve-month
cumulative gap as a percent of total assets was a negative 0.1%, compared to a positive 7.6% at December 31, 2004. This change is primarily the result of an increase in repurchase agreements during the first half of the year due to public fund
receipts and a decrease overnight fed funds sold to fund loan growth and investment purchases with repricing beyond one year. Despite the relatively neutral gap position, rates on loans repricing with base indices tied to the three- and five-year
treasury rates are not expected to increase to the same extent as rates on deposits, which are more influenced by the increase in short-term rates. As a result, the current gap position could have a negative effect on projected net interest income
over the next twelve months.



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 June 30, 2005, that the Companys disclosure controls and
procedures were effective.



(b) During the quarter ended June 30, 2005, 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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##### Table of Contents

PART II  OTHER INFORMATION



Item 1  Legal Proceedings



Not applicable



Item 2  Unregistered Sales of Equity and Use of Proceeds



Not applicable



Item 3  Defaults Upon Senior Securities



Not applicable



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



On April 26, 2005, the Annual Meeting of the shareholders of the Company was held.



The following members of the Board of Directors of the Company were re-elected for terms expiring in 2007 by the votes indicated:



|                  |  |           |  |          |  |        
|----------------- |  | --------- |  | -------- |  | -------
|                  |  | For       |  | Withheld |  | Abstain
|S. Craig Beam     |  | 2,622,681 |  | 4,232    |  |       
|D. Jeffrey Lykins |  | 2,620,545 |  | 6,368    |  |       
|Darleen M. Myers  |  | 2,622,681 |  | 4,232    |  |       
|Robert A. Raizk   |  | 2,618,481 |  | 8,432    |  |       
|Janet M. Williams |  | 2,622,681 |  | 4,232    |  |       



Item 5 - Other Information



Not applicable



Item 6  Exhibits



(a) Exhibits:



|     |  |                                                                        
|---- |  | -----------------------------------------------------------------------
|     |  | Index to Exhibits                                                      
|15   |  | Accountants acknowledgement.                                          
|     | 
|31.1 |  | Certification by CEO.                                                  
|     | 
|31.2 |  | Certification by CFO.                                                  
|     | 
|32.1 |  | Financial statements certification by CEO.                             
|     | 
|32.2 |  | Financial statements certification by CFO.                             
|     | 
|99   |  | Safe harbor under the Private Securities Litigation Reform Act of 1995.



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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: August 11, 2005 |  | /s/ Craig F. Fortin                                                            
|                      |  | Craig F. Fortin                                                                
|                      |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer)



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Index to Exhibits



|     |  |                                                                        
|---- |  | -----------------------------------------------------------------------
|15   |  | Accountants acknowledgement.                                          
|     | 
|31.1 |  | Certification by CEO.                                                  
|     | 
|31.2 |  | Certification by CFO.                                                  
|     | 
|32.1 |  | Financial statements certification by CEO.                             
|     | 
|32.2 |  | Financial statements certification by CFO.                             
|     | 
|99   |  | Safe harbor under the Private Securities Litigation Reform Act of 1995.



19