##### 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 September 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 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 4, 2005, 3,232,513 common shares were issued and outstanding.



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##### Table of Contents

NB&T FINANCIAL GROUP, INC.

September 30, 2005 Form 10-Q

Table of Contents



|                  |  |                                                                                       |  |     
|----------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                  |  |                                                                                       |  | Page
|PART I            |  |                                                                                      
|Item 1:           |  | Financial Statements                                                                  |  |     
|                  |  | 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)                                                             |  | September 30, 2005 |         |   | December 31, 2004 |  
|                                                                                   |  | (Unaudited)        |         |   |                   |  
|Assets                                                                             |  |                    |         |   |                   |   |         |  
|Cash and due from banks                                                            |  | $                  | 13,601  |   |                   | $ | 13,248  |  
|Interest-bearing demand deposits                                                   |  |                    | 1,022   |   |                   |   | 563     |  
|Federal funds sold                                                                 |  |                    | 5,735   |   |                   |   | 16,240  |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Cash and cash equivalents                                                          |  |                    | 20,358  |   |                   |   | 30,051  |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Securities - available-for-sale                                                    |  |                    | 176,154 |   |                   |   | 169,745 |  
|Loans, net of allowance for loan losses of $4,073 and $4,212                       |  |                    | 409,796 |   |                   |   | 398,627 |  
|Premises and equipment                                                             |  |                    | 13,849  |   |                   |   | 14,096  |  
|Federal Reserve and Federal Home Loan Bank stock                                   |  |                    | 8,444   |   |                   |   | 8,176   |  
|Earned income receivable                                                           |  |                    | 4,060   |   |                   |   | 3,393   |  
|Goodwill and other intangibles                                                     |  |                    | 6,664   |   |                   |   | 6,969   |  
|Bank-owned life insurance                                                          |  |                    | 12,511  |   |                   |   | 12,150  |  
|Other assets                                                                       |  |                    | 2,842   |   |                   |   | 2,116   |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Total assets                                                                       |  | $                  | 654,678 |   |                   | $ | 645,323 |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                               |  |                    |         |   |                   |   |         |  
|                                                                                   |  |                   
|Liabilities                                                                        |  |                    |         |   |                   |   |         |  
|Deposits                                                                           |  |                    |         |   |                   |   |         |  
|Demand                                                                             |  | $                  | 56,096  |   |                   | $ | 58,451  |  
|Savings, NOW and Money Market                                                      |  |                    | 196,448 |   |                   |   | 207,900 |  
|Time                                                                               |  |                    | 196,048 |   |                   |   | 186,242 |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Total deposits                                                                     |  |                    | 448,592 |   |                   |   | 452,593 |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Short-term borrowings                                                              |  |                    | 32,603  |   |                   |   | 18,023  |  
|Long-term debt                                                                     |  |                    | 109,709 |   |                   |   | 111,673 |  
|Interest payable and other liabilities                                             |  |                    | 5,120   |   |                   |   | 4,433   |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Total liabilities                                                                  |  |                    | 596,024 |   |                   |   | 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                                                         |  |                    | 10,130  |   |                   |   | 9,828   |  
|Retained earnings                                                                  |  |                    | 55,364  |   |                   |   | 54,688  |  
|Unearned employee stock ownership plan shares                                      |  |                    | (1,197  | ) |                   |   | (1,337  | )
|Accumulated other comprehensive income (loss)                                      |  |                    | (609    | ) |                   |   | 225     |  
|Treasury stock; 586,437 and 591,887 shares at cost in 2005 and 2004                |  |                    | (6,034  | ) |                   |   | (5,803  | )
|                                                                                   |  |                    |         |   |                   |   |         |  
|Total stockholders equity                                                         |  |                    | 58,654  |   |                   |   | 58,601  |  
|                                                                                   |  |                    |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                         |  | $                  | 654,678 |   |                   | $ | 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 EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|(Dollars in thousands, except per share amounts)              |  | 2005                            |       | 2004                           |   | 2005  |  | 2004
|                                                              |  | (Unaudited)                     |       | (Unaudited)                   
|Interest and Dividend Income                                  |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Loans                                                         |  | $                               | 6,474 |                                | $ | 6,197 |  | $    | 18,861 |  | $ | 18,709
|Securities-Taxable                                            |  |                                 | 1,191 |                                |   | 1,178 |  |      | 3,479  |  |   | 3,536 
|Securities-Tax-exempt                                         |  |                                 | 467   |                                |   | 495   |  |      | 1,418  |  |   | 1,573 
|Federal funds sold and other                                  |  |                                 | 62    |                                |   | 34    |  |      | 301    |  |   | 87    
|Dividends on Federal Home Loan and Federal Reserve Bank stock |  |                                 | 105   |                                |   | 85    |  |      | 301    |  |   | 250   
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total interest and dividend income                            |  |                                 | 8,299 |                                |   | 7,989 |  |      | 24,360 |  |   | 24,155
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Interest Expense                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Deposits                                                      |  |                                 | 1,807 |                                |   | 1,377 |  |      | 4,975  |  |   | 4,062 
|Short-term borrowings                                         |  |                                 | 271   |                                |   | 84    |  |      | 611    |  |   | 179   
|Long-term debt                                                |  |                                 | 1,473 |                                |   | 1,517 |  |      | 4,370  |  |   | 4,621 
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total interest expense                                        |  |                                 | 3,551 |                                |   | 2,978 |  |      | 9,956  |  |   | 8,862 
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Net Interest Income                                           |  |                                 | 4,748 |                                |   | 5,011 |  |      | 14,404 |  |   | 15,293
|                                                              |  |                                 |       |                               
|Provision for Loan Losses                                     |  |                                 | 275   |                                |   | 450   |  |      | 475    |  |   | 1,350 
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Net Interest Income After Provision for Loan Losses           |  |                                 | 4,473 |                                |   | 4,561 |  |      | 13,929 |  |   | 13,943
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Non-interest Income                                           |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Trust income                                                  |  |                                 | 249   |                                |   | 238   |  |      | 766    |  |   | 748   
|Service charges and fees                                      |  |                                 | 855   |                                |   | 918   |  |      | 2,432  |  |   | 2,601 
|ATM network fees                                              |  |                                 | 52    |                                |   | 83    |  |      | 165    |  |   | 251   
|Insurance agency commissions                                  |  |                                 | 537   |                                |   | 583   |  |      | 1,916  |  |   | 1,896 
|Net gains on sales of securities available-for-sale           |  |                                 | 13    |                                |   | 62    |  |      | 20     |  |   | 589   
|Other                                                         |  |                                 | 379   |                                |   | 327   |  |      | 1,001  |  |   | 922   
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total non-interest income                                     |  |                                 | 2,085 |                                |   | 2,211 |  |      | 6,300  |  |   | 7,007 
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Non-interest Expense                                          |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Salaries and employee benefits                                |  |                                 | 3,037 |                                |   | 2,724 |  |      | 8,799  |  |   | 8,386 
|Net occupancy expense                                         |  |                                 | 461   |                                |   | 429   |  |      | 1,371  |  |   | 1,300 
|Equipment and data processing expense                         |  |                                 | 671   |                                |   | 564   |  |      | 2,030  |  |   | 1,765 
|Professional fees                                             |  |                                 | 539   |                                |   | 442   |  |      | 1,321  |  |   | 1,123 
|Marketing expense                                             |  |                                 | 162   |                                |   | 180   |  |      | 444    |  |   | 395   
|State franchise tax                                           |  |                                 | 189   |                                |   | 177   |  |      | 566    |  |   | 519   
|Amortization of intangibles                                   |  |                                 | 156   |                                |   | 183   |  |      | 510    |  |   | 516   
|Other                                                         |  |                                 | 471   |                                |   | 679   |  |      | 1,451  |  |   | 2,202 
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total non-interest expense                                    |  |                                 | 5,686 |                                |   | 5,378 |  |      | 16,492 |  |   | 16,206
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Income Before Income Tax                                      |  |                                 | 872   |                                |   | 1,394 |  |      | 3,737  |  |   | 4,744 
|Provision for Income Taxes                                    |  |                                 | 93    |                                |   | 219   |  |      | 593    |  |   | 877   
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Net Income                                                    |  | $                               | 779   |                                | $ | 1,175 |  | $    | 3,144  |  | $ | 3,867 
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Basic Earnings Per Share                                      |  | $                               | .25   |                                | $ | .37   |  | $    | .99    |  | $ | 1.23  
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Diluted Earnings Per Share                                    |  | $                               | .25   |                                | $ | .37   |  | $    | .99    |  | $ | 1.22  
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Dividends Declared Per Share                                  |  | $                               | .26   |                                | $ | .25   |  | $    | .78    |  | $ | .75   
|                                                              |  |                                 |       |                                |   |       |  |      |        |  |   |       



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



|                                                                   |  |                                |         |   |      |   |         |  
|------------------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                   |  | Nine Months Ended,September 30 |        
|(Dollars in thousands)                                             |  | 2005                           |         |   | 2004 |  
|                                                                   |  | (Unaudited)                    |        
|Operating Activities                                               |  |                                |         |   |      |   |         |  
|Net income                                                         |  | $                              | 3,144   |   |      | $ | 3,867   |  
|Items not requiring (providing) cash Depreciation and amortization |  |                                | 1,695   |   |      |   | 1,834   |  
|Provision for loan losses                                          |  |                                | 475     |   |      |   | 1,350   |  
|Amortization of premiums and discounts on securities               |  |                                | 762     |   |      |   | 955     |  
|Net realized gains on available-for-sale securities                |  |                                | (20     | ) |      |   | (589    | )
|FHLB stock dividends                                               |  |                                | (268    | ) |      |   | (220    | )
|Net change in:                                                     |  |                                |         |   |      |   |         |  
|Loans held for sale                                                |  |                                |        |   |      |   | 86      |  
|Other assets and liabilities                                       |  |                                | (622    | ) |      |   | 588     |  
|                                                                   |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                          |  |                                | 5,166   |   |      |   | 7,871   |  
|                                                                   |  |                                |         |   |      |   |         |  
|Investing Activities                                               |  |                                |         |   |      |   |         |  
|Purchases of available-for-sale securities                         |  |                                | (21,392 | ) |      |   | (62,695 | )
|Proceeds from sales of available-for-sale securities               |  |                                | 3,764   |   |      |   | 35,245  |  
|Proceeds from maturities of available-for-sale securities          |  |                                | 9,212   |   |      |   | 45,575  |  
|Proceeds from maturities of held-to-maturity securities            |  |                                |        |   |      |   | 499     |  
|Net change in loans                                                |  |                                | (11,644 | ) |      |   | (161    | )
|Purchase of premises and equipment                                 |  |                                | (1,079  | ) |      |   | (1,968  | )
|Proceeds from sales of premises and equipment                      |  |                                | 141     |   |      |   |        |  
|Acquisition of insurance agency                                    |  |                                |        |   |      |   | (654    | )
|                                                                   |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                |  |                                | (20,998 | ) |      |   | 15,841  |  
|                                                                   |  |                                |         |   |      |   |         |  
|Financing Activities                                               |  |                                |         |   |      |   |         |  
|Net change in:                                                     |  |                                |         |   |      |   |         |  
|Deposits                                                           |  |                                | (4,001  | ) |      |   | (9,814  | )
|Short-term borrowings                                              |  |                                | 14,580  |   |      |   | 7,149   |  
|Repayment of FHLB advances                                         |  |                                | (1,964  | ) |      |   | (20,207 | )
|Cash dividends                                                     |  |                                | (2,468  | ) |      |   | (2,361  | )
|Purchase of treasury shares                                        |  |                                | (482    | ) |      |   |        |  
|Proceeds from exercise of stock options                            |  |                                | 474     |   |      |   | 78      |  
|                                                                   |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                |  |                                | 6,139   |   |      |   | (25,155 | )
|                                                                   |  |                                |         |   |      |   |         |  
|Decrease in Cash and Cash Equivalents                              |  |                                | (9,693  | ) |      |   | (1,443  | )
|                                                                   |  |                               
|Cash and Cash Equivalents, Beginning of Year                       |  |                                | 30,051  |   |      |   | 22,218  |  
|                                                                   |  |                                |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                           |  | $                              | 20,358  |   |      | $ | 20,775  |  
|                                                                   |  |                                |         |   |      |   |         |  



See Notes to 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 unaudited
condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. 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 September 30, 2005, and December 31, 2004, and the results of its operations for the three and nine month periods and cash flows for
the nine months ended September 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.



Certain reclassifications have been made to the 2004 condensed financial statements to conform to the 2005 condensed financial statement presentation. These reclassifications had no effect on net income.



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 EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                                                                                               |  | 2005                            |     |   | 2004                           |   |       | 2005 |  |   | 2004  |  
|Net income, as reported                                                                                        |  | $                               | 779 |   |                                | $ | 1,175 |      |  | $ | 3,144 |   |  | $ | 3,867 |  
|Less: Total stock-based employee compensation cost determined under the fair value method, net of income taxes |  |                                 | (9  | ) |                                |   | (17   | )    |  |   | (113  | ) |  |   | (54   | )
|                                                                                                               |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Pro forma net income                                                                                           |  | $                               | 770 |   |                                | $ | 1,158 |      |  | $ | 3,031 |   |  | $ | 3,813 |  
|                                                                                                               |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Earnings per share:                                                                                            |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Basic  as reported                                                                                            |  | $                               | .25 |   |                                | $ | .37   |      |  | $ | .99   |   |  | $ | 1.23  |  
|                                                                                                               |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Basic  pro forma                                                                                              |  | $                               | .24 |   |                                | $ | .37   |      |  | $ | .96   |   |  | $ | 1.21  |  
|                                                                                                               |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Diluted  as reported                                                                                          |  | $                               | .25 |   |                                | $ | .37   |      |  | $ | .99   |   |  | $ | 1.22  |  
|                                                                                                               |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Diluted  pro forma                                                                                            |  | $                               | .24 |   |                                | $ | .37   |      |  | $ | .96   |   |  | $ | 1.20  |  
|                                                                                                               |  |                                 |     |   |                                |   |       |      |  |   |       |   |  |   |       |  



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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
|September 30, 2005:              |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|Available-for-Sale Securities:   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|U.S. government agencies         |  | $             | 80,404  |                      | $ |                      |  | $ | (1,905                | ) |  | $ | 78,499 
|Mortgage-backed securities       |  |               | 59,182  |                      |   | 139                   |  |   | (696                  | ) |  |   | 58,625 
|State and political subdivisions |  |               | 37,481  |                      |   | 1,578                 |  |   | (39                   | ) |  |   | 39,020 
|Other securities                 |  |               | 10      |                      |   |                      |  |   |                      |   |  |   | 10     
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|                                 |  | $             | 177,077 |                      | $ | 1,717                 |  | $ | (2,640                | ) |  | $ | 176,154
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|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):



|                                               |  |                    |         |   |                   |   |         |  
|---------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                               |  | September 30, 2005 |         |   | December 31, 2004 |  
|Commercial and industrial                      |  | $                  | 80,049  |   |                   | $ | 85,681  |  
|Agricultural                                   |  |                    | 26,343  |   |                   |   | 22,284  |  
|Real estate construction                       |  |                    | 9,330   |   |                   |   | 13,114  |  
|Commercial real estate                         |  |                    | 64,680  |   |                   |   | 52,251  |  
|Residential real estate                        |  |                    | 161,251 |   |                   |   | 148,644 |  
|Consumer                                       |  |                    | 70,936  |   |                   |   | 80,978  |  
|Other                                          |  |                    | 1,399   |   |                   |   | 119     |  
|                                               |  |                    |         |   |                   |   |         |  
|Total loans                                    |  |                    | 413,988 |   |                   |   | 403,071 |  
|Less                                           |  |                    |         |   |                   |   |         |  
|Net deferred loan fees, premiums and discounts |  |                    | (119    | ) |                   |   | (232    | )
|Allowance for loan losses                      |  |                    | (4,073  | ) |                   |   | (4,212  | )
|                                               |  |                    |         |   |                   |   |         |  
|Net loans                                      |  | $                  | 409,796 |   |                   | $ | 398,627 |  
|                                               |  |                    |         |   |                   |   |         |  



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##### Table of Contents

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



|                           |  |                                 |        |   |      |   |        |  
|-------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                           |  | Nine Months Ended September 30, |       
|                           |  | 2005                            |        |   | 2004 |  
|Balance, beginning of year |  | $                               | 4,212  |   |      | $ | 4,830  |  
|Provision for loan losses  |  |                                 | 475    |   |      |   | 1,350  |  
|Recoveries                 |  |                                 | 466    |   |      |   | 444    |  
|Charge-offs                |  |                                 | (1,080 | ) |      |   | (2,080 | )
|                           |  |                                 |        |   |      |   |        |  
|Balance, end of period     |  | $                               | 4,073  |   |      | $ | 4,544  |  
|                           |  |                                 |        |   |      |   |        |  



Impaired loans totaled $6,265,000 and
$1,017,000 at September 30, 2005 and December 31, 2004, respectively. An allowance for loan losses of $531,000 and $146,000 relates to impaired loans of $2,379,000 and $458,000 at September 30, 2005 and December 31, 2004,
respectively. At September 30, 2005 and December 31, 2004, impaired loans of $3,886,000 and $559,000 had no related allowance for loan losses.



At September 30, 2005 and December 31, 2004, there were no accruing loans delinquent 90 days or more. Non-accruing loans at September 30, 2005 and
December 31, 2004 were $8,222,000 and $2,874,000, respectively.



Note
4: Commitments



Outstanding commitments to extend credit as of
September 30, 2005 total $55,069,000. Standby letters of credit as of September 30, 2005 total $1,476,000.



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 EndedSeptember 30, |           | Nine Months Ended September 30,
|                                                     |  | 2005                            |           | 2004                            |   | 2005      |  | 2004
|Numerator:                                           |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Net income                                           |  | $                               | 779       |                                 | $ | 1,175     |  | $    | 3,144     |  | $ | 3,867    
|                                                     |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Denominator:                                         |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Weighted-average common shares outstanding (basic)   |  |                                 | 3,163,812 |                                 |   | 3,148,651 |  |      | 3,160,680 |  |   | 3,147,526
|Effect of stock options                              |  |                                 | 5,735     |                                 |   | 17,772    |  |      | 7,775     |  |   | 23,122   
|                                                     |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Weighted-average common shares outstanding (diluted) |  |                                 | 3,169,547 |                                 |   | 3,166,423 |  |      | 3,168,455 |  |   | 3,170,648
|                                                     |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Earnings per share:                                  |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Basic                                                |  | $                               | .25       |                                 | $ | .37       |  | $    | .99       |  | $ | 1.23     
|                                                     |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Diluted                                              |  | $                               | .25       |                                 | $ | .37       |  | $    | .99       |  | $ | 1.22     
|                                                     |  |                                 |           |                                 |   |           |  |      |           |  |   |          



For the three and nine months ended
September 30, 2005, stock options covering 76,200 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 nine months ended September 30, 2004, stock options covering 30,000 and 11,000 shares of common stock, respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair marker value of the
Companys common shares.



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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, 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 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 September 30, 2005, December 31, 2004 and September 30, 2004, the outstanding principal balance of the Capital Securities was $8,000,000.



Note 7: Comprehensive Income



Total comprehensive income was as follows:



|                                   |  |                                 |      |                                |      |   |       |  |   |       |   |  |   |      
|---------------------------------- |  | ------------------------------- | ---- | ------------------------------ | ---- | - | ----- |  | - | ----- | - |  | - | -----
|                                   |  | Three Months EndedSeptember 30, |      | Nine Months EndedSeptember 30,
|                                   |  | 2005                            |      |                                | 2004 |   | 2005  |  |   | 2004 
|Net Income                         |  | $                               | 779  |                                |      | $ | 1,175 |  | $ | 3,144 |   |  | $ | 3,867
|Other Comprehensive Income/ (Loss) |  | $                               | (533 | )                              |      | $ | 2,291 |  | $ | (834  | ) |  | $ | 515  
|                                   |  |                                 |      |                                |      |   |       |  |   |       |   |  |   |      
|Total Comprehensive Income         |  | $                               | 246  |                                |      | $ | 3,466 |  | $ | 2,310 |   |  | $ | 4,382
|                                   |  |                                 |      |                                |      |   |       |  |   |       |   |  |   |      



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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 September 30, 2005 and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2005
and 2004 and cash flows for the nine-month periods ended September 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.



BKD, LLP



Cincinnati, Ohio

October 28, 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 third quarter of 2005 was $779,000, a decrease of $396,000, or 33.7%, from the third quarter of 2004 net income of $1.18 million. Net income per share-basic was $.25 for the third quarter of 2005,
compared to $.37 per share for the third quarter of 2004, a decrease of 32.4%. Net income for the first nine months of 2005 was $3.14 million, a decrease of $723,000, or 18.7%, from the $3.87 million of net income for the first nine months of 2004.
Net income per share-basic was $.99 for the first nine months of 2005, compared to $1.23 per share for the first nine months of 2004, a decrease of 19.5%. The decrease in earnings for both the third quarter and the first nine 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; increased non-interest expense; and lower
security gains, offset by lower loan loss provisions.



Return on average equity
and return on average assets for the third quarter of 2005 were 5.20% and 0.47%, respectively, compared to 8.18% and .71% for the same period in 2004. Return on average equity and return on average assets for the first nine months of 2005 were 7.15%
and 0.64%, respectively, compared to 9.01% and .78% for the same period in 2004.



Net Interest Income



Net interest income was $4.75 million for
the third quarter of 2005 and $14.40 million for the first nine months of 2005, a decrease of $263,000 and $889,000 respectively, compared to the same periods last year. Net interest margin (annualized net interest income as a percent of average
earning assets) decreased to 3.10% for the third quarter of this year from 3.28% for the third quarter of last year, and the net interest margin decreased to 3.18% for the first nine months of 2005 from 3.32% for the same period last year.



Interest income totaled $8.30 million for the third quarter of 2005, an
increase of $310,000, or 3.9%, from $7.99 million during the same period last year. Interest income for the first nine months of 2005 totaled $24.36 million, an increase of $205,000, or .85%, from $24.16 million during the same period last year.
Unfortunately, interest expense increased $573,000, or 19.2%, during the third quarter of 2005 and $1.09 million, or 12.3%, during the first nine months of 2005. The difference in yield between short-term and long-term rates has diminished over the
past year, and the deposit and borrowing costs with shorter terms have increased, while residential mortgage and consumer loan pricing with longer terms have remained relatively flat. Additionally, loan yields have been reduced by our lower average
volumes of non-mortgage consumer loans. The yield on average earning assets increased from 5.22% in the third quarter of 2004 to 5.43% in the third quarter of 2005 and from 5.25% for the first nine months of 2004 to 5.38% for the same period in
2005. At the same time, the cost of interest-bearing liabilities increased by a greater amount, from 2.18% during the third quarter of last year to 2.62% in the third quarter of 2005, and their cost increased from 2.14% during the first nine months
of 2004 to 2.49% for the first nine months of 2005. This increase is the result of market rate increases and the shift of lower costing money market deposits to higher costing time deposits and short-term borrowings more sensitive to current rate
increases.



Average loans outstanding for the first nine months decreased
1.30%, compared to the prior year, while average loans outstanding for the third quarter of 2005 increased .24%, compared to the prior year. Average securities outstanding, including federal funds sold and other interest-bearing deposits, for the
third quarter and the first nine months of 2005 decreased .69% and 2.2%, compared to the prior year. Average interest-bearing liabilities for the third quarter decreased .64% from last year to $592.8 million, and average interest-bearing liabilities
for the first nine months of 2005 decreased 2.2% from last year to $591.6 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 38.9% to $275,000 during the third quarter of 2005 from $450,000 during the third quarter of last year. For the first nine months of 2005, the provision decreased 64.8% to $475,000 from $1.35 million for
the same period last year. The lower provision for loan losses is a result of lower net charge-offs and managements evaluation of the loan portfolio. Net charge-offs were $269,000, or 0.26% of total average loans (annualized) in the third
quarter of 2005, compared to $587,000, or 0.57% (annualized) for the same period in 2004. Net charge-offs were $613,000, or 0.20% of total average loans



11



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##### Table of Contents

(annualized) during the first nine months of 2005, compared to $1.64 million, or 0.53% (annualized) for the same period in 2004. Non-performing loans at
September 30, 2005 increased to 1.99% from 1.48% of total loans at September 30, 2004 due to placing one $5.0 million relationship on non-accrual during September 2005. At September 30, 2005, the relationship was less than 60 days
past due; however, management was aware of potential cash flow weaknesses. The percentage of the allowance for loan losses to total loans was .98% at September 30, 2005 and 1.11% at September 30, 2004.



Non-interest Income



Non-interest income was $2.09 million for the third quarter of 2005, a decrease of 5.7% from the $2.21 million earned in the third quarter
of 2004. Non-interest income was $6.30 million for the first nine months of 2005, compared to $7.01 million for the same period in 2004. Non-interest income for the first nine months of 2004 includes $589,000 in realized securities gains, compared
to only $20,000 in realized securities gains in the first nine months of 2005. Securities gains of $13,000 were realized in the third quarter of 2005, compared to $62,000 in the third quarter of 2004. Excluding the securities gains, the primary
reasons for the decrease for the quarter and nine months are lower service charge income and ATM network fees. Service charge income decreased 6.9% from the third quarter of last year as more customers utilize the Companys free checking
product as opposed to a fee-based checking account. In addition, the Company collected less overdraft fees in the third quarter of 2005, compared to the same quarter in 2004. ATM network fees decreased 37.3% from the third quarter of last year as a
result of fewer units in operation and higher costs.



Non-interest Expense



Non-interest expense was $5.69 million for the third quarter of 2005,
compared to $5.38 million for the third quarter of 2004. Salaries and employee benefits expense increased 11.5% during the third quarter of 2005 due to merit increases and increased benefit costs. Equipment and data processing expense also increased
19.0% during the third quarter of 2005 due to maintenance fees on the Banks primary data processing system, which were waived in 2004. In addition, the Company incurred additional professional fees in the third quarter of 2005 related to
corporate marketing and educational initiatives. For the first nine months of 2005, non-interest expense was $16.49 million, compared to $16.21 million for the same period in 2004.



Income Taxes



The provision for income taxes for the third quarter of 2005 was $93,000, compared to $219,000 for the same period in 2004. The provision for income taxes for the first
nine months of 2005 was $593,000, compared to $877,000 for the same period last year. The effective tax rate for the three months ended and nine months ended September 30, 2005 was 10.7% and 15.9%, respectively, compared to 15.7% and 18.5% 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):



|                            |  |                   |         |                  |   |         |  |   |         |   |  |       |  
|--------------------------- |  | ----------------- | ------- | ---------------- | - | ------- |  | - | ------- | - |  | ----- | -
|                            |  | September 30 2005 |         | December 31 2004 |   | Amount  |  |   | Percent |  
|Total assets                |  | $                 | 654,678 |                  | $ | 645,323 |  | $ | 9,355   |   |  | 1.4   |  
|Federal funds sold          |  |                   | 5,735   |                  |   | 16,240  |  |   | (10,505 | ) |  | (64.7 | )
|Loans, gross                |  |                   | 413,869 |                  |   | 402,839 |  |   | 11,030  |   |  | 2.7   |  
|Securities                  |  |                   | 176,154 |                  |   | 169,745 |  |   | 6,409   |   |  | 3.8   |  
|Demand deposits             |  |                   | 56,096  |                  |   | 58,451  |  |   | (2,355  | ) |  | (4.0  | )
|Savings, NOW, MMDA deposits |  |                   | 196,448 |                  |   | 207,900 |  |   | (11,452 | ) |  | (5.5  | )
|CDs $100,000 and over      |  |                   | 51,383  |                  |   | 42,977  |  |   | 8,406   |   |  | 19.6  |  
|Other time deposits         |  |                   | 144,665 |                  |   | 143,265 |  |   | 1,400   |   |  | 1.0   |  
|Total deposits              |  |                   | 448,592 |                  |   | 452,593 |  |   | (4,001  | ) |  | (.9   | )
|Short-term borrowing        |  |                   | 32,603  |                  |   | 18,023  |  |   | 14,580  |   |  | 80.9  |  
|Long-term borrowing         |  |                   | 109,709 |                  |   | 111,673 |  |   | (1,964  | ) |  | (1.8  | )
|Stockholders equity         |  |                   | 58,654  |                  |   | 58,601  |  |   | 53      |   |  | .09   |  



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##### Table of Contents

At September 30, 2005, total assets were $654.7 million, an increase of $9.4 million from December 31, 2004.
The increase is primarily attributable to an increase in the loan portfolio of $11.0 million. Securities and federal funds sold decreased $4.1 million during 2005. Deposits decreased $4.0 million primarily in the money market accounts.
Stockholders equity increased $53,000 during the year to $58.7 million due to an increase in retained earnings, offset by a decrease in other comprehensive income of $834,000 resulting from a change in market value of securities.



Average total loans increased to $412.0 million, an increase of .24% from the same quarter
of last year. The residential real estate loan average declined $852,000, a decrease of .77%, and the consumer loan average declined $5.1 million, a decrease of 6.7%. Commercial loans grew $5.6 million and home equity loans grew $1.6 million. The
securities portfolio average has remained relatively unchanged at $187.1million for the third quarter of 2005, compared to $186.5 for the third quarter of 2004.



Average total deposits increased $4.9 million for the third quarter of 2005 to $448.8 million, compared to an average of $443.9 million for the same quarter last year.
Average short-term borrowings increased $4.8 million, or 16.5%, from the third quarter of 2004 due to increased public fund balances in repurchase agreements. Average long-term debt decreased $13.5 million, or 11.0%, due to early payoff of $17.0
million in Federal Home Loan Bank 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 September 30, 2005 and 2004:



|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|---------------------------------- |  | ------------------------------ | ----- | - | ----------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                   |  | Three Months EndedSeptember 30 |       |   | Nine Months EndedSeptember 30 |  
|                                   |  | 2005                           |       |   | 2004                          |   |       | 2005 |  |   | 2004   |  
|Balance at beginning of period     |  | $                              | 4,067 |   |                               | $ | 4,681 |      |  | $ | 4,212  |   |  | $ | 4,830  |  
|                                   |  |                                |       |  
|Charge-offs:                       |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Commercial and industrial          |  |                                | (29   | ) |                               |   | (42   | )    |  |   | (76    | ) |  |   | (459   | )
|Commercial real estate             |  |                                |      |   |                               |   | (10   | )    |  |   | (28    | ) |  |   | (52    | )
|Agricultural                       |  |                                | (69   | ) |                               |   | (76   | )    |  |   | (69    | ) |  |   | (168   | )
|Residential real estate            |  |                                | (50   | ) |                               |   | (187  | )    |  |   | (123   | ) |  |   | (448   | )
|Consumer                           |  |                                | (233  | ) |                               |   | (409  | )    |  |   | (784   | ) |  |   | (953   | )
|Other                              |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Total charge-offs                  |  |                                | (381  | ) |                               |   | (724  | )    |  |   | (1,080 | ) |  |   | (2,080 | )
|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Recoveries:                        |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Commercial and industrial          |  |                                | 9     |   |                               |   | 12    |      |  |   | 33     |   |  |   | 18     |  
|Commercial real estate             |  |                                | 23    |   |                               |   | 13    |      |  |   | 59     |   |  |   | 15     |  
|Agricultural                       |  |                                | 2     |   |                               |   | 36    |      |  |   | 8      |   |  |   | 38     |  
|Residential real estate            |  |                                | 1     |   |                               |   | 15    |      |  |   | 35     |   |  |   | 63     |  
|Consumer                           |  |                                | 77    |   |                               |   | 61    |      |  |   | 331    |   |  |   | 224    |  
|Other                              |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   | 86     |  
|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Total recoveries                   |  |                                | 112   |   |                               |   | 137   |      |  |   | 466    |   |  |   | 444    |  
|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Net charge-offs                    |  |                                | (269  | ) |                               |   | (587  | )    |  |   | (613   | ) |  |   | (1,636 | )
|Provision for possible loan losses |  |                                | 275   |   |                               |   | 450   |      |  |   | 475    |   |  |   | 1,350  |  
|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Balance at end of period           |  | $                              | 4,073 |   |                               | $ | 4,544 |      |  | $ | 4,073  |   |  | $ | 4,544  |  
|                                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |        |  



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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):



|                                                                 |  |                   |       |   |                  |   |       |                   |  |   |       |  
|---------------------------------------------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | ----------------- |  | - | ----- | -
|                                                                 |  | September 30 2005 |       |   | December 31 2004 |   |       | September 30 2004 | 
|Loans accounted for on non-accrual basis                         |  | $                 | 8,222 |   |                  | $ | 2,874 |                   |  | $ | 6,012 |  
|Accruing loans which are past due 90 days                        |  |                   |      |   |                  |   |      |                   |  |   | 38    |  
|Renegotiated loans                                               |  |                   | 0     |   |                  |   | 0     |                   |  |   | 0     |  
|Other real estate owned                                          |  |                   | 139   |   |                  |   | 389   |                   |  |   | 187   |  
|                                                                 |  |                   |       |   |                  |   |       |                   |  |   |       |  
|Total non-performing assets                                      |  | $                 | 8,361 |   |                  | $ | 3,263 |                   |  | $ | 6,237 |  
|                                                                 |  |                   |       |   |                  |   |       |                   |  |   |       |  
|Ratios:                                                          |  |                   |       |   |                  |   |       |                   |  |   |       |  
|Allowance to total loans                                         |  |                   | .98   | % |                  |   | 1.05  | %                 |  |   | 1.11  | %
|Net charge-offs to average loans (annualized)                    |  |                   | .20   | % |                  |   | 0.87  | %                 |  |   | .53   | %
|Non-performing assets to total loans and other real estate owned |  |                   | 2.02  | % |                  |   | .81   | %                 |  |   | 1.53  | %



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
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 unemployment levels, the condition of the
agricultural business, and other local economic factors.



As of
September 30, 2005, there were $6.3 million in nineteen non-accrual small business relationships. The majority of this amount consisted of one $5.0 million relationship, secured by a nursing home. At September 30, 2005, the relationship
was less than 60 days past due; however, management was aware of potential cash flow weaknesses.



Nonaccrual residential real estate loans totaled $1.5 million and consisted of 22 loans with the largest balance being $154,000. Non-accrual consumer loans consisted of fifty-seven loans that total $254,000 and
home equity credit lines consisted of 9 loans totaling $207,000.



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, 2005, was 92.3%,
compared to 92.6% at the same date in 2004. Loans to total assets were 63.2% at the end of the third quarter of 2005, compared to 63.2% at the same time last year. Management strives to keep this ratio below 70%. The Company has $176.2 in
available-for-sale securities that are readily marketable. Approximately 84.0% 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 88.5% 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). Bank holding companies
must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 8%, 4% and 3%, respectively. At September 30, 2005, NB&T Financial Group, Inc. had a total risk-based capital ratio of 14.94%, a Tier 1 risk-based capital ratio
of 14.00%, and a Tier 1 leverage ratio of 9.33%.



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##### Table of Contents

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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##### Table of Contents

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 September 30, 2005, the Companys simulation model indicated the
twelve-month cumulative static gap as a percent of total assets was a positive 1.6%, compared to a positive 7.6% at December 31, 2004. This change is primarily the result of an increase in repurchase agreements due to public fund receipts, an
increase in time deposits maturing within one year and a decrease in federal funds sold to fund loan growth repricing beyond one year. Despite the slightly positive 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 September 30, 2005, that the Companys disclosure
controls and procedures were effective.



(b) During the quarter ended
September 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 Securities and Use of Proceeds



Issuer Purchases of Equity Securities



|                  |  |                                   |     |  |                                |       |                                                                                   |     |                                                                                                              |    
|----------------- |  | --------------------------------- | --- |  | ------------------------------ | ----- | --------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------ | ---
|Period            |  | (a) TotalNumber ofSharesPurchased |     |  | (b) AveragePrice Paidper Share |       | (c) Total Number ofShares Purchased as Partof Publicly AnnouncedPlans or Programs |     | (d) Maximum Number (orApproximate Dollar Value) ofShares that May Yet
BePurchased Under the Plans orPrograms
|7/1/05 to 7/31/05 |  |                                  |     |  |                                | N/A   |                                                                                   | N/A |                                                                                                              | N/A
|                  |  |                                   |     | 
|8/1/05 to 8/31/05 |  | 20,150                            | (1) |  | $                              | 23.90 |                                                                                   | N/A |                                                                                                              | N/A
|                  |  |                                   |     | 
|9/1/05 to 9/30/05 |  |                                  |     |  |                                | N/A   |                                                                                   | N/A |                                                                                                              | N/A
|                  |  |                                   |     | 
|Total             |  | 20,150                            |     |  | $                              | 23.90 |                                                                                   | N/A |                                                                                                              | N/A

---

|(1) | These shares were purchased from Timothy L. Smith, President & CEO, after exercise of certain stock options.
|--- | ------------------------------------------------------------------------------------------------------------



Item 3  Defaults Upon Senior Securities



Not applicable



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



Not applicable



Item 5  Other Information



Not applicable



Item 6  Exhibits



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.            
|     | 
|15   |  | Accountants awareness letter.                                                    
|     | 
|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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##### Table of Contents

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 10, 2005 |  | /s/ Craig F. Fortin                                             
|                        |  | Craig F. Fortin                                                 
|                        |  | Senior Vice President and Chief Financial Officer               
|                        |  | (On behalf of the registrant and as Principal Financial Officer)



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##### Table of Contents

Index to Exhibits



|     |  |                                                                                                                                                                               
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc. Incorporated by reference to Definitive Proxy Statement filed on March 31, 2003, Exhibit
A.
|     | 
|3.2  |  | Amended and Restated Code of Regulations of NB&T Financial Group, Inc. Incorporated by reference to Definitive Proxy Statement filed on March 31, 2003, Exhibit B.            
|     | 
|15   |  | Accountants awareness letter.                                                                                                                                                
|     | 
|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