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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended June 30, 2006

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. EmployerIdentification 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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one):

Large accelerated filer ̈Accelerated Filer ̈Non-accelerated
filer  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 August 5, 2006, 3,234,027
common shares were issued and outstanding.



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##### Table of Contents

NB&T FINANCIAL GROUP, INC.

June 30, 2006 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                                      |  | 11  
|                  |  |                                                                                      
|Item 2:           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12  
|Item 3:           |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 17  
|Item 4:           |  | Controls and Procedures                                                               |  | 17  
|                  |  |                                                                                      
|                  |  | Part II                                                                               |  |     
|                  |  |                                                                                      
|Item 1:           |  | Legal Proceedings                                                                     |  | 18  
|Item 2:           |  | Changes in Securities and Use of Proceeds                                             |  | 18  
|Item 3:           |  | Defaults Upon Senior Securities                                                       |  | 18  
|Item 4:           |  | Submission of Matters to a Vote of Security Holders                                   |  | 18  
|Item 5:           |  | Other Information                                                                     |  | 19  
|Item 6:           |  | Exhibits and Reports on Form 8-K                                                      |  | 19  
|                  | 
|Signatures        |  | 20                                                                                   
|                  | 
|Index to Exhibits |  | 21                                                                                   



2



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Balance Sheets



|                                                                                   |  |               |         |   |                   |   |         |  
|---------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|(Dollars in thousands)                                                             |  | June 30, 2006 |         |   | December 31, 2005 |  
|                                                                                   |  | (Unaudited)   |         |   |                   |  
|Assets                                                                             |  |               |         |  
|                                                                                   |  |              
|Cash and due from banks                                                            |  | $             | 16,670  |   |                   | $ | 16,882  |  
|Interest-bearing demand deposits                                                   |  |               | 946     |   |                   |   | 285     |  
|Federal funds sold                                                                 |  |               | 1,335   |   |                   |   | 232     |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                          |  |               | 18,951  |   |                   |   | 17,399  |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Securities - available-for-sale                                                    |  |               | 142,077 |   |                   |   | 171,567 |  
|Loans held for sale                                                                |  |               | 4,934   |   |                   |   |        |  
|Loans, net of allowance for loan losses of $4,641 and $4,058                       |  |               | 418,301 |   |                   |   | 413,565 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total Loans                                                                        |  |               | 423,235 |   |                   |   | 413,565 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Premises and equipment                                                             |  |               | 14,003  |   |                   |   | 13,565  |  
|Federal Reserve and Federal Home Loan Bank stock                                   |  |               | 8,780   |   |                   |   | 8,556   |  
|Earned income receivable                                                           |  |               | 3,565   |   |                   |   | 4,047   |  
|Goodwill and other intangibles                                                     |  |               | 6,187   |   |                   |   | 6,493   |  
|Bank-owned life insurance                                                          |  |               | 12,813  |   |                   |   | 12,588  |  
|Other assets                                                                       |  |               | 3,557   |   |                   |   | 2,468   |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total assets                                                                       |  | $             | 633,168 |   |                   | $ | 650,248 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                               |  |               |         |   |                   |   |         |  
|                                                                                   |  |              
|Liabilities                                                                        |  |               |         |   |                   |   |         |  
|Deposits                                                                           |  |               |         |   |                   |   |         |  
|Demand                                                                             |  | $             | 54,192  |   |                   | $ | 60,657  |  
|Savings, NOW and Money Market                                                      |  |               | 204,949 |   |                   |   | 197,987 |  
|Time                                                                               |  |               | 189,363 |   |                   |   | 188,982 |  
|Deposits held for sale                                                             |  |               | 20,556  |   |                   |   |        |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total deposits                                                                     |  |               | 469,060 |   |                   |   | 447,626 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Short-term borrowings                                                              |  |               | 57,576  |   |                   |   | 30,027  |  
|Long-term debt                                                                     |  |               | 45,675  |   |                   |   | 109,039 |  
|Interest payable and other liabilities                                             |  |               | 3,976   |   |                   |   | 5,058   |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total liabilities                                                                  |  |               | 576,287 |   |                   |   | 591,750 |  
|                                                                                   |  |               |         |   |                   |   |         |  
|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                                                         |  |               | 10,188  |   |                   |   | 10,134  |  
|Retained earnings                                                                  |  |               | 54,202  |   |                   |   | 55,501  |  
|Unearned employee stock ownership plan (ESOP) shares                               |  |               | (1,053  | ) |                   |   | (1,152  | )
|Accumulated other comprehensive loss                                               |  |               | (1,428  | ) |                   |   | (951    | )
|Treasury stock; 584,923 shares - 2006 and 586,437 shares - 2005                    |  |               | (6,028  | ) |                   |   | (6,034  | )
|                                                                                   |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                         |  |               | 56,881  |   |                   |   | 58,498  |  
|                                                                                   |  |               |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                         |  | $             | 633,168 |   |                   | $ | 650,248 |  
|                                                                                   |  |               |         |   |                   |   |         |  

See Notes to Condensed Consolidated Financial Statements



3



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Income



|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|------------------------------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ---------- |  | - | ------ | - |  | - | ------
|                                                              |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|(Dollars in thousands, except per share amounts)              |  | 2006                       |       | 2005                     |   | 2006       |  |   | 2005  
|                                                              |  | (Unaudited)                |       | (Unaudited)             
|Interest and Dividend Income                                  |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Loans                                                         |  | $                          | 7,059 |                          | $ | 6,327      |  | $ | 13,902 |   |  | $ | 12,387
|Securities-taxable                                            |  |                            | 945   |                          |   | 1,189 11   |  |   | 2,013  |   |  |   | 2,288 
|Securities-tax-exempt                                         |  |                            | 448   |                          |   | 478        |  |   | 891    |   |  |   | 951   
|Federal funds sold and other                                  |  |                            | 23    |                          |   | 73         |  |   | 86     |   |  |   | 239   
|Dividends on Federal Home Loan and Federal Reserve Bank stock |  |                            | 125   |                          |   | 103        |  |   | 247    |   |  |   | 196   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Total interest and dividend income                            |  |                            | 8,600 |                          |   | 8,168      |  |   | 17,139 |   |  |   | 16,061
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Interest Expense                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Deposits                                                      |  |                            | 2,796 |                          |   | 1,647.34,3 |  |   | 5,172  |   |  |   | 3,168 
|Short-term borrowings                                         |  |                            | 595   |                          |   | 165        |  |   | 1,033  |   |  |   | 340   
|Long-term debt                                                |  |                            | 687   |                          |   | 1,459      |  |   | 1,812  |   |  |   | 2,897 
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Total interest expense                                        |  |                            | 4,078 |                          |   | 3,271      |  |   | 8,017  |   |  |   | 6,405 
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Net Interest Income                                           |  |                            | 4,522 |                          |   | 4,897      |  |   | 9,122  |   |  |   | 9,656 
|                                                              |  |                            |       |                         
|Provision for Loan Losses                                     |  |                            | 270   |                          |   | 125        |  |   | 880    |   |  |   | 200   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Net Interest Income After Provision for Loan Losses           |  |                            | 4,252 |                          |   | 4,772      |  |   | 8,242  |   |  |   | 9,456 
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Non-interest Income                                           |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Trust income                                                  |  |                            | 230   |                          |   | 236        |  |   | 470    |   |  |   | 517   
|Service charges and fees                                      |  |                            | 878   |                          |   | 831 70     |  |   | 1,700  |   |  |   | 1,577 
|ATM network fees                                              |  |                            | 20    |                          |   | 57         |  |   | 39     |   |  |   | 113   
|Insurance agency commissions                                  |  |                            | 563   |                          |   | 627        |  |   | 1,308  |   |  |   | 1,379 
|Net gains (losses) on sales of securities                     |  |                            |      |                          |   | 7          |  |   | (149   | ) |  |   | 7     
|Other                                                         |  |                            | 319   |                          |   | 338        |  |   | 623    |   |  |   | 622   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Total non-interest income                                     |  |                            | 2,010 |                          |   | 2,096      |  |   | 3,991  |   |  |   | 4,215 
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Non-interest Expense                                          |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Salaries and employee benefits                                |  |                            | 2,862 |                          |   | 2,884      |  |   | 5,758  |   |  |   | 5,761 
|Net occupancy expense                                         |  |                            | 449   |                          |   | 455        |  |   | 886    |   |  |   | 910   
|Equipment and data processing expense                         |  |                            | 652   |                          |   | 719        |  |   | 1,305  |   |  |   | 1,359 
|Professional fees                                             |  |                            | 443   |                          |   | 392        |  |   | 828    |   |  |   | 781   
|Marketing expense                                             |  |                            | 307   |                          |   | 175        |  |   | 487    |   |  |   | 282   
|State franchise tax                                           |  |                            | 185   |                          |   | 188        |  |   | 370    |   |  |   | 378   
|Amortization of intangibles                                   |  |                            | 151   |                          |   | 170        |  |   | 301    |   |  |   | 340   
|Other                                                         |  |                            | 455   |                          |   | 524        |  |   | 2,329  |   |  |   | 605   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Total non-interest expense                                    |  |                            | 5,504 |                          |   | 5,507      |  |   | 12,264 |   |  |   | 10,806
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Income (Loss) Before Income Tax                               |  |                            | 758   |                          |   | 1,361      |  |   | (31    | ) |  |   | 2,865 
|Provision (Benefit) for Income Taxes                          |  |                            | 39    |                          |   | 223        |  |   | (446   | ) |  |   | 500   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Net Income                                                    |  | $                          | 719   |                          | $ | 1,138      |  | $ | 415    |   |  | $ | 2,365 
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Basic Earnings Per Share                                      |  | $                          | .23   |                          | $ | .36        |  | $ | .13    |   |  | $ | .75   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Diluted Earnings Per Share                                    |  | $                          | .23   |                          | $ | .36        |  | $ | .13    |   |  | $ | .75   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       
|Dividends Declared Per Share                                  |  | $                          | .27   |                          | $ | .26        |  | $ | .54    |   |  | $ | .52   
|                                                              |  |                            |       |                          |   |            |  |   |        |   |  |   |       

See Notes to Condensed Consolidated Financial Statements



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Cash Flows



|                                                             |  |                           |         |   |      |   |         |  
|------------------------------------------------------------ |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                             |  | Six Months Ended, June 30 |        
|(Dollars in thousands)                                       |  | 2006                      |         |   | 2005 |  
|                                                             |  | (Unaudited)               |        
|Operating Activities                                         |  |                           |         |  
|Net income                                                   |  | $                         | 415     |   |      | $ | 2,365   |  
|Items not requiring (providing) cash                         |  |                           |         |   |      |   |         |  
|Depreciation and amortization                                |  |                           | 1,052   |   |      |   | 1,137   |  
|Provision for loan losses                                    |  |                           | 880     |   |      |   | 200     |  
|Amortization of premiums and discounts on securities         |  |                           | 351     |   |      |   | 513     |  
|Net realized (gains) losses on available-for-sale securities |  |                           | 149     |   |      |   | (7      | )
|FHLB stock dividends                                         |  |                           | (224    | ) |      |   | (174    | )
|Net change in:                                               |  |                           |         |   |      |   |         |  
|Loans held for sale                                          |  |                           | (181    | ) |      |   |        |  
|Other assets and liabilities                                 |  |                           | (1,522  | ) |      |   | (677    | )
|                                                             |  |                           |         |   |      |   |         |  
|Net cash provided by operating activities                    |  |                           | 920     |   |      |   | 3,357   |  
|                                                             |  |                           |         |   |      |   |         |  
|Investing Activities                                         |  |                           |         |   |      |   |         |  
|Purchases of available-for-sale securities                   |  |                           | (12,984 | ) |      |   | (21,465 | )
|Proceeds from sales of available-for-sale securities         |  |                           | 17,932  |   |      |   | 3,764   |  
|Proceeds from maturities of available-for-sale securities    |  |                           | 23,320  |   |      |   | 5,906   |  
|Net change in loans                                          |  |                           | (10,369 | ) |      |   | (6,381  | )
|Purchase of premises and equipment                           |  |                           | (1,227  | ) |      |   | (659    | )
|Proceeds from sales of premises and equipment                |  |                           | 28      |   |      |   | 12      |  
|                                                             |  |                           |         |   |      |   |         |  
|Net cash provided by (used) in investing activities          |  |                           | 16,700  |   |      |   | (18,823 | )
|                                                             |  |                           |         |   |      |   |         |  
|Financing Activities                                         |  |                           |         |   |      |   |         |  
|Net change in:                                               |  |                           |         |   |      |   |         |  
|Deposits                                                     |  |                           | 21,434  |   |      |   | (6,823  | )
|Short-term borrowings                                        |  |                           | 27,549  |   |      |   | 10,068  |  
|Repayment of FHLB advances                                   |  |                           | (63,364 | ) |      |   | (1,302  | )
|Cash dividends                                               |  |                           | (1,714  | ) |      |   | (1,645  | )
|Purchase of treasury stock                                   |  |                           | (18     | ) |      |   |        |  
|Proceeds from exercise of stock options                      |  |                           | 45      |   |      |   | 84      |  
|                                                             |  |                           |         |   |      |   |         |  
|Net cash provided by (used in) financing activities          |  |                           | (16,068 | ) |      |   | 382     |  
|                                                             |  |                           |         |   |      |   |         |  
|Increase (Decrease) in Cash and Cash Equivalents             |  |                           | 1,552   |   |      |   | (15,084 | )
|Cash and Cash Equivalents, Beginning of Year                 |  |                           | 17,399  |   |      |   | 30,051  |  
|                                                             |  |                           |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                     |  | $                         | 18,951  |   |      | $ | 14,967  |  
|                                                             |  |                           |         |   |      |   |         |  

See Notes to Condensed Consolidated Financial Statements



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##### Table of Contents

Note 1: Basis of Presentation

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

The condensed consolidated balance sheet as of December 31, 2005 has been derived from the audited consolidated balance
sheet of that date.

In the opinion of management, the condensed consolidated financial statements contain all adjustments necessary to present fairly the
financial condition of NB&T Financial Group, Inc. as of June 30, 2006, and December 31, 2005, and the results of its operations for the three -and six-month periods and cash flows for the six-month periods ended June 30, 2006 and
2005. Those adjustments consist of only normal recurring adjustments. The results of operations for the interim periods reported herein are not necessarily indicative of results of operation to be expected for the entire year. The unaudited
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2005 filed with the Commission.

Note 2: Securities

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



|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|-------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | --------------------- | - |  | - | -------
|                                 |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | ApproximateFair Value
|June 30, 2006:                   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|Available-for-Sale Securities:   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|U.S. government agencies         |  | $             | 74,012  |                      | $ |                      |  | $ | (1,858                | ) |  | $ | 72,154 
|Mortgage-backed securities       |  |               | 35,715  |                      |   | 11                    |  |   | (1,140                | ) |  |   | 34,586 
|State and political subdivisions |  |               | 34,504  |                      |   | 957                   |  |   | (134                  | ) |  |   | 35,327 
|Other securities                 |  |               | 10      |                      |   |                      |  |   |                      |   |  |   | 10     
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|                                 |  | $             | 144,241 |                      | $ | 968                   |  | $ | (3,132                | ) |  | $ | 142,077
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|December 31, 2005:               |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|Available-for-Sale Securities:   |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|U.S. government agencies         |  | $             | 80,268  |                      | $ |                      |  | $ | (1,944                | ) |  | $ | 78,324 
|Mortgage-backed securities       |  |               | 55,251  |                      |   | 47                    |  |   | (839                  | ) |  |   | 54,459 
|State and political subdivisions |  |               | 37,480  |                      |   | 1,363                 |  |   | (69                   | ) |  |   | 38,774 
|Other securities                 |  |               | 10      |                      |   |                      |  |   |                      |   |  |   | 10     
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        
|                                 |  | $             | 173,009 |                      | $ | 1,410                 |  | $ | (2,852                | ) |  | $ | 171,567
|                                 |  |               |         |                      |   |                       |  |   |                       |   |  |   |        



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##### Table of Contents

Note 3: Loans

Categories of loans include (thousands):



|                                               |  |               |         |   |                  |   |         |  
|---------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                               |  | June 30, 2006 |         |   | December 31,2005 |  
|Commercial and industrial                      |  | $             | 80,114  |   |                  | $ | 82,898  |  
|Agricultural                                   |  |               | 25,163  |   |                  |   | 23,468  |  
|Real estate construction                       |  |               | 14,188  |   |                  |   | 9,743   |  
|Commercial real estate                         |  |               | 89,087  |   |                  |   | 82,616  |  
|Residential real estate                        |  |               | 148,304 |   |                  |   | 148,358 |  
|Consumer                                       |  |               | 71,021  |   |                  |   | 70,696  |  
|                                               |  |               |         |   |                  |   |         |  
|Total loans                                    |  |               | 427,877 |   |                  |   | 417,779 |  
|Less                                           |  |               |         |   |                  |   |         |  
|Net deferred loan fees, premiums and discounts |  |               | (182    | ) |                  |   | (156    | )
|Allowance for loan losses                      |  |               | (4,641  | ) |                  |   | (4,058  | )
|                                               |  |               |         |   |                  |   |         |  
|Net loans                                      |  | $             | 423,054 |   |                  | $ | 413,565 |  
|                                               |  |               |         |   |                  |   |         |  

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



|                           |  |                          |       |   |      |   |       |  
|-------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                           |  | Six Months EndedJune 30, |      
|                           |  | 2006                     |       |   | 2005 |  
|Balance, beginning of year |  | $                        | 4,058 |   |      | $ | 4,212 |  
|Provision for loan losses  |  |                          | 880   |   |      |   | 200   |  
|Recoveries                 |  |                          | 329   |   |      |   | 354   |  
|Charge-offs                |  |                          | (626  | ) |      |   | (699  | )
|                           |  |                          |       |   |      |   |       |  
|Balance, end of period     |  | $                        | 4,641 |   |      | $ | 4,067 |  
|                           |  |                          |       |   |      |   |       |  

Impaired loans totaled $6,244,000 at June 30, 2006 and $6,371,000 at December 31, 2005. An allowance for
loan losses of $888,000 and $529,000 relates to impaired loans of $5,212,000 and $5,197,000 at June 30, 2006 and December 31, 2005, respectively. At June 30, 2006 and December 31, 2005, impaired loans of $1,032,000 and $1,174,000
had no related allowance for loan losses.

At June 30, 2006 and December 31, 2005, there were no accruing loans delinquent 90 days or more.
Non-accruing loans at June 30, 2006 and December 31, 2005 were $7,760,000 and $8,178,000, respectively.

Note 4: Commitments

Outstanding commitments to extend credit as of June 30, 2006 totaled $68,644,000. Standby letters of credit as of June 30, 2006 totaled $1,033,000.



7



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##### Table of Contents

Note 5: Earnings Per Share

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



|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|---------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                     |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                                     |  | 2006                        |           | 2005                      |   | 2006      |  | 2005
|Numerator:                                           |  |                             |           |                           |   |           |  |      |           |  |   |          
|Net income                                           |  | $                           | 719       |                           | $ | 1,138     |  | $    | 415       |  | $ | 2,365    
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Denominator:                                         |  |                             |           |                           |   |           |  |      |           |  |   |          
|Weighted-average common shares outstanding (basic)   |  |                             | 3,173,932 |                           |   | 3,159,172 |  |      | 3,173,816 |  |   | 3,159,087
|Effect of stock options                              |  |                             | 1,285     |                           |   | 6,565     |  |      | 1,334     |  |   | 8,799    
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Weighted-average common shares outstanding (diluted) |  |                             | 3,175,217 |                           |   | 3,165,737 |  |      | 3,175,150 |  |   | 3,167,886
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Earnings per share:                                  |  |                             |           |                           |   |           |  |      |           |  |   |          
|Basic                                                |  | $                           | .23       |                           | $ | .36       |  | $    | .13       |  | $ | .75      
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          
|Diluted                                              |  | $                           | .23       |                           | $ | .36       |  | $    | .13       |  | $ | .75      
|                                                     |  |                             |           |                           |   |           |  |      |           |  |   |          

For the three and six months ended June 30, 2006, stock options covering 142,000 shares of common stock,
respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair market value of the Companys common shares. For the three and six months ended June 30, 2005, stock options covering 82,200
shares of common stock, respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair market value of the Companys common shares.

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 June 30, 2006 and December 31, 2005, the outstanding principal balance of the Capital Securities was $8,000,000. In accordance with the provisions in FIN 46, the Company accounts for its investment in the trust as assets,
its subordinated debentures as debt, and the interest paid thereon as interest expense.



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##### Table of Contents

Note 7: Comprehensive Income

Total comprehensive income was as follows:



|                                  |  |                             |      |                           |      |   |       |  |   |      |   |  |   |       |  
|--------------------------------- |  | --------------------------- | ---- | ------------------------- | ---- | - | ----- |  | - | ---- | - |  | - | ----- | -
|                                  |  | Three Months Ended June 30, |      | Six Months Ended June 30, |     
|                                  |  | 2006                        |      |                           | 2005 |   | 2006  |  |   | 2005 |  
|Net Income (Loss)                 |  | $                           | 719  |                           |      | $ | 1,138 |  | $ | 415  |   |  | $ | 2,365 |  
|Other Comprehensive Income (Loss) |  | $                           | (198 | )                         |      | $ | 918   |  | $ | (477 | ) |  | $ | (301  | )
|                                  |  |                             |      |                           |      |   |       |  |   |      |   |  |   |       |  
|Total Comprehensive Income (Loss) |  | $                           | 521  |                           |      | $ | 2,056 |  | $ | (62  | ) |  | $ | 2,064 |  
|                                  |  |                             |      |                           |      |   |       |  |   |      |   |  |   |       |  

Note 8: Change in Accounting Principle

In 2006, the Company adopted SFAS 123(R) Share-Based Payments for the accounting of stock options and other equity awards. The Company adopted FAS 123(R) using the modified prospective method and previous years have
not been restated. The Companys current granted stock options vest over periods ranging from three to five years to selected employees and to all directors. The exercise price of each option is intended to equal the fair value of the
Companys stock on the date of grant. An options maximum term is ten years. The compensation cost for the stock option expense recognized in 2006 was calculated for all grants based on the grant dates fair value and totaled $15,000
for the second quarter of 2006 and $30,000 for the year. The Company has used the Black-Scholes option pricing model for all grant date estimations of fair value as the Company believes that its stock options have characteristics for which the
Black-Scholes model provides an acceptable measure of fair value. For all of the Companys option plans, options are issued to employees and directors at the current market price on the grant date. The expected term of an option represents the
period of time that the Company expects the options granted to be outstanding. The Company bases this estimate on a number of factors including vesting period, historical data and expected volatility. The expected volatility used in the option
pricing calculation is estimated considering historical volatility. The expected dividend yield represents the dividends expected to be paid on the underlying shares during the current year. The Companys options do not permit option holders to
receive dividends and therefore the expected dividend yield was factored into the calculation. The risk-free rate is assumed to be a short-term treasury rate on the date of grant such as a U.S. Treasury issue with a term equal to the expected term
of the option. Our adoption of SFAS 123(R) impacted our results of operations by increasing salaries and benefits expense. The amount of the impact was immaterial to the Company for the three and six months ended June 30, 2006 and is not
expected to be material in the future.

For purposes of pro forma disclosure, for the period ended June 30, 2005, the estimated fair value of the
options is amortized to expense over the vesting period. Under the fair value method, the Companys net income and earnings per share would have been (thousands, except per share amounts):



|                                                                                                                            |  |                                  |       |   |                              |   |       |  
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ---------------------------- | - | ----- | -
|                                                                                                                            |  | Three Months Ended June 30,
2005 |       |   | Six MonthsEndedJune 30, 2005 |  
|Net income, as reported                                                                                                     |  | $                                | 1,138 |   |                              | $ | 2,365 |  
|Less: Total stock-based employee and director compensation cost determined under the fair value method, net of income taxes |  |                                  | (93   | ) |                              |   | (103  | )
|                                                                                                                            |  |                                  |       |   |                              |   |       |  
|Pro forma net income                                                                                                        |  | $                                | 1,045 |   |                              | $ | 2,262 |  
|                                                                                                                            |  |                                  |       |   |                              |   |       |  
|Earnings per share:                                                                                                         |  |                                  |       |   |                              |   |       |  
|Basic  as reported                                                                                                         |  | $                                | .36   |   |                              | $ | .75   |  
|                                                                                                                            |  |                                  |       |   |                              |   |       |  
|Basic  pro forma                                                                                                           |  | $                                | .33   |   |                              | $ | .72   |  
|                                                                                                                            |  |                                  |       |   |                              |   |       |  
|Diluted  as reported                                                                                                       |  | $                                | .36   |   |                              | $ | .75   |  
|                                                                                                                            |  |                                  |       |   |                              |   |       |  
|Diluted  pro forma                                                                                                         |  | $                                | .33   |   |                              | $ | .71   |  
|                                                                                                                            |  |                                  |       |   |                              |   |       |  



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##### Table of Contents

Note 9: Subsequent Events

On July 25, 2006, the Bank entered into a definitive agreement with Liberty National Bank in Ada, Ohio for the sale of the Banks office located in Ada, as well as the Banks former branch office building located in
Waynesfield, Ohio. As of June 30, 2006, the Ada branch had approximately $20.6 million in deposits and $4.8 million in loan balances, which have been reclassified as available for sale. Under the terms of the agreement, Liberty will pay the
Bank a premium of 8%, or approximately $1.6 million, on the deposit liabilities of the Ada branch, the book value of the loans booked at the Ada branch, the appraised market value of the Ada branch real property and $80,000 for the real property in
Waynesfield. The sale is subject to regulatory approval and other conditions to closing that are customary in branch sale transactions. The Bank expects to close the transaction prior to the end of the third quarter or early in the fourth quarter.

In addition, in the third quarter of 2006, the Bank expects to sell $48 million of securities and use the proceeds of the sale to pay off variable-rate
borrowings and to fund the sale of the branch. As of June 30, 2006, the weighted average yield being earned on the securities portfolio was 3.50 percent, and the weighted average rate being paid on the borrowings was 5.01 percent. The sale will
result in an after-tax charge of approximately $1.0 million during the third quarter of 2006.

Additionally, the Bank will stop originating indirect
automobile loans, effective August 1, 2006. The indirect loan portfolio has approximately 5,800 accounts with $57 million in outstanding balances.



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors
and Stockholders

NB&T Financial Group, Inc.

Wilmington, Ohio

We have reviewed the
accompanying condensed consolidated balance sheet of NB&T Financial Group, Inc. as of June 30, 2006 and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2006 and 2005 and
cash flows for the six-month periods ended June 30, 2006 and 2005. 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, 2005 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 2, 2006, except for Note 22 as to
which the date is February 17, 2006, 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, 2005
is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ BKD, LLP

Cincinnati, Ohio

July 25, 2006



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##### Table of Contents

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

Results of
Operations

NB&T Financial Group, Inc. (the Company) had net income for the second quarter of 2006 of $719,000, or $.23 per diluted
share, compared to net income of $1.14 million, or $.36 per diluted share, for the same period last year. The decline in earnings is a result of decreased net interest income, increased provision for loan losses and a decrease in non-interest
income. Net income for the six months ended June 30, 2006 was $415,000, compared to $2.37 million for the same six months last year. The decrease is a result of approximately $1.4 million in prepayment penalties from the early payoff of
approximately $47.2 million in Federal Home Loan Bank debt in February 2006. In addition, certain securities were sold in order to pay off the debt at a net loss of approximately $149,000. The decrease in net income was also due to an increase of
$680,000 in the provision for loan losses over the same period last year.

Net Interest Income

Net interest income was $4.52 million for the second quarter of 2006, a decrease of $375,000 compared to the same quarter last year. Net interest margin decreased to
3.12% for the second quarter this year from 3.28% for the second quarter last year. Interest income increased to $8.60 million for the second quarter of 2006 from $8.17 million during the same period last year. Average interest-earning assets
decreased approximately 3.0% to $582.2 million; however, the average yield increased from 5.46% for the second quarter of 2005 to 5.92% for the second quarter of 2006 with a shift in earning assets from investment securities to higher-yielding
loans. Total interest expense increased $807,000 to $4.08 million during the second quarter of 2006 from $3.27 million during the same period last year. Although average interest-bearing liabilities decreased 3.0% from last year to $515.5 million,
their cost increased to 3.17% during the second quarter of this year from 2.47% in the second quarter of last year. The increased cost is largely due to increased rates on money market accounts, certificates of deposit and short-term borrowings,
resulting from an increase in short-term rates in the economy generally. Net interest income was $9.12 million for the first six months of 2006, compared to $9.66 million for the same period last year.

Provision for Loan Losses

The provision for loan losses increased to
$270,000 during the second quarter of 2006 and to $880,000 for the first six months of 2006 from $125,000 and $200,000 during the same periods last year. The higher provision for loan losses in 2006 is a result of increased bankruptcy filings by
bank customers associated with recent bankruptcy law changes and additional specific reserves on commercial loans. Net charge-offs were $122,000, or 0.11% of total average loans (annualized) in the second quarter of 2006, compared to $176,000, or
0.17% (annualized), for the same period in 2005. For the first half of 2006, net charges-offs were $297,000, or 0.14% (annualized), and $345,000, or 0.17% in 2005. Non-performing loans totaled $7.8 million at June 30, 2006, compared to $8.5
million at December 31, 2005. The percentage of the allowance for loan losses to total loans was 1.08% at June 30, 2006.

Non-interest Income

Non-interest income was $2.01 million for the second quarter of 2006 and $2.09 million for the same period in 2005. Service charges and fees increased
5.1% from last year due to an increase in fees on overdrawn accounts, but commissions earned by the Companys insurance agency subsidiary were down 10.2% from last year. Non-interest income, excluding security gains and losses, was $4.14
million for the first half of 2006, compared to $4.21 million in 2005. The Company realized $149,000 in net securities losses in the first half of 2006 from the sale of $17.9 million in securities, compared to $7,000 in gains in the first half of
2005.

Non-interest Expense

Non-interest expense was
relatively unchanged at $5.50 million for the second quarter of 2006, compared to the same quarter in 2005. For the first six months of 2006, non-interest expense was $12.26 million, compared to $10.81 million in 2005. This increase is largely the
result of $1.4 million in prepayment penalties from the early payoff of approximately $47.2 million in Federal Home Loan Bank debt as well as increased marketing expenses related to the Companys branding initiatives.



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##### Table of Contents

Income Taxes

The
provision for income taxes for the second quarter of 2006 was $39,000, compared to $223,000 for the same period in 2005. The effective tax rate for the three months ended June 30, 2006 was 5.1%, compared to 16.4% for the same period in 2005.
The decrease in the effective tax rate is due to a decrease in net interest income with relatively the same level of tax-exempt income and tax-deductible expenses.

Financial Condition

The changes that have occurred in the Companys financial condition during 2006 are as follows (in thousands):



|                            |  |               |         |                   |   |             |         |   |         |   |  |       |  
|--------------------------- |  | ------------- | ------- | ----------------- | - | ----------- | ------- | - | ------- | - |  | ----- | -
|                            |  | June 30, 2006 |         | December 31, 2005 |   | 2006 Change |        
|                            |  |               |         | Amount            |   |             | Percent |  
|Total Assets                |  | $             | 633,168 |                   | $ | 650,248     |         | $ | (17,080 | ) |  | (2.6  | )
|Federal Funds Sold          |  |               | 1,335   |                   |   | 232         |         |   | 1,103   |   |  | 475.4 |  
|Loans, net*                 |  |               | 423,235 |                   |   | 413,565     |         |   | 9,670   |   |  | 2.3   |  
|Securities                  |  |               | 142,077 |                   |   | 171,567     |         |   | (29,490 | ) |  | (17.2 | )
|Demand deposits             |  |               | 56,798  |                   |   | 60,657      |         |   | (3,859  | ) |  | (6.4  | )
|Savings, NOW, MMDA deposits |  |               | 209,929 |                   |   | 197,987     |         |   | 11,942  |   |  | 6.0   |  
|CDs $100,000 and over      |  |               | 48,921  |                   |   | 47,013      |         |   | 1,908   |   |  | 4.1   |  
|Other time deposits         |  |               | 153,412 |                   |   | 141,969     |         |   | 11,443  |   |  | 8.1   |  
|Total deposits              |  |               | 469,060 |                   |   | 447,626     |         |   | 21,434  |   |  | 4.8   |  
|Short-term borrowing        |  |               | 57,576  |                   |   | 30,027      |         |   | 27,549  |   |  | 91.7  |  
|Long-term borrowing         |  |               | 45,675  |                   |   | 109,039     |         |   | (63,364 | ) |  | (58.1 | )
|Stockholders Equity         |  |               | 56,881  |                   |   | 58,498      |         |   | (1,617  | ) |  | (2.8  | )

---

|* | Includes Loans held for sale
|- | ----------------------------

At June 30, 2006, total assets were
$633.2 million, a decrease of $17.1 million from December 31, 2005. The decrease is primarily attributable to a decrease in the securities portfolio of $29.5 million, resulting from the sale of approximately $17.9 million in securities to
payoff Federal Home Loan Bank debt. Loans increased $9.7 million during 2006. Total deposits increased $21.4 million in 2006 with growth in the Companys personal money market accounts and certificates of deposit due to increased interest
rates. In addition, the Company opened $4.9 million in new brokered deposits to partially fund the payoff of Federal Home Loan Bank debt. Short-term borrowings increased $27.6 million due to approximately $11.0 million in increased public fund
balances in repurchase agreements as well as a shift from long-term borrowings to short-term borrowings at the Federal Home Loan Bank. Long-term borrowings decreased $63.3 million due to the early pay-off of Federal Home Loan Bank debt. This shift
from long-term to short-term provides the Company more flexibility to reduce higher-costing FHLB borrowings from anticipated securities sales with lower yields and indirect loan payments. Stockholders equity decreased $1.6 million during the
year to $56.9 million primarily due to other comprehensive loss of $477,000 resulting from a decrease in market value of securities available for sale and the payment of dividends of $1.7 million.

Average total assets decreased 3.0% to $630.5 million from the first quarter of 2005. Average total loans increased to $426.3 million, an increase of 5.6% from the same
quarter last year. The securities portfolio average has decreased $33.4 million from the first quarter of 2005 to $145.1 million due to security sales and principal payments. Average federal funds sold and interest-bearing deposits also declined
$7.6 million from the first quarter of 2005.

Average total deposits increased $19.2 million for the first quarter of 2006 to $470.4 million, compared to
an average of $451.2 million for the same quarter last year. Average short-term borrowings increased $24.5 million to $49.8 million due to increased public fund deposits in repurchase agreements and shift of Federal Home Loan Bank debt from
long-term to short-term. Average long-term borrowings decreased $60.7 million, or 54.9%, due to the early payoff of $47.2 million in advances in February 2006, conversion of $15.0 million in long-term debt to short-term debt in April 2006, and
regular monthly payments on amortizing advances.



13



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##### Table of Contents

Allowance for Loan Losses

The following table is a summary of the Companys loan loss experience for the periods ended June 30, 2006 and 2005 (dollars in thousands):



|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|------------------------------ |  | -------------------------- | ----- | - | ----------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                               |  | Three Months Ended June 30 |       |   | Six Months EndedJune 30 |  
|                               |  | 2006                       |       |   | 2005                    |   |       | 2006 |  |   | 2005  |  
|Balance at beginning of period |  | $                          | 4,493 |   |                         | $ | 4,118 |      |  | $ | 4,058 |   |  | $ | 4,212 |  
|                               |  |                            |       |  
|Charge-offs:                   |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Commercial and industrial      |  |                            | (22   | ) |                         |   | (12   | )    |  |   | (29   | ) |  |   | (47   | )
|Commercial real estate         |  |                            | (15   | ) |                         |   |      |      |  |   | (31   | ) |  |   | (28   | )
|Agricultural                   |  |                            |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Residential real estate        |  |                            | (34   | ) |                         |   | (51   | )    |  |   | (93   | ) |  |   | (73   | )
|Consumer                       |  |                            | (195  | ) |                         |   | (284  | )    |  |   | (473  | ) |  |   | (551  | )
|Other                          |  |                            |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Total charge-offs              |  |                            | (266  | ) |                         |   | (347  | )    |  |   | (626  | ) |  |   | (699  | )
|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Recoveries:                    |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Commercial and industrial      |  |                            | 1     |   |                         |   | 1     |      |  |   | 18    |   |  |   | 24    |  
|Commercial real estate         |  |                            | 15    |   |                         |   | 19    |      |  |   | 38    |   |  |   | 36    |  
|Agricultural                   |  |                            | 4     |   |                         |   | 6     |      |  |   | 15    |   |  |   | 6     |  
|Residential real estate        |  |                            | 24    |   |                         |   | 25    |      |  |   | 30    |   |  |   | 34    |  
|Consumer                       |  |                            | 100   |   |                         |   | 120   |      |  |   | 228   |   |  |   | 254   |  
|Other                          |  |                            |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Total recoveries               |  |                            | 144   |   |                         |   | 171   |      |  |   | 329   |   |  |   | 354   |  
|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Net charge-offs                |  |                            | (122  | ) |                         |   | (176  | )    |  |   | (297  | ) |  |   | (345  | )
|Provision for loan losses      |  |                            | 270   |   |                         |   | 125   |      |  |   | 880   |   |  |   | 200   |  
|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  
|Balance at end of period       |  | $                          | 4,641 |   |                         | $ | 4,067 |      |  | $ | 4,641 |   |  | $ | 4,067 |  
|                               |  |                            |       |   |                         |   |       |      |  |   |       |   |  |   |       |  



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



|                                                                 |  |               |       |   |                   |   |       |                |  |   |       |  
|---------------------------------------------------------------- |  | ------------- | ----- | - | ----------------- | - | ----- | -------------- |  | - | ----- | -
|                                                                 |  | June 30, 2006 |       |   | December 31, 2005 |   |       | March 31, 2005 | 
|Loans accounted for on non-accrual basis                         |  | $             | 7,760 |   |                   | $ | 8,178 |                |  | $ | 2,513 |  
|Accruing loans which are past due 90 days                        |  |               |      |   |                   |   |      |                |  |   | 350   |  
|Renegotiated loans                                               |  |               | 0     |   |                   |   | 0     |                |  |   | 0     |  
|Other real estate owned                                          |  |               | 248   |   |                   |   | 334   |                |  |   | 132   |  
|                                                                 |  |               |       |   |                   |   |       |                |  |   |       |  
|Total non-performing assets                                      |  | $             | 8,008 |   |                   | $ | 8,512 |                |  | $ | 2,995 |  
|                                                                 |  |               |       |   |                   |   |       |                |  |   |       |  
|Ratios:                                                          |  |               |       |   |                   |   |       |                |  |   |       |  
|Allowance to total loans                                         |  |               | 1.08  | % |                   |   | .97   | %              |  |   | 1.03  | %
|Net charge-offs to average loans (annualized)                    |  |               | .11   | % |                   |   | 0.25  | %              |  |   | .17   | %
|Non-performing assets to total loans and other real estate owned |  |               | 1.87  | % |                   |   | 2.04  | %              |  |   | .75   | %

The allowance is maintained to absorb losses in the portfolio. Managements determination of the adequacy of
the reserve is based on reviews of specific loans, loan loss experience, general economic conditions and other pertinent factors. If, as a result of charge-offs or increases in risk characteristics of the loan portfolio, the reserve is below the
level considered by management to be adequate to absorb possible 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 June 30, 2006, there was $6.2 million in nineteen
non-accrual small business relationships. The majority of this amount consisted of one $4.9 million relationship, secured by a nursing home.

Nonaccrual residential real estate loans totaled $1.2 million and consisted of 22 loans with the largest balance being $153,000. Non-accrual consumer loans consisted of 44 loans that totaled $236,000, and home equity credit loans
consisted of six loans totaling $54,000.

Liquidity and Capital Resources

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as Company cash needs, are met. The Company manages liquidity on both the asset and liability sides of the
balance sheet. The loan-to-deposit ratio at June 30, 2006 was 91.2%, compared to 91.7% at the same date in 2005. Loans to total assets were 67.6% at the end of the second quarter of 2006, compared to 63.1% at the same time last year. Management
strives to keep this ratio below 70%. The Company has $142.1 million in available-for-sale securities that are readily marketable. Approximately 68.1% 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 87.9% 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



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##### Table of Contents

companies must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 8%, 4% and 3%, respectively. At
June 30, 2006, the Company had a total risk-based capital ratio of 14.69%, a Tier 1 risk-based capital ratio of 13.64%, and a Tier 1 leverage ratio of 9.63%.

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, 2005. 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

None



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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 June 30, 2006, the Companys simulation model indicated the twelve-month cumulative static gap as a percent of total assets was a negative 7.8%, compared to a positive 3.0% at December 31, 2005. Negative
gap means the Company has more interest-bearing liabilities with the potential to change rate than earning assets. Thus, in a rising interest rate environment interest expense could increase faster than interest income. Conversely, in a declining
rate environment, interest expense could decrease faster than interest income. This change is primarily the result of an increase in time deposits with maturities less than one year, increased balances in the Companys short-term money market
account, and the conversion of certain fixed-rate Federal Home Loan Bank advances to three-month adjustable-rate advances. Despite this gap position, rates on loans repricing with base indices tied to the three- and five-year treasury rates may not
change to the same extent as rates on deposits, which are more influenced by short-term rates. As a result, this position could have a negative effect on projected net interest income over the next twelve months.

Item 4  Controls and Procedures

(a) The Companys principal executive officer and principal financial officer
have concluded, based upon their evaluation of the Companys disclosure controls and procedures as of June 30, 2006, that the Companys disclosure controls and procedures were effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of
1934 is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) During the quarter ended June 30, 2006, 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 1A  Risk Factors

No material changes from risk
factors disclosed in Form 10-K for fiscal year ended December 31, 2005.

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
|4/1/06 to 4/30/06 |  |                                  |     |  |                                | N/A   |                                                                                   | N/A  |                                                                                                              | N/A
|5/1/06 to 5/31/06 |  |                                  |     |  |                                | N/A   |                                                                                   | N/A  |                                                                                                              | N/A
|6/1/06 to 6/30/06 |  | 886                               | (1) |  | $                              | 20.78 |                                                                                   | None |                                                                                                              | N/A
|Total             |  | 886                               | (1) |  | $                              | 20.78 |                                                                                   | None |                                                                                                              | N/A

---

|(1) | These shares were purchased from Timothy L. Smith, Chairman of the Board, 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

On April 25, 2006, the Annual Meeting of the
shareholders of the Company was held.

The following members of the Board of Directors of the Company were re-elected for terms expiring in 2008 by the
votes indicated:



|                   |  |           |  |          |  |        
|------------------ |  | --------- |  | -------- |  | -------
|                   |  | For       |  | Withheld |  | Abstain
|Charles L. Dehner  |  | 2,920,164 |  | 19,541   |  |       
|Daniel A. DiBiasio |  | 2,923,144 |  | 16,561   |  |       
|G. David Hawley    |  | 2,923,024 |  | 16,681   |  |       
|John J. Limbert    |  | 2,923,144 |  | 16,561   |  |       
|Timothy L. Smith   |  | 2,915,920 |  | 23,785   |  |       

The NB&T Financial Group, Inc. 2006 Equity Plan was approved by the votes indicated:



|          |  |         |  |         |  |                 
|--------- |  | ------- |  | ------- |  | ----------------
|For       |  | Against |  | Abstain |  | Broker Non-Votes
|2,500,734 |  | 68,223  |  | 20,797  |  | 349,954         



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##### Table of Contents

Item 5 - Other Information

Not applicable

Item 6  Exhibits



|               |  |                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Index to Exhibits                                                                                                     
|3.1            |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.                                    
|               | 
|3.2            |  | Amended and Restated Code of Regulations of NB&T Financial Group, Inc.                                                
|               | 
|10.1           |  | Branch Purchase and Assumption Agreement by and between Liberty National Bank and The National Bank and Trust Company.
|               | 
|10.2           |  | Relocation Assistance for John J. Limbert.                                                                            
|               | 
|15             |  | Accountants acknowledgement.                                                                                         
|               | 
|31.1           |  | Certification by CEO.                                                                                                 
|               | 
|31.2           |  | Certification by CFO.                                                                                                 
|               | 
|32.1           |  | Certification by CEO Pursuant to 18 U.S.C. Section 1350.                                                              
|               | 
|32.2           |  | Certification by CFO Pursuant to 18 U.S.C. Section 1350.                                                              



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##### 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: August 10, 2006 |  |  |  | /s/ Craig F. Fortin                                                            
|                      |  |  |  | Craig F. Fortin                                                                
|                      |  |  |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer)



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Index to Exhibits



|              |  |                                                                                                                        |  |                                                                                                        
|------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                            |  | Page Reference                                                                                         
|3.1           |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.                                     |  | Incorporated by reference to registrants 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 registrants Definitive Proxy Statement filed on March 31, 2003, Exhibit B
|              |  |                                                                                                                       
|10.1          |  | Branch Purchase and Assumption Agreement by and between Liberty National Bank and The National Bank and Trust Company. |  |                                                                                                        
|              |  |                                                                                                                       
|10.2          |  | Relocation Assistance for John J. Limbert.                                                                             |  |                                                                                                        
|              |  |                                                                                                                       
|15            |  | Accountants acknowledgement.                                                                                          |  |                                                                                                        
|              |  |                                                                                                                       
|31.1          |  | Certification by CEO.                                                                                                  |  |                                                                                                        
|              |  |                                                                                                                       
|31.2          |  | Certification by CFO.                                                                                                  |  |                                                                                                        
|              |  |                                                                                                                       
|32.1          |  | Certification by CEO Pursuant to 18 U.S.C Section 1350.                                                                |  |                                                                                                        
|              |  |                                                                                                                       
|32.2          |  | Certification by CFO Pursuant to 18 U.S.C. Section 1350.                                                               |  |                                                                                                        



21