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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended September 30, 2007

OR



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

For the transition period from/to



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NB&T FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)



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

48 N. South Street, Wilmington, Ohio 45177

(Address of principal executive offices) (Zip Code)

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



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

Indicate by check mark whether the registrant is 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 November 1, 2007, 3,220,378
common shares were issued and outstanding.



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##### Table of Contents

NB&T FINANCIAL GROUP, INC.

September 30, 2007 Form 10-Q

Table of Contents



|                  |  |                                                                                       |  |     
|----------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                  |  |                                                                                       |  | Page
|                  |  | PART I                                                                                |  |     
|                  |  |                                                                                      
|Item 1:           |  | Financial Statements                                                                  |  |     
|                  |  | Condensed Consolidated Balance Sheets                                                 |  | 3   
|                  |  | Condensed Consolidated Statements of Operations                                       |  | 4   
|                  |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5   
|                  |  | Notes to Condensed Consolidated Financial Statements                                  |  |     
|                  |  | Report of Independent Registered Public Accounting Firm                               |  | 10  
|                  |  |                                                                                      
|Item 2:           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|Item 3:           |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 15  
|Item 4:           |  | Controls and Procedures                                                               |  | 16  
|                  |  |                                                                                      
|                  |  | Part II                                                                               |  |     
|                  |  |                                                                                      
|Item 1:           |  | Legal Proceedings                                                                     |  | 17  
|Item 1A:          |  | Risk Factors                                                                          |  | 17  
|Item 2:           |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 17  
|Item 3:           |  | Defaults Upon Senior Securities                                                       |  | 17  
|Item 4:           |  | Submission of Matters to a Vote of Security Holders                                   |  | 17  
|Item 5:           |  | Other Information                                                                     |  | 17  
|Item 6:           |  | Exhibits                                                                              |  | 18  
|                  | 
|Signatures        |  | 19                                                                                   
|                  | 
|Index to Exhibits |  | 20                                                                                   



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Balance Sheets



|                                                                                 |  |                    |         |   |                   |   |         |  
|-------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|(Dollars in thousands)                                                           |  | September 30, 2007 |         |   | December 31, 2006 |  
|                                                                                 |  | (Unaudited)        |         |   |                   |  
|Assets                                                                           |  |                    |         |   |                   |   |         |  
|                                                                                 |  |                   
|Cash and due from banks                                                          |  | $                  | 14,652  |   |                   | $ | 15,620  |  
|Interest-bearing demand deposits                                                 |  |                    | 323     |   |                   |   | 156     |  
|Federal funds sold                                                               |  |                    | 8,747   |   |                   |   | 3,197   |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Cash and cash equivalents                                                        |  |                    | 23,722  |   |                   |   | 18,973  |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Securitiesavailable-for-sale                                                    |  |                    | 86,705  |   |                   |   | 82,896  |  
|Loans held for sale                                                              |  |                    | 645     |   |                   |   | 144     |  
|Loans, net of allowance for loan losses of $3,824 and $4,762                     |  |                    | 369,658 |   |                   |   | 405,459 |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Total Loans                                                                      |  |                    | 370,303 |   |                   |   | 405,603 |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Premises and equipment                                                           |  |                    | 14,336  |   |                   |   | 13,424  |  
|Federal Reserve and Federal Home Loan Bank stock                                 |  |                    | 9,023   |   |                   |   | 9,021   |  
|Earned income receivable                                                         |  |                    | 3,787   |   |                   |   | 3,675   |  
|Goodwill and other intangibles                                                   |  |                    | 5,020   |   |                   |   | 5,404   |  
|Bank-owned life insurance                                                        |  |                    | 13,439  |   |                   |   | 13,053  |  
|Other assets                                                                     |  |                    | 2,189   |   |                   |   | 3,133   |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Total assets                                                                     |  | $                  | 528,524 |   |                   | $ | 555,182 |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|                                                                                 |  |                   
|Liabilities and Stockholders Equity                                             |  |                    |         |   |                   |   |         |  
|                                                                                 |  |                   
|Liabilities                                                                      |  |                    |         |   |                   |   |         |  
|Deposits                                                                         |  |                    |         |   |                   |   |         |  
|Demand                                                                           |  | $                  | 53,762  |   |                   | $ | 66,479  |  
|Savings, NOW and Money Market                                                    |  |                    | 201,540 |   |                   |   | 196,929 |  
|Time                                                                             |  |                    | 173,593 |   |                   |   | 189,860 |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Total deposits                                                                   |  |                    | 428,895 |   |                   |   | 453,268 |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Short-term borrowings                                                            |  |                    | 1,991   |   |                   |   | 2,864   |  
|Long-term debt                                                                   |  |                    | 34,810  |   |                   |   | 36,748  |  
|Interest payable and other liabilities                                           |  |                    | 3,716   |   |                   |   | 4,079   |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Total liabilities                                                                |  |                    | 469,412 |   |                   |   | 496,959 |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|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                                                       |  |                    | 10,341  |   |                   |   | 10,236  |  
|Retained earnings                                                                |  |                    | 54,538  |   |                   |   | 53,926  |  
|Unearned employee stock ownership plan (ESOP) shares                             |  |                    | (801    | ) |                   |   | (952    | )
|Accumulated other comprehensive income                                           |  |                    | 357     |   |                   |   | 85      |  
|Treasury stock; 597,034 shares2007 and 586,518 shares2006                      |  |                    | (6,323  | ) |                   |   | (6,072  | )
|                                                                                 |  |                    |         |   |                   |   |         |  
|Total stockholders equity                                                       |  |                    | 59,112  |   |                   |   | 58,223  |  
|                                                                                 |  |                    |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                       |  | $                  | 528,524 |   |                   | $ | 555,182 |  
|                                                                                 |  |                    |         |   |                   |   |         |  

See Notes to Condensed Consolidated Financial Statements



3



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##### Table of Contents

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Operations



|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|------------------------------------------------------------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                              |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30, |       
|(Dollars in thousands, except per share amounts)              |  | 2007                            |       | 2006 |                                |        | 2007 |  | 2006 |       
|                                                              |  | (Unaudited)                     |       |      | (Unaudited)                    |       
|Interest and Dividend Income                                  |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Loans                                                         |  | $                               | 6,825 |      | $                              | 7,299  |      |  | $    | 21,147 |  | $ | 21,201 |  
|Securities-taxable                                            |  |                                 | 585   |      |                                | 750    |      |  |      | 1,449  |  |   | 2,763  |  
|Securities-tax-exempt                                         |  |                                 | 429   |      |                                | 427    |      |  |      | 1,286  |  |   | 1,318  |  
|Federal funds sold and other                                  |  |                                 | 240   |      |                                | 62     |      |  |      | 554    |  |   | 148    |  
|Dividends on Federal Home Loan and Federal Reserve Bank stock |  |                                 | 147   |      |                                | 127    |      |  |      | 433    |  |   | 374    |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Total interest and dividend income                            |  |                                 | 8,226 |      |                                | 8,665  |      |  |      | 24,869 |  |   | 25,804 |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Interest Expense                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Deposits                                                      |  |                                 | 3,146 |      |                                | 2,979  |      |  |      | 9,390  |  |   | 8,152  |  
|Short-term borrowings                                         |  |                                 | 7     |      |                                | 546    |      |  |      | 34     |  |   | 1,578  |  
|Long-term debt                                                |  |                                 | 487   |      |                                | 578    |      |  |      | 1,527  |  |   | 2,390  |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Total interest expense                                        |  |                                 | 3,640 |      |                                | 4,103  |      |  |      | 10,951 |  |   | 12,120 |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Net Interest Income                                           |  |                                 | 4,586 |      |                                | 4,562  |      |  |      | 13,918 |  |   | 13,684 |  
|                                                              |  |                                 |       |     
|Provision for Loan Losses                                     |  |                                 | 30    |      |                                | 270    |      |  |      | 180    |  |   | 1,150  |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Net Interest Income After Provision for Loan Losses           |  |                                 | 4,556 |      |                                | 4,292  |      |  |      | 13,738 |  |   | 12,534 |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Non-interest Income                                           |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Trust income                                                  |  |                                 | 235   |      |                                | 237    |      |  |      | 701    |  |   | 707    |  
|Service charges and fees                                      |  |                                 | 864   |      |                                | 866    |      |  |      | 2,456  |  |   | 2,566  |  
|ATM network fees                                              |  |                                 | 20    |      |                                | 20     |      |  |      | 58     |  |   | 59     |  
|Insurance agency commissions                                  |  |                                 | 524   |      |                                | 559    |      |  |      | 1,853  |  |   | 1,868  |  
|Net (losses) on sales of securities                           |  |                                 |      |      |                                | (1,192 | )    |  |      |       |  |   | (1,342 | )
|Other                                                         |  |                                 | 377   |      |                                | 306    |      |  |      | 1,131  |  |   | 929    |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Total non-interest income                                     |  |                                 | 2,020 |      |                                | 796    |      |  |      | 6,199  |  |   | 4,787  |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Non-interest Expense                                          |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Salaries and employee benefits                                |  |                                 | 2,866 |      |                                | 2,883  |      |  |      | 8,631  |  |   | 8,641  |  
|Net occupancy expense                                         |  |                                 | 400   |      |                                | 420    |      |  |      | 1,260  |  |   | 1,306  |  
|Equipment and data processing expense                         |  |                                 | 684   |      |                                | 662    |      |  |      | 1,923  |  |   | 1,967  |  
|Professional fees                                             |  |                                 | 449   |      |                                | 362    |      |  |      | 1,175  |  |   | 1,189  |  
|Marketing expense                                             |  |                                 | 151   |      |                                | 237    |      |  |      | 427    |  |   | 725    |  
|State franchise tax                                           |  |                                 | 189   |      |                                | 188    |      |  |      | 563    |  |   | 558    |  
|Amortization of intangibles                                   |  |                                 | 90    |      |                                | 206    |      |  |      | 384    |  |   | 507    |  
|Other                                                         |  |                                 | 495   |      |                                | 568    |      |  |      | 1,550  |  |   | 2,897  |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Total non-interest expense                                    |  |                                 | 5,324 |      |                                | 5,526  |      |  |      | 15,913 |  |   | 17,790 |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Income (Loss) Before Income Tax                               |  |                                 | 1,252 |      |                                | (438   | )    |  |      | 4,024  |  |   | (469   | )
|Provision (Benefit) for Income Taxes                          |  |                                 | 223   |      |                                | (349   | )    |  |      | 742    |  |   | (796   | )
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Net Income (Loss)                                             |  | $                               | 1,029 |      | $                              | (88    | )    |  | $    | 3,282  |  | $ | 327    |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Basic Earnings/(Loss) Per Share                               |  | $                               | .32   |      | $                              | (.03   | )    |  | $    | 1.03   |  | $ | .10    |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Diluted Earnings Per Share                                    |  | $                               | .32   |      | $                              | (.03   | )    |  | $    | 1.03   |  | $ | .10    |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  
|Dividends Declared Per Share                                  |  | $                               | .28   |      | $                              | .27    |      |  | $    | .84    |  | $ | .81    |  
|                                                              |  |                                 |       |      |                                |        |      |  |      |        |  |   |        |  

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



|                                                          |  |                                |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                          |  | Nine Months Ended,September 30 |        
|(Dollars in thousands)                                    |  | 2007                           |         |   | 2006 |  
|                                                          |  | (Unaudited)                    |        
|Operating Activities                                      |  |                                |         |   |      |   |         |  
|Net income                                                |  | $                              | 3,282   |   |      | $ | 327     |  
|Items not requiring (providing) cash                      |  |                                |         |   |      |   |         |  
|Depreciation and amortization                             |  |                                | 1,404   |   |      |   | 1,607   |  
|Provision for loan losses                                 |  |                                | 180     |   |      |   | 1,150   |  
|Amortization of premiums and discounts on securities      |  |                                | 86      |   |      |   | 481     |  
|Net realized losses on available-for-sale securities      |  |                                |        |   |      |   | 1,342   |  
|FHLB stock dividends                                      |  |                                |        |   |      |   | (341    | )
|Net change in:                                            |  |                                |         |   |      |   |         |  
|Loans held for sale                                       |  |                                | (501    | ) |      |   | (417    | )
|Other assets and liabilities                              |  |                                | 179     |   |      |   | (2,190  | )
|                                                          |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                 |  |                                | 4,630   |   |      |   | 1,959   |  
|                                                          |  |                                |         |   |      |   |         |  
|Investing Activities                                      |  |                                |         |   |      |   |         |  
|Purchases of available-for-sale securities                |  |                                | (28,820 | ) |      |   | (71,618 | )
|Proceeds from sales of available-for-sale securities      |  |                                |        |   |      |   | 66,258  |  
|Proceeds from maturities of available-for-sale securities |  |                                | 25,335  |   |      |   | 92,523  |  
|Net change in loans                                       |  |                                | 35,621  |   |      |   | (10,223 | )
|Purchase of premises and equipment                        |  |                                | (1,932  | ) |      |   | (1,665  | )
|Proceeds from sales of premises and equipment             |  |                                |        |   |      |   | 28      |  
|                                                          |  |                                |         |   |      |   |         |  
|Net cash provided by investing activities                 |  |                                | 30,204  |   |      |   | 75,303  |  
|                                                          |  |                                |         |   |      |   |         |  
|Financing Activities                                      |  |                                |         |   |      |   |         |  
|Net change in:                                            |  |                                |         |   |      |   |         |  
|Deposits                                                  |  |                                | (24,373 | ) |      |   | 12,967  |  
|Short-term borrowings                                     |  |                                | (873    | ) |      |   | (17,677 | )
|Repayment of long-term debt                               |  |                                | (12,248 | ) |      |   | (72,058 | )
|Proceeds from long-term debt                              |  |                                | 10,310  |   |      |   |        |  
|Cash dividends                                            |  |                                | (2,670  | ) |      |   | (2,572  | )
|Purchase of treasury stock                                |  |                                | (283    | ) |      |   | (18     | )
|Proceeds from exercise of stock options                   |  |                                | 52      |   |      |   | 66      |  
|                                                          |  |                                |         |   |      |   |         |  
|Net cash used in financing activities                     |  |                                | (30,085 | ) |      |   | (79,292 | )
|                                                          |  |                                |         |   |      |   |         |  
|Increase in Cash and Cash Equivalents                     |  |                                | 4,749   |   |      |   | (2,030  | )
|Cash and Cash Equivalents, Beginning of Year              |  |                                | 18,973  |   |      |   | 17,399  |  
|                                                          |  |                                |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                  |  | $                              | 23,722  |   |      | $ | 15,369  |  
|                                                          |  |                                |         |   |      |   |         |  

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, 2006 has been derived from the audited consolidated balance sheet of that date.

In the opinion of
management, the condensed consolidated financial statements contain all adjustments necessary to present fairly the financial condition of NB&T Financial Group, Inc. (the Company) as of September 30, 2007, and December 31,
2006, and the results of its operations and cash flows for the nine-month periods ended September 30, 2007 and 2006. 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, 2006 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
|September 30, 2007:                             |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|Available-for-Sale Securities:                  |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|U.S. government agencies and sponsored entities |  | $             | 16,589 |                      | $ | 17                    |  | $ | (101                  | ) |  | $ | 16,505
|Mortgage-backed securities                      |  |               | 36,391 |                      |   | 213                   |  |   | (178                  | ) |  |   | 36,426
|State and political subdivisions                |  |               | 33,175 |                      |   | 644                   |  |   | (55                   | ) |  |   | 33,764
|Other securities                                |  |               | 10     |                      |   |                      |  |   |                      |   |  |   | 10    
|                                                |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|                                                |  | $             | 86,165 |                      | $ | 874                   |  | $ | (334                  | ) |  | $ | 86,705
|                                                |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|December 31, 2006:                              |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|Available-for-Sale Securities:                  |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|U.S. government agencies and sponsored entities |  | $             | 28,796 |                      | $ |                      |  | $ | (434                  | ) |  | $ | 28,362
|Mortgage-backed securities                      |  |               | 20,340 |                      |   | 14                    |  |   | (353                  | ) |  |   | 20,001
|State and political subdivisions                |  |               | 33,623 |                      |   | 937                   |  |   | (37                   | ) |  |   | 34,523
|Other securities                                |  |               | 10     |                      |   |                      |  |   |                      |   |  |   | 10    
|                                                |  |               |        |                      |   |                       |  |   |                       |   |  |   |       
|                                                |  | $             | 82,769 |                      | $ | 951                   |  | $ | (824                  | ) |  | $ | 82,896
|                                                |  |               |        |                      |   |                       |  |   |                       |   |  |   |       



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##### Table of Contents

Note 3: Loans

Categories of loans include (thousands):



|                                               |  |                    |         |   |                  |   |         |  
|---------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | -
|                                               |  | September 30, 2007 |         |   | December 31,2006 |  
|Commercial and industrial                      |  | $                  | 63,495  |   |                  | $ | 76,182  |  
|Agricultural                                   |  |                    | 26,823  |   |                  |   | 22,916  |  
|Real estate construction                       |  |                    | 15,077  |   |                  |   | 19,958  |  
|Commercial real estate                         |  |                    | 94,293  |   |                  |   | 87,018  |  
|Residential real estate                        |  |                    | 127,845 |   |                  |   | 140,083 |  
|Consumer                                       |  |                    | 45,979  |   |                  |   | 64,204  |  
|                                               |  |                    |         |   |                  |   |         |  
|Total loans                                    |  |                    | 373,512 |   |                  |   | 410,361 |  
|Less                                           |  |                    |         |   |                  |   |         |  
|Net deferred loan fees, premiums and discounts |  |                    | (30     | ) |                  |   | (140    | )
|Allowance for loan losses                      |  |                    | (3,824  | ) |                  |   | (4,762  | )
|                                               |  |                    |         |   |                  |   |         |  
|Net loans                                      |  | $                  | 369,658 |   |                  | $ | 405,459 |  
|                                               |  |                    |         |   |                  |   |         |  

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



|                           |  |                                |        |   |      |   |       |  
|-------------------------- |  | ------------------------------ | ------ | - | ---- | - | ----- | -
|                           |  | Nine Months EndedSeptember 30, |       
|                           |  | 2007                           |        |   | 2006 |  
|Balance, beginning of year |  | $                              | 4,762  |   |      | $ | 4,058 |  
|Provision for loan losses  |  |                                | 180    |   |      |   | 1,150 |  
|Recoveries                 |  |                                | 333    |   |      |   | 483   |  
|Charge-offs                |  |                                | (1,451 | ) |      |   | (950  | )
|                           |  |                                |        |   |      |   |       |  
|Balance, end of period     |  | $                              | 3,824  |   |      | $ | 4,741 |  
|                           |  |                                |        |   |      |   |       |  

Impaired loans totaled $2,280,000 at September 30, 2007 and $6,854,000 at December 31, 2006. An
allowance for loan losses of $140,000 and $1,800,000 relates to impaired loans of $254,000 and $6,047,000 at September 30, 2007 and December 31, 2006, respectively. At September 30, 2007 and December 31, 2006, impaired loans of
$2,026,000 and $807,000 had no related allowance for loan losses.

At September 30, 2007 there was one accruing loan for $92,000 delinquent 90 days or
more. At December 31, 2006, there were no accruing loans delinquent 90 days or more. Non-accruing loans at September 30, 2007 and December 31, 2006 were $3,342,000 and $8,365,000, respectively.



7



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##### Table of Contents

Note 4: Long Term Debt

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



|                                |  |                    |        |                   |   |       
|------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                |  | September 30, 2007 |        | December 31, 2006
|Federal Home Loan Bank Advances |  | $                  | 24,500 |                   | $ | 28,500
|Junior subordinated debentures  |  |                    | 10,310 |                   |   | 8,248 
|                                |  |                    |        |                   |   |       
|Total                           |  | $                  | 34,810 |                   | $ | 36,748
|                                |  |                    |        |                   |   |       

Note 5: Commitments

Outstanding commitments to extend credit as of September 30, 2007 totaled $45,032,000. Standby letters of credit as of September 30, 2007 totaled $2,855,000.

Note 6: Earnings Per Share

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



|                                                     |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|---------------------------------------------------- |  | ------------------------------- | --------- | ---- | ------------------------------ | --------- | ---- |  | ---- | --------- |  | - | ---------
|                                                     |  | Three Months EndedSeptember 30, |           |      | Nine Months EndedSeptember 30,
|                                                     |  | 2007                            |           | 2006 |                                |           | 2007 |  | 2006
|Numerator:                                           |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Net income                                           |  | $                               | 1,029     |      | $                              | (88       | )    |  | $    | 3,282     |  | $ | 327      
|                                                     |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Denominator:                                         |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Weighted-average common shares outstanding (basic)   |  |                                 | 3,182,143 |      |                                | 3,175,722 |      |  |      | 3,187,545 |  |   | 3,174,458
|Effect of stock options                              |  |                                 | 1,537     |      |                                |          |      |  |      | 834       |  |   | 1,265    
|                                                     |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Weighted-average common shares outstanding (diluted) |  |                                 | 3,183,680 |      |                                | 3,175,722 |      |  |      | 3,188,379 |  |   | 3,175,723
|                                                     |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Earnings/(Loss) per share:                           |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Basic                                                |  | $                               | .32       |      | $                              | (.03      | )    |  | $    | 1.03      |  | $ | .10      
|                                                     |  |                                 |           |      |                                |           |      |  |      |           |  |   |          
|Diluted                                              |  | $                               | .32       |      | $                              | (.03      | )    |  | $    | 1.03      |  | $ | .10      
|                                                     |  |                                 |           |      |                                |           |      |  |      |           |  |   |          

For the three and nine months ended September 30, 2007, stock options covering 181,000 shares of common stock
were not considered in computing earnings per share as their exercise prices exceed the fair market value of the Company common shares. For the three and nine months ended September 30, 2006, stock options covering 136,000 shares of
common stock, respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair market value of the Companys common shares.

Note 7: 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 were the junior subordinated debentures of the Corporation and payments thereunder. The junior subordinated debentures and the back-up obligations, in the aggregate,
constituted a full and unconditional guarantee by the Corporation of the obligations of Trust I under the Capital Securities. Distributions on the Capital Securities were 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 were considered Tier I capital (with certain limitations applicable) under current regulatory guidelines. The junior subordinated debentures were 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. On June 26, 2007, the Capital Securities were redeemed at par.



8



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##### Table of Contents

On June 25, 2007, NB&T Statutory Trust III (Trust III), a wholly owned subsidiary of the
Corporation, closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Corporation in exchange for junior subordinated debentures with terms
similar to the Capital Securities. The sole assets of Trust III are the junior subordinated debentures of the Corporation and payments thereunder. The junior subordinated debentures and the back-up obligations, in the aggregate, constitute a full
and unconditional guarantee by the Corporation of the obligations of Trust III under the Capital Securities. Distributions on the Capital Securities are payable quarterly at a fixed interest rate of 7.071% through September 6, 2012 and
thereafter at the annual rate of 1.50% over the 3 month LIBOR. Distributions on the Capital Securities are included in interest expense in the consolidated financial statements. These securities are considered Tier I capital (with certain
limitations applicable) under current regulatory guidelines.

The junior subordinated debentures are subject to mandatory redemption, in whole or in part,
upon repayment of the Capital Securities at maturity or their earlier redemption at the liquidation amount. Subject to the Corporation having received prior approval of the Federal Reserve, if then required, the Capital Securities are redeemable
prior to the maturity date of September 6, 2037, at the option of the Corporation. On or after September 6, 2012, the Capital Securities are redeemable at par. Upon occurrence of specific events defined within the trust indenture, the
Capital Securities may also be redeemed prior to September 6, 2012 at a premium. The Corporation has the option to defer distributions on the Capital Securities from time to time for a period not to exceed 20 consecutive semi-annual periods.

As of September 30, 2007 and December 31, 2006, the outstanding principal balance of the Capital Securities was $10,000,000 and $8,000,000,
respectively. 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.

Note 8: Comprehensive Income

Total comprehensive income was as
follows (thousands):



|                                  |  |                                 |       |      |                                |       |      |  |      |       |  |   |      
|--------------------------------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | ----- |  | - | -----
|                                  |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30,
|                                  |  | 2007                            |       | 2006 |                                |       | 2007 |  | 2006
|Net Income                        |  | $                               | 1,029 |      | $                              | (88   | )    |  | $    | 3,282 |  | $ | 327  
|Other Comprehensive Income (Loss) |  | $                               | 452   |      | $                              | 1,446 |      |  | $    | 272   |  | $ | 969  
|                                  |  |                                 |       |      |                                |       |      |  |      |       |  |   |      
|Total Comprehensive Income (Loss) |  | $                               | 1,481 |      | $                              | 1,358 |      |  | $    | 3,554 |  | $ | 1,296
|                                  |  |                                 |       |      |                                |       |      |  |      |       |  |   |      

Note 9: Change in Accounting Principle

The Company or one of its subsidiaries files income tax returns in the U.S. federal and Ohio jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax
authorities for years before 2004.

The Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a
result of the implementation of FIN 48, the Company did not identify any uncertain tax positions that it believes should be recognized in the financial statements.



9



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

NB&T Financial Group, Inc.

Wilmington, Ohio

We have reviewed the accompanying condensed consolidated balance sheet of NB&T Financial Group, Inc. as of September 30, 2007 and the related condensed
consolidated statements of operations for the three-month and nine-month periods ended September 30, 2007 and 2006 and cash flows for the nine-month periods ended September 30, 2007 and 2006. 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, 2006 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 26, 2007, 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, 2006 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 |  |  |  |             
|October 30, 2007 |  |  |  |             



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##### Table of Contents

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

Results of
Operations

The net income for NB&T Financial Group, Inc. (the Company) for the third quarter of 2007 was $1,029,000, or $0.32 per
diluted share, compared to a net loss of $88,000, or $.03 per diluted share, for the same period last year. The earnings improvement is primarily the result of a lower provision for loan losses and no security losses in 2007; however, both
non-interest income and non-interest expense also improved. Net income for the nine months ended September 30, 2007 was $3,282,000, compared to $327,000 for the same nine months last year. Last years results include approximately $1.4
million in prepayment penalties from the early payoff of approximately $47.2 million in Federal Home Loan Bank (FHLB) debt, and a net loss of approximately $1.3 million on securities sold to pay off the debt and fund a branch sale in
October 2006. The increase in net income was also due to a decrease of $970,000 in the provision for loan losses from the same period last year.

Net
Interest Income

Net interest income was $4.59 million for the third quarter of 2007, an increase from $4.56 million for the same quarter last year,
despite a decrease in average earning assets of approximately $65 million. As a result, net interest margin increased to 3.70% for the third quarter this year from 3.25% for the third quarter last year. Interest income was $8.23 million for the
third quarter of 2007 compared to $8.67 million during the same period last year. Total interest expense decreased $460,000 to $3.64 million during the third quarter of 2007 from $4.10 million during the same period last year. The decrease is
primarily the result of the reduction in FHLB advances, short-term borrowings and time deposits. The decreases in both average earning assets and the previously mentioned liabilities were all part of last years balance sheet restructuring to
improve the Companys net interest margin. Net interest income was $13.92 million for the first nine months of 2007, compared to $13.68 million for the same period last year. The net interest margin has improved from 3.16% for the first nine
months last year to 3.75% for the same period this year.

Provision for Loan Losses

The provision for loan losses decreased to $30,000 for the third quarter of 2007 and $180,000 for the first nine months of 2007 from $270,000 and $1,150,000 during the same periods last year. The lower provision for
loan losses in 2007 is a result of several factors. First, non-performing loans have decreased approximately $5.6 million at September 30,2007 compared to September 30, 2006. Second, net charge-offs for the nine months ended
September 30, 2007 were $1,118,000, including one commercial real estate loan charged down $700,000 for which a specific reserve had been established. Excluding the $700,000 charge down, net charge-offs for the nine months ended
September 30, 2007 decreased approximately $50,000 compared to the same period last year. Finally, actual loan balances at September 30, 2007 decreased $54.3 million from September 30,2006 with the largest decrease in consumer loans,
which have the highest historical loss experience. The percentage of the allowance for loan losses to total loans was 1.02% at September 30, 2007.

Non-interest Income

Non-interest income was $2.02 million for the third quarter of 2007 and $796,000 for the same period in 2006. In the
third quarter of 2006, the Company realized $1.2 million in securities sales losses. The remainder of the increase is primarily gains on loans sold in the secondary market and fees earned on sweep account services started during the second half of
2006. These gains have been partially offset by lower deposit service charges and overdraft fees. Non-interest income, excluding security gains and losses, was $6.20 million for the first nine months of 2007, compared to $6.13 million in 2006. The
Company realized $1.34 million in net securities losses in the first nine months of 2006 from the sale of $66.3 million in securities. As previously mentioned, these securities sales were part of last years balance restructuring, and the
proceeds were used to repay FHLB debt and fund a branch sale in October 2006. The Company has sold no securities during 2007.

Non-interest Expense

Non-interest expense decreased $202,000 to $5.32 million for the third quarter of 2007, compared to the same quarter in 2006. The decrease between the two
quarters was primarily due to increased marketing expenses in 2006 associated with the Companys branding initiatives and reduced expenses resulting from the branch sale in October 2006. For the first nine months of 2007, non-interest expense
was $15.91 million, compared to $17.79 million in 2006. This decrease is primarily due to $1.4 million in prepayment penalties from the early payoff of approximately $47.2 million in FHLB debt and increased marketing expenses in 2006 related to the
Companys branding initiatives.



11



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##### Table of Contents

Income Taxes

The
provision for income taxes for the third quarter of 2007 was $223,000 compared to a benefit of $349,000 for the same period in 2006 due to the securities sales losses in that quarter. For the nine months ended September 30, 2007, the provision
for income taxes is $742,000 compared to a benefit of $796,000 for the same period last year. The effective tax rate for the nine months ended September 30, 2007 was approximately 18.4%.

Financial Condition

The changes that have occurred in the
Companys financial condition during 2007 are as follows (in thousands):



|                            |  |                    |         |                   |   |             |  |   |         |   |  |       |  
|--------------------------- |  | ------------------ | ------- | ----------------- | - | ----------- |  | - | ------- | - |  | ----- | -
|                            |  |                    |         |                   |   | 2007 Change | 
|                            |  | September 30, 2007 |         | December 31, 2006 |   | Amount      |  |   | Percent |  
|Total Assets                |  | $                  | 528,524 |                   | $ | 555,182     |  | $ | (26,658 | ) |  | (4.8  | )
|Federal Funds Sold          |  |                    | 8,747   |                   |   | 3,197       |  |   | 5,550   |   |  | 173.6 |  
|Loans, net*                 |  |                    | 370,303 |                   |   | 405,603     |  |   | (35,300 | ) |  | (8.7  | )
|Securities                  |  |                    | 86,705  |                   |   | 82,896      |  |   | 3,809   |   |  | 4.6   |  
|Demand deposits             |  |                    | 53,762  |                   |   | 66,479      |  |   | (12,717 | ) |  | (19.1 | )
|Savings, NOW, MMDA deposits |  |                    | 201,540 |                   |   | 196,929     |  |   | 4,611   |   |  | 2.3   |  
|CDs $100,000 and over      |  |                    | 38,240  |                   |   | 45,490      |  |   | (7,250  | ) |  | (15.9 | )
|Other time deposits         |  |                    | 135,353 |                   |   | 144,370     |  |   | (9,017  | ) |  | (6.2  | )
|Total deposits              |  |                    | 428,895 |                   |   | 453,268     |  |   | (24,373 | ) |  | (5.4  | )
|Short-term borrowing        |  |                    | 1,991   |                   |   | 2,864       |  |   | (873    | ) |  | (30.5 | )
|Long-term borrowing         |  |                    | 34,810  |                   |   | 36,748      |  |   | (1,938  | ) |  | (5.3  | )
|Stockholders Equity         |  |                    | 59,112  |                   |   | 58,223      |  |   | 889     |   |  | 1.5   |  

---

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

At September 30, 2007, total assets
were $528.5 million, a decrease of $26.7 million from December 31, 2006. The decrease is primarily attributable to a decrease in the loan portfolio of $35.3 million. The consumer loan portfolio has declined $18.3 million primarily resulting
from the Companys departure from the indirect lending business in the third quarter of 2006. The residential real estate loan portfolio decreased approximately $12.2 million as the Company has originated new fixed-rate conforming loans
primarily for sale in the secondary market. Total deposits decreased $24.4 million in 2007 with a $16.3 million decline in jumbo and other time deposits. Demand deposits decreased approximately $12.7 million due to lower balances between periods for
several corporate and public fund accounts. Stockholders equity increased $889,000 in the first nine months of 2007 to $59.1 million primarily due to increases in the market value of the securities portfolio.

Total average assets for 2007 have decreased $85.9, or 13.7%, to $542.7 million from $638.1 million during the first nine months in 2006. Within this decrease, total
average securities are down $60.6 million and average total loans are down $31.8 million. With the funding from these asset decreases, the Company reduced average long-term debt $22.6 million, short-term borrowing $43.6 million, and time deposits
$18.4 million. In June 2007, the Company paid off its trust preferred debt of $8.0 million and issued new trust preferred debt of $10.0 million.

These
decreases in 2007 compared to 2006 are the result of three balance sheet restructuring initiatives implemented last year. First, the Company prepaid $47.2 million in FHLB advances and converted its repurchase agreements to a third-party sweep
arrangement. Second, the Company exited the indirect auto loan origination business. Finally, the Company sold its Ada, Ohio branch with approximately $20 million in deposits. These actions were taken primarily to improve the Companys net
interest margin and improve long-term profitability.



12



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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 September 30, 2007 and 2006 (dollars in thousands):



|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|------------------------------ |  | ------------------------------ | ----- | - | ----------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                               |  | Three Months EndedSeptember 30 |       |   | Nine Months EndedSeptember 30 |  
|                               |  | 2007                           |       |   | 2006                          |   |       | 2007 |  |   | 2006   |  
|Balance at beginning of period |  | $                              | 3,993 |   |                               | $ | 4,641 |      |  | $ | 4,762  |   |  | $ | 4,058 |  
|                               |  |                                |       |  
|Charge-offs:                   |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Commercial and industrial      |  |                                | (12   | ) |                               |   |      |      |  |   | (100   | ) |  |   | (29   | )
|Commercial real estate         |  |                                | (34   | ) |                               |   | (159  | )    |  |   | (741   | ) |  |   | (190  | )
|Agricultural                   |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |      |  
|Residential real estate        |  |                                | (32   | ) |                               |   | (20   | )    |  |   | (100   | ) |  |   | (113  | )
|Consumer                       |  |                                | (226  | ) |                               |   | (145  | )    |  |   | (510   | ) |  |   | (618  | )
|Other                          |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |      |  
|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Total charge-offs              |  |                                | (304  | ) |                               |   | (324  | )    |  |   | (1,451 | ) |  |   | (950  | )
|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Recoveries:                    |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Commercial and industrial      |  |                                | 12    |   |                               |   | 36    |      |  |   | 36     |   |  |   | 54    |  
|Commercial real estate         |  |                                | 25    |   |                               |   | 25    |      |  |   | 75     |   |  |   | 63    |  
|Agricultural                   |  |                                | 3     |   |                               |   | 4     |      |  |   | 10     |   |  |   | 19    |  
|Residential real estate        |  |                                | 1     |   |                               |   | 7     |      |  |   | 53     |   |  |   | 37    |  
|Consumer                       |  |                                | 64    |   |                               |   | 82    |      |  |   | 159    |   |  |   | 310   |  
|Other                          |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |      |  
|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Total recoveries               |  |                                | 105   |   |                               |   | 154   |      |  |   | 333    |   |  |   | 483   |  
|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Net charge-offs                |  |                                | (199  | ) |                               |   | (170  | )    |  |   | (1,118 | ) |  |   | (467  | )
|Provision for loan losses      |  |                                | 30    |   |                               |   | 270   |      |  |   | 180    |   |  |   | 1,150 |  
|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  
|Balance at end of period       |  | $                              | 3,824 |   |                               | $ | 4,741 |      |  | $ | 3,824  |   |  | $ | 4,741 |  
|                               |  |                                |       |   |                               |   |       |      |  |   |        |   |  |   |       |  

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



|                                                                 |  |                    |       |   |                   |   |       |                    |  |   |       |  
|---------------------------------------------------------------- |  | ------------------ | ----- | - | ----------------- | - | ----- | ------------------ |  | - | ----- | -
|                                                                 |  | September 30, 2007 |       |   | December 31, 2006 |   |       | September 30, 2006 | 
|Loans accounted for on non-accrual basis                         |  | $                  | 3,342 |   |                   | $ | 8,365 |                    |  | $ | 9,060 |  
|Accruing loans which are past due 90 days                        |  |                    | 92    |   |                   |   |      |                    |  |   |      |  
|Renegotiated loans                                               |  |                    |      |   |                   |   |      |                    |  |   | 0     |  
|Other real estate owned                                          |  |                    | 754   |   |                   |   | 1,154 |                    |  |   | 346   |  
|                                                                 |  |                    |       |   |                   |   |       |                    |  |   |       |  
|Total non-performing assets                                      |  | $                  | 4,188 |   |                   | $ | 9,519 |                    |  | $ | 9,406 |  
|                                                                 |  |                    |       |   |                   |   |       |                    |  |   |       |  
|Ratios:                                                          |  |                    |       |   |                   |   |       |                    |  |   |       |  
|Allowance to total loans                                         |  |                    | 1.02  | % |                   |   | 1.16  | %                  |  |   | 1.11  | %
|Net charge-offs to average loans (annualized)                    |  |                    | 0.38  | % |                   |   | 0.15  | %                  |  |   | 0.16  | %
|Non-performing assets to total loans and other real estate owned |  |                    | 1.12  | % |                   |   | 2.31  | %                  |  |   | 2.20  | %

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



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or increases in risk characteristics of the loan portfolio, the reserve is below the level considered by management to be adequate to absorb possible loan
losses, the provision for loan losses is increased. Loans deemed not collectible are charged off and deducted from the reserve. Recoveries on loans previously charged off are added to the reserve.

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

As of September 30, 2007, there was $2.3 million in 16 non-accrual small business
relationships. In June of this year, a $4.7 million relationship, secured by a nursing home, returned to accrual status, and approximately $230,000 of previously paid interest was recognized in interest income. One $1.3 million relationship, secured
by commercial office buildings was charged-down $700,000.

Also as of September 30, 2007, nonaccrual residential real estate loans totaled
$739,000 and consisted of 11 loans with the largest balance being $173,000. Non-accrual consumer loans consisted of 20 loans that totaled $222,000, and home equity credit loans consisted of 10 loans totaling $102,000.

Liquidity and Capital Resources

Effective liquidity management
ensures that the cash flow requirements of depositors and borrowers, as well as Company cash needs, are met. The Company manages liquidity on both the asset and liability sides of the balance sheet. The loan-to-deposit ratio at September 30,
2007 was 86.3%, compared to 92.9% at the same date in 2006. Loans to total assets were 70.8% at the end of the third quarter of 2007, compared to 74.9% at the same time last year. The Company has $86.7 million in available-for-sale securities that
are readily marketable. Approximately 41.8% of the available-for-sale portfolio is pledged to secure public deposits, short-term and long-term borrowings and for other purposes as required by law. The balance of the available-for-sale securities
could be sold if necessary for liquidity purposes. Also, a stable deposit base, consisting of 91.1% core deposits, makes the Company less susceptible to large fluctuations in funding needs. The Company has short-term borrowing lines of credit with
several correspondent banks. The Company also has both short- and long-term borrowing available through the Federal Home Loan Bank (FHLB). The Company has the ability to obtain deposits in the brokered certificate of deposit market to help provide
liquidity to fund loan growth.

The Federal Reserve Board has adopted risk-based capital guidelines that assign risk weightings to assets and off-balance
sheet items and also define and set minimum capital requirements (risk-based capital ratios). Bank holding companies must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 8%, 4% and 3%, respectively. At September 30,
2007, the Company had a total risk-based capital ratio of 17.27%, a Tier 1 risk-based capital ratio of 16.28%, and a Tier 1 leverage ratio of 11.91%.

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, 2006. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected
by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Companys financial condition
and results, and they require management to make estimates that are difficult, subjective, or complex.

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



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

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

Goodwill and Other Intangibles  The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill and other intangibles, at fair value as required by 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

Item 3  Quantitative and Qualitative Disclosures about Market Risk

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

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

The Bank uses simulation
models to manage interest rate risk. In the Banks simulation models, each asset and liability balance is projected over a one-year horizon. Net interest income is then projected based on expected cash flows and projected interest rates under a
stable rate scenario and analyzed on a monthly basis. The results of this analysis are used in decisions made concerning pricing strategies for loans and deposits, balance sheet mix, securities portfolio strategies, liquidity and capital adequacy.
The Banks current one-year simulation model under stable rates indicates increasing yields on interest-earning assets will exceed increasing costs of interest-bearing liabilities. This position could have a positive effect on projected net
interest margin over the next twelve months.

Simulation models are also performed for ramped 100, 200 and 300 basis point increases or decreases in
interest rates over one year. The results of these simulation models are compared with the stable rate simulation. The model includes assumptions as to repricing and expected prepayments, anticipated calls, and expected decay rates of transaction
accounts under the different rate scenarios. The results of these simulations include changes in both net interest income and market value of equity. ALCO guidelines that measure interest rate risk by the percent of change from stable rates, and
capital adequacy, have been established, and as the table below indicates at September 30, 2007, the results of these simulations are within those guidelines.



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As with any method of measuring interest rate risk, certain shortcomings are inherent in the simulation modeling. For
example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. In addition, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities
and early withdrawals from certificates of deposit may deviate significantly from those assumed in making the risk calculations. The Banks rate ramp simulation models provide results in extreme interest rate environments and results are used
accordingly. Reacting to changes in economic conditions, interest rates and market forces, the Bank has been able to alter the mix of short-and long-term loans and investments, and increase or decrease the emphasis on fixed- and variable-rate
products in response to changing market conditions.



|          |  |                                    |   |  |                                |   |  |         |   |  |               |  
|--------- |  | ---------------------------------- | - |  | ------------------------------ | - |  | ------- | - |  | ------------- | -
|          |  | One Year Net InterestIncome Change |   |  | Economic Value of EquityChange |  
|Rate Ramp |  | 9/30/07                            |   |  | ALCOGuideline                  |   |  | 9/30/07 |   |  | ALCOGuideline |  
|+ 300     |  | -3.2                               | % |  | +15                            | % |  | 9.4     | % |  | +20           | %
|+ 200     |  | -1.9                               |   |  | +10                            |   |  | 7.5     |   |  | +15           |  
|+ 100     |  | -1.0                               |   |  | +5                             |   |  | 3.8     |   |  | +10           |  
|- 100     |  | 1.1                                |   |  | +5                             |   |  | -3.2    |   |  | +10           |  
|- 200     |  | 1.9                                |   |  | +10                            |   |  | -5.6    |   |  | +15           |  
|- 300     |  | 2.8                                |   |  | +15                            |   |  | -7.4    |   |  | +20           |  

Item 4  Controls and Procedures

(a) The Companys principal executive officer and principal financial officer
have concluded, based upon their evaluation of the Companys disclosure controls and procedures as of September 30, 2007, that the Companys disclosure controls and procedures were effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of
1934 is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) During the quarter ended September 30, 2007, there were no changes in the Companys internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II  OTHER INFORMATION

Item 1  Legal Proceedings

Not applicable

Item 1A  Risk Factors

No material changes from risk factors disclosed in Form 10-K for fiscal year ended
December 31, 2006.

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



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



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



| | (c) | Issuer Purchases of Equity Securities
| | --- | -------------------------------------



|                  |  |                                   |  |                                |       |                                                                                       |       |                                                                                                              |        
|----------------- |  | --------------------------------- |  | ------------------------------ | ----- | ------------------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------ | -------
|Period            |  | (a) TotalNumber ofSharesPurchased |  | (b) AveragePrice Paidper Share |       | (c) Total Number ofShares Purchased as Partof Publicly AnnouncedPlans or Programs (1) |       | (d) Maximum Number (orApproximate Dollar Value) ofShares that May Yet
BePurchased Under the Plans orPrograms
|7/1/07 to 7/31/07 |  | 1,650                             |  | $                              | 20.78 |                                                                                       | 1,650 |                                                                                                              | 161,886
|8/1/07 to 8/31/07 |  | 2,402                             |  | $                              | 20.55 |                                                                                       | 4,052 |                                                                                                              | 159,484
|9/1/07 to 9/30/07 |  | 3,000                             |  | $                              | 20.49 |                                                                                       | 7,052 |                                                                                                              | 156,484
|Total             |  | 7,052                             |  | $                              | 20.58 |                                                                                       | 7,052 |                                                                                                              | 156,484

---

|(1) | The Company has one publicly announced stock repurchase plan. The repurchase plan was announced April 24, 2007 and authorized the repurchase of up to 170,000 shares of common
stock. This plan expires April 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3  Defaults Upon Senior Securities

Not applicable

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

Not applicable

Item 5  Other Information

The Bank entered into a severance agreement with each of Messrs.
Argabright, Fortin, Klumb and Witherby, effective November 8, 2007. The severance agreements with Messrs. Fortin, Klumb and Witherby replace the severance agreements signed on April 19, 2004. Each new agreement has a term of three years,
which automatically renews for one year on each anniversary date, unless the Bank provides six months notice of cancellation to the officer. Each agreement provides that the officer receives nothing if he is terminated for just
cause or is terminated for any reason more than six months before a change of control or more than one year after a change of control. The Bank entered into these severance agreements to retain personnel, protect the officers
salaries and allow them to be more objective in evaluating potential strategic alternatives. In the event that the officers employment is terminated within six months before or within one year after a change of control, (i) the Bank will
be required to pay to the officer or his dependents, beneficiaries or estate an amount equal to two times (a) the higher of the officers base salary at the time of the change of control or the officers base salary at the time of
termination of employment, plus (b) the highest bonus paid to the officer during the five years preceding this termination; and (ii) the officer and his dependents, beneficiaries and estate will be entitled to coverage under the health,
life and disability plans of the Bank or its successor at the expense of the Bank or its successor until the earliest of the expiration of the term of the agreement, the date the officer is included in another employers benefit plans as a
full-time employee, or 18 months after the officers employment is terminated. Under each of the severance agreements, the officer will also be



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entitled to the same payments and benefits in connection with a change of control if the officer voluntarily terminates his employment within one year
following a change of control upon the occurrence of a material diminution in the officers base compensation or a material change in the geographic location at which the officer is required to perform services for the Bank.

A change of control includes (i) a change in ownership or power to vote of 50% of the voting stock of NBTF; (ii) the merger or
consolidation of NBTF or the Bank resulting in more than 50% of the voting power of the resulting entity being owned by persons who were not formerly shareholders of NBTF; (iii) the acquisition of the ability to control the election of a
majority of the directors of NBTF or the Bank; (iv) a change of a majority of the directors of NBTF or the Bank within two years, unless approved by the continuing directors; (v) the acquisition by any person of the power to direct
NBTFs management or policies, if the Board has determined that such acquisition of power constitutes a change of control under applicable banking laws; or (vi) a sale of substantially all of the Banks assets.

Copies of such agreements are attached as Exhibits 10.1 through 10.4 to this Form 10-Q.

Item 6  Exhibits



|               |  |                                                                                              
|-------------- |  | ---------------------------------------------------------------------------------------------
|Exhibit Number |  | Index to Exhibits                                                                            
|3.1            |  | Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.           
|               | 
|3.2            |  | Amended and Restated Code of Regulations of NB&T Financial Group, Inc.                       
|               | 
|4              |  | Agreement to furnish instruments and agreements defining rights of holders of long-term debt.
|               | 
|10             |  | Severance Agreements                                                                         
|               | 
|15             |  | Accountants acknowledgement                                                                 
|               | 
|31.1           |  | Certification by CEO.                                                                        
|               | 
|31.2           |  | Certification by CFO.                                                                        
|               | 
|32.1           |  | Certification by CEO Pursuant to 18 U.S.C. Section 1350.                                     
|               | 
|32.2           |  | Certification by CFO Pursuant to 18 U.S.C. Section 1350.                                     



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |                                                                                
|---------------------- |  |  |  | -------------------------------------------------------------------------------
|                       |  |  |  | NB&T FINANCIAL GROUP, INC.                                                     
|                       |  | 
|Date: November 8, 2007 |  |  |  | /s/ Craig F. Fortin                                                            
|                       |  |  |  | Craig F. Fortin                                                                
|                       |  |  |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer)



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Index to Exhibits



|               |  |                                                                                               |  |                                                                                                        
|-------------- |  | --------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                   |  | 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
|               |  |                                                                                              
|4              |  | Agreement to furnish instruments and agreements defining rights of holders of long-term debt. |  |                                                                                                        
|               |  |                                                                                              
|10.1           |  | Severance Agreement for W. Keith Argabright                                                   |  |                                                                                                        
|               |  |                                                                                              
|10.2           |  | Severance Agreement for Craig F. Fortin                                                       |  |                                                                                                        
|               |  |                                                                                              
|10.3           |  | Severance Agreement for Stephen G. Klumb                                                      |  |                                                                                                        
|               |  |                                                                                              
|10.4           |  | Severance Agreement for Howard T. Witherby                                                    |  |                                                                                                        
|               |  |                                                                                              
|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.                                      |  |                                                                                                        



20