NB&T Financial (NBTF) 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

OR

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

For the transition period from/to

NB&T FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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

48 N. South Street, Wilmington, Ohio 45177

(Address of principal executive offices) (Zip Code)

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

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

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of August 3, 2011, 3,424,162 common shares were issued and outstanding.

NB&T FINANCIAL GROUP, INC.

June 30, 2011 Form 10-Q

Table of Contents

	PART I
		Page
Item 1:	Financial Statements		3
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Income		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to Condensed Consolidated Financial Statements		6
	Report of Independent Registered Public Accounting Firm		24
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3:	Quantitative and Qualitative Disclosures about Market Risk		31
Item 4:	Controls and Procedures		32
	Part II
Item 1:	Legal Proceedings		33
Item 1A:	Risk Factors		33
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3:	Defaults Upon Senior Securities		33
Item 4:	Reserved		33
Item 5:	Other Information		33
Item 6:	Exhibits and Reports on Form 8-K		33
Signatures			34
Index to Exhibits			35

2

Item 1: Financial Statements

NB&T Financial Group, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands)	June 30, 2011			December 31, 2010
	(Unaudited)
Assets
Cash and due from banks	$	11,831		$	8,693
Interest-earning deposits		58,531			72,678
Federal funds sold		406			380
Cash and cash equivalents		70,768			81,751
Securities-available-for-sale		137,071			133,855
Loans held for sale		283			688
Loans, net of allowance for loan losses of $3,475 and $3,714		404,759			410,576
Premises and equipment		19,318			20,519
Federal Reserve and Federal Home Loan Bank stock		10,025			10,021
Earned income receivable		2,899			2,909
Goodwill		3,625			3,625
Core deposits and other intangibles		1,006			1,183
Bank-owned life insurance		15,243			15,002
Other real estate owned		4,175			4,254
FDIC loss share receivable		1,979			2,078
Other assets		3,877			4,157
Total assets	$	675,028		$	690,618
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	82,133		$	105,187
Savings, NOW and Money Market		331,535			292,773
Time		167,062			186,413
Total deposits		580,730			584,373
Short-term borrowings		1,037			12,779
Long-term debt		15,310			15,310
Interest payable and other liabilities		7,048			7,137
Total liabilities		604,125			619,599
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		12,104			12,013
Retained earnings		60,221			60,221
Accumulated other comprehensive income		2,076			2,283
Treasury stock; 394,788 shares – 2011 and 394,788 shares - 2010		(4,498	)		(4,498	)
Total stockholders’ equity		70,903			71,019
Total liabilities and stockholders’ equity	$	675,028		$	690,618

See Notes to Condensed Consolidated Financial Statements

3

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Income

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	2011			2010		2011		2010
	(Unaudited)					(Unaudited)
Interest and Dividend Income
Loans	$	6,218		$	7,007	$	12,258	$	13,017
Securities-taxable		902			1,042		1,921		2,144
Securities-tax-exempt		70			158		159		362
Federal funds sold and other		43			29		88		62
Dividends on Federal Home Loan & Federal Reserve Bank stock		115			114		232		228
Total interest and dividend income		7,348			8,350		14,658		15,813
Interest Expense
Deposits		1,053			1,362		2,190		2,695
Short-term debt		0			102		31		102
Long-term debt		217			415		435		928
Total interest expense		1,270			1,879		2,656		3,725
Net Interest Income		6,078			6,471		12,002		12,088
Provision for Loan Losses		385			525		935		960
Net Interest Income After Provision for Loan Losses		5,693			5,946		11,067		11,128
Non-interest Income
Trust income		255			229		519		456
Service charges and fees		1,197			1,215		2,242		2,262
Gain on bargain purchase		0			0		0		7,572
Gain on sale of insurance agency		0			0		0		1,390
Gain (loss) on sale of available for sale securities		(10	)		0		779		0
Other-than-temporary losses on investments:
Total other-than-temporary losses		0			0		0		(251	)
Loss recognized in other comprehensive income (before taxes)		0			0		0		201
Net impairment losses recognized in earnings		0			0		0		(50	)
Other		455			574		915		987
Total non-interest income		1,897			2,018		4,455		12,617
Non-interest Expense
Salaries and employee benefits		3,112			3,105		6,212		7,518
Net occupancy expense		583			625		1,215		1,264
Equipment and data processing expense		750			787		1,533		1,581
FDIC insurance		146			246		367		428
Professional fees		528			501		1,066		1,021
Marketing expense		155			166		293		324
State franchise tax		218			202		434		396
Amortization of intangibles		88			103		178		189
Other		566			530		1,427		1,041
Total non-interest expense		6,146			6,265		12,725		13,762
Income Before Income Tax		1,444			1,699		2,797		9,983
Provision for Income Taxes		395			429		743		3,109
Net Income	$	1,049		$	1,270	$	2,054	$	6,874
Basic Earnings Per Share	$	.31		$	.37	$	.60	$	2.02
Diluted Earnings Per Share	$	.31		$	.37	$	.60	$	2.02
Dividends Declared Per Share	$	.30		$	.29	$	.60	$	.58

See Notes to Condensed Consolidated Financial Statements

4

NB&T Financial Group, Inc.

Condensed Consolidated Statements of Cash Flows

	Six Months Ended, June 30,
(Dollars in thousands)	2011			2010
	(Unaudited)
Operating Activities
Net income	$	2,054		$	6,874
Items not requiring (providing) cash
Depreciation and amortization		876			871
Provision for loan losses		935			960
Amortization of premiums and discounts on securities		727			713
Increase in cash surrender value on bank owned life insurance		(241	)		(237	)
Other-than-temporary impairment of securities		0			50
Gain on bargain purchase		0			(7,572	)
Gain on sale of insurance agency		0			(1,390	)
Gain on sale of available-for-sale securities		(779	)		0
Proceeds from sale of loans held for sale		5,545			4,195
Originations of loans held for sale		(5,122	)		(4,428	)
Gain from sale of loans		(18	)		(33	)
Proceeds from FDIC loss share receivable		112			0
Net change in:
Other assets and liabilities		847			5,198
Net cash provided by operating activities		4,936			5,201
Investing Activities
Purchases of available-for-sale securities		(70,268	)		(72,467	)
Proceeds from sales of available-for-sale securities		23,443			0
Proceeds from maturities of available-for-sale securities		43,347			68,901
Net change in loans		5,278			3,028
Purchase of Federal Reserve Bank stock		(4	)		(174	)
Net cash from acquisition, including $9,493 of proceeds from FDIC		0			25,821
Proceeds from sale of insurance agency		0			2,276
Purchase of premises and equipment		(276	)		(1,058	)
Net cash provided by investing activities		1,520			26,327
Financing Activities
Net change in:
Deposits		(3,643	)		(30,012	)
Short-term borrowings		(11,742	)		(28	)
Cash dividends		(2,054	)		(1,967	)
Net cash used in financing activities		(17,439	)		(32,007	)
Decrease in Cash and Cash Equivalents		(10,983	)		(479	)
Cash and Cash Equivalents, Beginning of Year		81,751			53,599
Cash and Cash Equivalents, End of Period	$	70,768		$	53,120
Supplemental Cash Flows Information
Interest paid	$	2,760		$	3,725
Income taxes paid (net of refunds)		320			20
Assets acquired in business combination		0			72,313
Liabilities assumed in business combination		0			67,316

See Notes to Condensed Consolidated Financial Statements

5

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. Immaterial changes in financial condition and results of operations may not be discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The condensed consolidated balance sheet as of December 31, 2010 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 June 30, 2011 and December 31, 2010, and the results of its operations and cash flows for the three- and six-month periods ended June 30, 2011 and 2010. 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, 2010 filed with the Securities and Exchange Commission.

Note 2: Securities

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

Available-for-Sale Securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Approximate Fair Value
June 30, 2011:
U.S. government sponsored entities	$	27,171	$	302	$	(27	)	$	27,446
Mortgage-backed securities:
U.S. Government sponsored entities-residential		81,954		2,230		(30	)		84,154
Private label-residential		8,230		299		(167	)		8,362
State and political subdivisions		16,570		548		(9	)		17,109
	$	133,925	$	3,379	$	(233	)	$	137,071
December 31, 2010:
U.S. government sponsored entities	$	21,081	$	13	$	0		$	21,094
Mortgage-backed securities:
U.S. Government sponsored entities-residential		82,346		2,985		(20	)		85,311
Private label-residential		9,929		387		(154	)		10,162
State and political subdivisions		17,040		332		(84	)		17,288
	$	130,396	$	3,717	$	(258	)	$	133,855

6

The amortized cost and fair value of securities available for sale at June 30, 2011, by contractual maturity, are shown below (thousands). Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
One year or less	$	6,344	$	6,355
After one year through five years		9,504		9,708
After five years through ten years		20,681		21,129
After ten years		7,212		7,363
		43,741		44,555
Mortgage-backed securities		90,184		92,516
Totals	$	133,925	$	137,071

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $89,640,000 at June 30, 2011 and $51,867,000 at December 31, 2010.

Gross gains of $789,000 and gross losses of $10,000 resulting from sales of available-for-sale securities were realized during the first six months of 2011. Gross gains and losses are determined under the specific identification method.

The table below indicates the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2011 and December 31, 2010. (Thousands)

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
June 30, 2011
U.S. government sponsored entities	$	3,488	$	(27	)	$	0	$	0		$	3,488	$	(27	)
Mortgage-backed securities:
U.S. Government sponsored entities-residential		6,527		(30	)		0		0			6,527		(30	)
Private label-residential		988		(22	)		653		(145	)		1,641		(167	)
State & political subdivisions		1,438		(9	)		0		0			1,438		(9	)
Total Securities	$	12,441	$	(88	)	$	653	$	(145	)	$	13,094	$	(233	)
December 31, 2010
Mortgage-backed securities:
U.S. Government-sponsored entities-residential	$	4,146	$	(20	)	$	0	$	0		$	4,146	$	(20	)
Private label-residential		0		0			1,341		(154	)		1,341		(154	)
State & political subdivisions		4,111		(84	)		0		0			4,111		(84	)
Total Securities	$	8,257	$	(104	)	$	1,341	$	(154	)	$	9,598	$	(258	)

The unrealized losses outstanding 12 months or more of $145,000 at June 30, 2011 were due to one private-label collateralized mortgage obligation, which has been downgraded by three major bond rating agencies. Based on management’s review of the underlying collateral performance and estimate of projected future cash flows, The National Bank and Trust Company (the “Bank”) has recognized an other-

7

than-temporary impairment charge of $200,000 in prior periods. In the second quarter of 2011, approximately $12,000 of losses were realized on this security with total realized losses through June 30, 2011 totaling approximately $60,000. These losses were in line with prior period loss projections.

Other-than-temporary Impairment

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

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

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

• Default Rate

• Severity

• Prepayments

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

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

For those securities for which an other-than-temporary impairment was determined to have occurred as of June 30, 2011 (that is, a determination was made that the entire amortized cost bases will not likely be recovered), the following table presents the inputs used to measure the amount of the credit loss recognized in earnings. The table shows the projected weighted average default rates and loss severities for the recent-vintage private-label mortgage-backed securities portfolios at June 30, 2011.

	Default Rate			Severity
Alt-A		18.4	%		52.6	%

8

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired. The following table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.

	Accumulated Credit  Losses 2011
Credit losses on debt securities held
Beginning of year	$	(170	)
Reductions related to losses realized which were previously recognized		30
End of period	$	(140	)

Note 3: Loans

Categories of loans include (thousands):	June  30, 2011			December  31, 2010
Commercial	$	68,648		$	65,304
Agricultural		31,071			31,354
Real estate construction		2,657			5,029
Commercial real estate		175,336			177,640
Residential real estate		120,161			124,497
Consumer		10,413			10,510
Total loans		408,286			414,334
Less: Net deferred loan fees, premiums and discounts		(52	)		(44	)
Allowance for loan losses		(3,475	)		(3,714	)
Net loans	$	404,759		$	410,576

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

	Six Months Ended June 30,
	2011			2010
Balance, beginning of year	$	3,714		$	3,776
Provision for loan losses		935			960
Recoveries		207			96
Charge-offs		(1,381	)		(990	)
Balance, end of period	$	3,475		$	3,842

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes

9

the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment measurements.

The following tables provide a breakdown of the allowance for loan losses for the three months and six months ended June 30, 2011 (thousands):

Three Months Ended June 30, 2011:

	Commercial		Commercial Real Estate			Agricultural		Residential 1-4 Family			Residential Home Equity			Consumer			Total
Allowance for loan losses:
Beginning balance	$	588	$	1,943		$	152	$	478		$	227		$	118		$	3,506
Charge-offs		0		(261	)		0		(106	)		(40	)		(44	)		(451	)
Recoveries		12		8			1		1			1			12			35
Provision		201		32			1		104			13			34			385
Ending Balance	$	801	$	1,722		$	154	$	477		$	201		$	120		$	3,475

Six Months Ended June 30, 2011:

	Commercial			Commercial Real Estate			Agricultural			Residential 1-4 Family			Residential Home Equity			Consumer			Total
Allowance for loan losses:
Beginning balance	$	474		$	2,057		$	184		$	528		$	337		$	134		$	3,714
Charge-offs		(4	)		(1,089	)		0			(134	)		(43	)		(111	)		(1,381	)
Recoveries		13			133			3			6			2			50			207
Provision		318			621			(33	)		77			(95	)		47			935
Ending Balance	$	801		$	1,722		$	154		$	477		$	201		$	120		$	3,475

10

The following tables presents the balance in the allowance for loan losses and the recorded investment in financing receivables based on portfolio segment and impairment method as of June 30, 2011 and December 31, 2010 (thousands):

June 30, 2011:

	Commercial		Commercial Real Estate		Agricultural		Residential 1-4 Family		Residential Home Equity		Consumer		Total
Ending balance: Individually evaluated for impairment	$	390	$	0	$	0	$	0	$	0	$	0	$	390
Collectively evaluated for impairment	$	365	$	1,642	$	154	$	476	$	201	$	120	$	2,958
Loans acquired with deteriorated credit quality	$	46	$	80	$	0	$	1	$	0	$	0	$	127
Financing Receivables
Ending balance	$	68,648	$	177,715	$	31,071	$	88,601	$	31,838	$	10,413	$	408,286
Ending balance: Individually evaluated for impairment	$	1,844	$	3,584	$	0	$	1,056	$	0	$	0	$	6,484
Collectively evaluated for impairment	$	66,565	$	169,897	$	31,071	$	87,445	$	31,838	$	10,413	$	397,229
Loans acquired with deteriorated credit quality	$	239	$	4,234	$	0	$	100	$	0	$	0	$	4,573

11

December 31, 2010:

	Commercial		Commercial Real Estate		Agricultural		Residential 1-4 Family		Residential Home Equity		Consumer		Total
Ending balance: Individually evaluated for impairment	$	37	$	430	$	0	$	0	$	0	$	0	$	467
Collectively evaluated for impairment	$	391	$	1,479	$	184	$	528	$	337	$	134	$	3,053
Loans acquired with deteriorated credit quality	$	46	$	148	$	0	$	0	$	0	$	0	$	194
Financing Receivables
Ending balance	$	65,304	$	182,372	$	31,354	$	91,901	$	32,893	$	10,510	$	414,334
Ending balance: Individually evaluated for impairment	$	696	$	4,420	$	0	$	1,061	$	0	$	0	$	6,177
Collectively evaluated for impairment	$	64,342	$	173,547	$	31,354	$	90,740	$	32,893	$	10,510	$	403,386
Loans acquired with deteriorated credit quality	$	266	$	4,405	$	0	$	100	$	0	$	0	$	4,771

12

The following table outlines the Company’s corporate and consumer credit exposure by category and standard regulatory classification as of June 30, 2011 and December 31, 2010 (thousands):

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category:

	Commercial				Commercial Real Estate					Agricultural
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010			June 30, 2011		December 31, 2010
Pass	$	58,353	$	53,758	$	153,377	$	153,490		$	30,793	$	30,108
Other Assets Especially Mentioned		2,192		5,722		8,239		10,312			2		962
Substandard		7,957		5,678		15,956		18,529			276		284
Doubtful		146		146		143		61			0		0
Loss		0		0		0		0			0		0
Non-rated		0		0		0		(21	)		0		0
Total	$	68,648	$	65,304	$	177,715	$	182,372		$	31,071	$	31,354

Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Residential Real Estate
	1 to 4 Family				Home equity				Consumer
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Grade:
Pass	$	84,909	$	88,582	$	31,607	$	32,761	$	10,210	$	10,304
Substandard		3,692		3,319		231		132		203		206
Total	$	88,601	$	91,901	$	31,838	$	32,893	$	10,413	$	10,510

For purposes of monitoring the credit quality and risk characteristics of its commercial portfolio segment, the Company disaggregates the segment into the following classes: commercial and industrial, commercial real estate and agricultural.

To facilitate the monitoring of credit quality within the commercial portfolio segment, and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses for the commercial portfolio segment, the Company utilizes the following categories of credit grades: pass, other assets especially mentioned, substandard, doubtful or loss. The five categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

Pass ratings, which are assigned to those borrowers that do not have identified potential or well defined weaknesses and for which there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis.

The Company assigns an Other Assets Especially Mentioned rating to loans that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or the Company’s credit position.

13

The Company assigns a substandard rating to loans that are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. Substandard loans have well defined weaknesses or weaknesses that could jeopardize the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies noted are not addressed and corrected.

The Company assigns a doubtful rating to loans and leases that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans. Loans rated as loss are loans with advances in excess of calculated current fair value which are considered uncollectible.

For purposes of monitoring the credit quality and risk characteristics of its consumer portfolio segment, the Company disaggregates the segment into the following classes: residential mortgage, home equity and other consumer. The Company considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans. Consumer loans that have principal and interest payments that have become past due ninety days are classified as substandard unless such loans are both well secured and in the process of collection. All other loans and leases are classified as pass. Well secured loans are collateralized by perfected security interests in real and/or personal property for which the Company estimates proceeds from sale would be sufficient to recover the outstanding principal and accrued interest balance of the loan and pay all costs to sell the collateral. The Company considers a loan in the process of collection if collection efforts or legal action is proceeding and the Company expects to collect funds sufficient to bring the loan current or recover the entire outstanding principal and accrued interest balance.

Generally, all classes of loans are placed on non-accrual status at ninety days past due and interest is considered a loss, unless the loan is well-secured and in the process of collection. Past due status is based on the contractual terms of the loan. Payments made while a loan is on nonaccrual are treated as reductions of principal. Typically, loans are not returned to accrual status until all loan payments have been current for at least six months. The following tables outline the Company’s past due and nonaccrual loans as of June 30, 2011 and December 31, 2010:

14

June 30, 2011:

	30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Financing Receivables		90 Days and Accruing		Nonaccrual
Commercial	$	466	$	458	$	2,941	$	3,865	$	64,783	$	68,648	$	1,034	$	2,327
Commercial real estate		824		356		3,770		4,950		172,765		177,715		0		5,760
Agricultural		0		0		43		43		31,028		31,071		0		43
Residential:
1-4 Family		1,169		177		1,064		2,410		86,191		88,601		0		2,905
Home equity		155		76		159		390		31,448		31,838		15		214
Consumer		23		18		183		224		10,189		10,413		0		203
Total	$	2,637	$	1,085	$	8,160	$	11,882	$	396,404	$	408,286	$	1,049	$	11,452

December 31, 2010:

	30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Financing Receivables		90 Days and Accruing		Nonaccrual
Commercial	$	526	$	380	$	1,807	$	2,713	$	62,591	$	65,304	$	1,037	$	1,025
Commercial real estate		1,145		282		4,158		5,585		176,787		182,372		0		5,725
Agricultural		36		0		0		36		31,318		31,354		0		43
Residential:
1-4 Family		835		761		1,028		2,624		89,277		91,901		0		2,365
Home equity		54		41		68		163		32,730		32,893		0		126
Consumer		41		1		148		190		10,320		10,510		0		206
Total	$	2,650	$	1,465	$	7,196	$	11,311	$	403,023	$	414,334	$	1,037	$	9,490

15

The below table represents loans considered impaired at June 30, 2011 and December 31, 2010 and the related allowance for loan losses. Interest income recognized is not materially different than interest income that would have been recognized on a cash basis (thousands):

June 30, 2011:

							Average Recorded Investment				Interest Income Recognized
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Three months ended June  30, 2011		Six months ended June 30, 2011		Three months ended June  30, 2011		Six months ended June 30, 2011
With no related allowance recorded:
Commercial	$	377	$	400	$	0	$	1,025	$	920	$	0	$	0
Commercial real estate		5,364		5473		0		3,970		3,706		0		17
Agricultural		0		0		0		0		0		0		0
Residential-1 to 4 Family		1,156		1,157		0		1,158		1,160		0		0
Residential-Home equity		0		0		0		0		0		0		0
Consumer		0		0		0		0		0		0		0
With an allowance recorded:
Commercial	$	1,706	$	1,737	$	435	$	1,152	$	832	$	0	$	0
Commercial real estate		313		376		40		1,229		1,713		0		0
Agricultural		0		0		0		0		0		0		0
Residential-1 to 4 Family		0		0		0		0		0		0		0
Residential-Home equity		0		0		0		0		0		0		0
Consumer
Total:
Commercial	$	2,083	$	2,137	$	435	$	2,177	$	1,752	$	0	$	0
Commercial real estate		5,677		5,849		40		5,199		5,419		0		17
Agricultural		0		0		0		0		0		0		0
Residential -1 to 4 Family		1,156		1,157		0		1,158		1,160		0		0
Residential -Home equity		0		0		0		0		0		0		0
Consumer		0		0		0		0		0		0		0

16

December 31, 2010:	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	711	$	734	$	0	$	814	$	19
Commercial real estate		3,178		3,204		0		7,638		526
Agricultural		0		0		0		33		0
Residential-1 to 4 Family		1,163		1,165		0		411		38
Residential-Home equity		0		0		0		0		0
Consumer		0		0		0		0		0
With an allowance recorded:
Commercial	$	191	$	222	$	82	$	0	$	0
Commercial real estate		2,681		2,752		560		0		0
Agricultural		0		0		0		0		0
Residential-1 to 4 Family		0		0		0		0		0
Residential-Home equity		0		0		0		0		0
Consumer
Total:
Commercial	$	902	$	956	$	82	$	814	$	19
Commercial real estate		5,859		5,956		560		7,638		526
Agricultural		0		0		0		33		0
Residential-1 to 4 Family		1,163		1,165		0		411		38
Residential-Home equity		0		0		0		0		0
Consumer		0		0		0		0		0

The Company acquired loans in the acquisition of the business of American National Bank on March 19, 2010 and the acquisition by merger of The Community National Bank on December 31, 2009. At the time of each acquisition, there was evidence of deterioration of credit quality since origination for which it was probable, at acquisition, all contractually required payments would not be collected. Accounting Codification Standard (“ASC”) 310-30 requires that acquired credit-impaired loans be recorded at fair value and prohibits carryover of the related allowance for loan losses. Loans within the scope of this accounting standard were initially recorded by the Company at fair value. The process of estimating fair value involves estimating the principal and interest cash flows expected to be collected on the credit impaired loans and discounting those cash flows at a market rate of interest. Under this accounting standard, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan in situations where there is reasonable expectation about the timing and amount of cash flows collected. The difference between contractually required payments at acquisition and the cash flows expected at acquisition to be collected, considering the impact of prepayments, is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a charge to the provision for loan losses resulting in an increase to the allowance for loan losses. Subsequent increases in cash flows result in reversal of non-accretable discount (or allowance for loan losses to the extent any had been recorded) with a positive impact on interest income. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower, foreclosure, or troubled debt restructurings result in removal of the loan

17

from the impaired loan portfolio at its carrying amount. Loans subject to this accounting standard are written down to an amount estimated to be collectible. Accordingly, such loans are no longer classified as nonaccrual even though they may be contractually past due. We expect to fully collect the new carrying values of such loans. If a loan, or a pool of loans, deteriorates post acquisition, a provision for loan losses is recorded. Acquired loans subject to this accounting standard are also excluded from the disclosure of loans 90 days or more past due and still accruing interest; however, the Bank’s regulatory reporting instructions require these loans to be reported as past due based upon the borrower’s contractual obligations. Even though substantially all of them are 90 days or more contractually past due, they are considered to be accruing because the interest income on these loans relates to the establishment of an accretable yield.

The carrying amount of those loans is included in the balance sheet amounts of loans receivable at June 30, 2011. The amounts are as follows (thousands):

Commercial	$	5,972
Consumer		112
Outstanding balance	$	6,084
Carrying amount, net of discount of $609	$	4,573
Accretable yield	$	133

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

Balance at December 31, 2010	$	279
Additions		0
Accretion		(131	)
Disposals		(15	)
Balance at June 30, 2011	$	133

Note 4: Long-Term Debt

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

	June 30, 2011		December 31, 2010
Federal Home Loan Bank Advances	$	5,000	$	5,000
Junior subordinated debentures		10,310		10,310
Total	$	15,310	$	15,310

On June 25, 2007, NB&T Statutory Trust III (“Trust III”), a wholly owned subsidiary of the Company, 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 Company 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 Company

18

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 Company 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 Company. 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 Company has the option to defer distributions on the Capital Securities from time to time for a period not to exceed 20 consecutive semi-annual periods.

As of June 30, 2011 and December 31, 2010, the outstanding principal balance of the Capital Securities was $10,000,000. As required by the Consolidation Topic of the Codification, the Company accounts for its investment in the trust as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense.

Note 5: Commitments

Outstanding commitments to extend credit as of June 30, 2011 totaled $70,543,000. Standby letters of credit as of June 30, 2011 totaled $2,467,000.

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 Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Numerator:
Net income	$	1,049	$	1,270	$	2,054	$	6,874
Denominator:
Weighted-average common shares outstanding (basic)		3,424,162		3,396,380		3,424,162		3,396,380
Effect of stock options		12,101		1,038		19,275		118
Weighted-average common shares outstanding (diluted)		3,436,263		3,397,418		3,443,437		3,396,498
Earnings per share:
Basic	$	.31	$	.37	$	.60	$	2.02
Diluted	$	.31	$	.37	$	.60	$	2.02

For the three and six months ended June 30, 2011 and June 30, 2010, stock options covering 118,700 and 248,000 shares of common stock, respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair market

19

Note 7: Comprehensive Income

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011			2010
Unrealized gains on securities available for sale	$	1,043	$	696	$	466		$	1,692
Net unrealized gain on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income		0		0		0			7
Reclassification for amount realized in income		10		0		(779	)		50
Other comprehensive income (loss), before tax effect		1,053		696		(313	)		1,749
Tax expense (benefit)		358		238		(106	)		595
Other comprehensive income (loss)	$	695	$	458	$	(207	)	$	1,154

Total comprehensive income was as follows (thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011			2010
Net Income	$	1,049	$	1,270	$	2,054		$	6,874
Other Comprehensive Income (Loss)		695		458		(207	)		1,154
Total Comprehensive Income	$	1,744	$	1,728	$	1,847		$	8,028

Note 8: Accounting for Uncertainty in Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal and Ohio jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2008.

The Income Taxes Topic of the Codification prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of June 30, 2011, the Company did not identify any uncertain tax positions that it believes should be recognized in the financial statements.

20

Note 9: Fair Value of Assets and Liabilities

ASC Topic 820,Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

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

Available-for-Sale Securities

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

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2011 and December 31, 2010 (thousands):

	Fair Value Measurements at Report Date Using
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant  Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2011:
Available-for-sale securities	$	137,071	$	0	$	137,071	$	0
December 31, 2010:
Available-for-sale securities	$	133,855	$	0	$	133,855	$	0

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

Impaired Loans (Collateral Dependent)

At June 30, 2011 and December 31, 2010, collateral-dependent impaired loans consisted primarily of loans secured by commercial real estate. Management has determined fair value measurements on impaired

21

loans primarily through evaluations of appraisals performed. Management has determined fair value measurements based on management’s assessment of the collectability of current receivables and research of current equipment values.

Foreclosed assets

Real estate acquired through, or in lieu of, loan foreclosure is held for sale and initially recorded at fair value (based on current appraised value) at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Management has determined fair value measurements on real estate owned primarily through evaluations of appraisals performed.

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2011 and December 31, 2010:

	Fair Value Measurements at Report Date Using
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant  Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2011:
Impaired loans	$	741	$	0	$	0	$	741
Foreclosed assets, net		2,023		0		0		2,023
December 31, 2010:
Impaired loans	$	2,792	$	0	$	0	$	2,792
Foreclosed assets, net		72		0		0		72

The following table presents estimated fair values of the Company’s financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate (thousands):

	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	70,768	$	70,768	$	81,751	$	81,751
Available-for-sale securities		137,071		137,071		133,855		133,855
Loans, including loans held for sale, net		405,042		419,172		411,264		418,683
Stock in FRB and FHLB		10,025		10,025		10,021		10,021
Earned income receivable		2,899		2,899		2,909		2,909
FDIC loss share receivable		1,979		1,979		2,078		2,078
Financial liabilities
Deposits		580,730		584,048		584,373		588,424
Short-term borrowings		1,037		1,037		12,779		12,779
Long-term debt		15,310		21,778		15,310		21,746
Interest payable		248		248		352		352

22

For purposes of the above disclosures of estimated fair value, the following assumptions were used as of June 30, 2011 and December 31, 2010. The estimated fair value for cash and cash equivalents, FRB and FHLB stock, FDIC loss share receivable, earned income receivable, demand deposits, savings accounts, NOW accounts, certain money market deposits, short-term borrowings, and interest payable is considered to approximate cost. The estimated fair value for loans receivable, including loans held for sale, net, is based on estimates of the rate the Bank would charge for similar loans at June 30, 2011 and December 31, 2010 applied for the time period until the loans are assumed to reprice or be paid. The estimated fair value for fixed-maturity time deposits as well as long-term debt is based on estimates of the rate the Bank would pay on such liabilities at June 30, 2011 and December 31, 2010, applied for the time period until maturity. The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. At June 30, 2011 and December 31, 2010, the fair value of commitments was not material.

Note 10: Effect of Recent Accounting Standards

In July 2010, the FASB issued an update to the Financial Accounting Standards Codification (ASU No. 2010-20), which requires companies to provide more information in their financial statement disclosures about the credit quality of their loans and the credit reserves held against them. The additional disclosures include aging of past-due loans and credit quality indicators. For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. As of June 30, 2011, these new disclosures are included in Note 3 of the financial statements.

The Financial Accounting Standards Board finalized Accounting Standards Update No. 2011-02 in April 2011 to give banks new criteria for determining whether a particular loan modification represents a troubled debt restructuring for accounting purposes. The determination is significant because it signals when a bank should also record an impairment loss associated with the same loan. The new guidance is effective for quarterly and annual reports for periods beginning on or after June 15, 2011 and should be applied retroactively to the beginning of the annual period of adoption. Early application is permitted, but the Company has not elected early application. The Company is currently in the process of evaluating the impact of adopting the amended guidance on the Company’s Condensed Consolidated Financial Statements.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, which contains amendments explaining further how to measure fair value. The amendments in this Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, liability or a financial instrument. The amendments also require disclosures about quantitative information about the unobservable inputs under in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The amendments are to be applied prospectively and are effective for periods beginning after December 15, 2011. The Comapny is currently in the process of evaluating the impact of adopting the amended guidance on the Company’s Condensed Consolidated Financial Statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, which will increase the prominence of other comprehensive income (“OCI”) in the financial statements, no longer allowing OCI to be presented in the Statement of Changes in Equity. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, but the Company has not elected early application. This new disclosure will be provided, starting in 2012.

23

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

NB&T Financial Group, Inc.

Wilmington, Ohio

We have reviewed the accompanying condensed consolidated balance sheet of NB&T Financial Group, Inc. as of June 30, 2011 and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2011 and 2010 and cash flows for the six-month periods ended June 30, 2011 and 2010. 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, 2010 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 15, 2011, 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, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ BKD, LLP

Cincinnati, Ohio

August 11, 2011

24

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net income for the second quarter of 2011 was $1.0 million, or $.31 per share, compared to net income for the second quarter of 2010 of $1.3 million, or $.37 per share. Net income for the first six months of 2011 was $2.1 million, or $.60 per share, compared to $6.9 million, or $2.02 per share for the same period in 2010. Net income for 2010 was higher largely due to a bargain purchase pre-tax gain of approximately $7.6 million in the Federal Deposit Insurance Corporation (“FDIC”) assisted acquisition of certain of the assets and liabilities of American National Bank (“ANB”). In addition, the Company realized a pre-tax gain of $1.4 million on the sale of its insurance agency in January 2010.

Net Interest Income

Net interest income was $6.1 million for the second quarter of 2011, compared to $6.5 million for the second quarter of 2010. Net interest margin decreased to 3.95% for the second quarter of 2011, compared to 4.03% for the same quarter last year. The net interest margin decreased primarily due to a decline in higher-yielding loans. Average loans outstanding for the second quarter of 2011, which had an average rate of 6.11%, decreased to $408.2 million from $433.3 million from the same quarter last year. Due to the increased liquidity from lower loan demand, the Company was able to lower rates on interest-bearing deposits and reduce higher cost Federal Home Loan Bank debt by $24.5 million, resulting in a decrease in the cost of interest-bearing liabilities from 1.42% for the second quarter of 2010 to 1.00% for the second quarter of 2011. Net interest margin for the first six months of 2011 was 3.90%, compared to 3.91% for the first six months of 2010.

Provision for Loan Losses

The provision for loan losses for the second quarter of 2011 was $385,000, compared to $525,000 in the same quarter last year. Net charge-offs were $416,000 in the second quarter of 2011, compared to $326,000 in the second quarter of 2010. The provision for loan losses was $935,000 for the first six months of 2011, compared to $960,000 for the first six months of 2010. Net charge-offs for the first six months of 2011 were $1.2 million, compared to $894,000 for the same period last year. Charge-offs in 2011 increased primarily due to the write-down of one commercial real estate loan as a result of a recently updated collateral valuation, for which specific reserves of approximately $200,000 had been established in the prior year. The provision for loan losses is based on management’s evaluation of the loan loss allowance considering specific loan reserves, general reserves related to charge-off experience and current economic conditions. Non-performing loans increased to $13.0 million at June 30, 2011, compared to $7.6 million at June 30, 2010. The year-over-year increase in non-performing loans is due primarily to three southwest Ohio commercial relationships, each between $1.0 million and $1.2 million and secured by commercial real estate or all business assets. No specific allocation was deemed necessary on these three loan relationships. The remaining increase is primarily due to approximately $1.9 million of ANB acquired loans, which are covered under the Company’s FDIC loss share agreement with the FDIC sharing in 80% of any future losses associated with those loans.

Non-interest Income

Total non-interest income was $1.9 million for the second quarter of 2011, compared to $2.0 million for the second quarter of 2010. The decline in non-interest income is largely due to reduced NSF fee income. Total non-interest income for the first half of 2011 was $4.5 million, compared to $12.6 million for the first half of 2010. In the first half of 2010, the Company had a bargain purchase pre-tax gain of approximately $7.6 million in the FDIC assisted acquisition of certain of the assets and liabilities of ANB. In addition, the Company realized a pre-tax gain of $1.4 million on the sale of its insurance agency in January 2010. In

25

the first six months of 2011, the Company sold approximately $23.0 million in securities and realized gains of $779,000.

Non-interest Expense

Total non-interest expense was $6.1 million for the second quarter of 2011, compared to $6.3 million for the second quarter of 2010. For the first six months of 2011, non-interest expense was $12.7 million, compared to $13.8 million for the first half of 2010. Non-interest expenses for the first half of 2010 were significantly higher due to increased bonus plan expense and acquisition related expenses.

Income Taxes

The provision for income taxes for the second quarter of 2011 was $396,000, or 27.4%, compared to $429,000, or 25.3%, for the second quarter of 2010. The provision for income taxes for the first half of 2011 was $743,000, or 26.6%, compared to $3.1 million, or 31.1%, for the first half of 2010. The higher effective tax rate for the first half of 2010 was primarily due to the increase in taxable income at the full 34% marginal rate.

Financial Condition

The changes that have occurred in the Company’s financial condition during 2011 are as follows (in thousands):

	June 30,		December 31,		2011 Change
	2011		2010		Amount			Percent
Total assets	$	675,028	$	690,618	$	(15,590	)		(2.3	)
Interest-earning deposits		58,531		72,678		(14,147	)		(19.5	)
Federal funds sold		406		380		26			6.9
Loans, net*		405,042		411,264		(6,222	)		(1.5	)
Securities		137,071		133,855		3,216			2.4
Demand deposits		82,133		105,187		(23,054	)		(21.9	)
Savings, NOW, MMDA deposits		331,535		292,773		38,762			13.2
CD’s $100,000 and over		41,750		48,217		(6,467	)		(13.4	)
Other time deposits		125,312		138,196		(12,884	)		(9.3	)
Total deposits		580,730		584,373		(3,643	)		(.6	)
Short-term borrowings		1,037		12,779		(11,742	)		(91.9	)
Long-term borrowings		15,310		15,310		0			0
Stockholders equity		70,903		71,019		(116	)		(.2	)

* Includes loans held for sale

At June 30, 2011, total assets were $675.0 million, a decrease of $15.6 million from December 31, 2010. The decrease is primarily attributable to the use of interest-earning deposits to pay off $12.0 million in maturing Federal Home Loan Bank debt in January 2011. In addition, net loans declined $5.8 million in the first half of 2011 due to decreased loan demand and increased competitive factors.

Average total assets declined $29.3 million, or 4.2%, to $674.8 million from the second quarter of 2010. Average total gross loans decreased to $408.2 million, a decrease of $25.1 million from the same quarter last year. The decline is largely the result of decreased loan demand and increased sales of fixed-rate residential mortgage loans into the secondary market. Commercial loan balances declined $5.1 million from the same quarter last year, while home equity and personal loans also declined $2.0 million and $5.0 million, respectively. Residential mortgage loans declined $13.0 million in the second quarter of 2011, compared to the same quarter last year, with the bank’s serviced portfolio for sold mortgage loans increasing $14.6 million. Average securities balances declined from the same quarter last year to $128.2

26

million, a decrease of $20.3 million, while average interest-earning deposits and federal funds sold increased $18.8 million.

Average total deposit liabilities decreased $4.4 million for the second quarter of 2011 to $582.4 million, compared to an average of $586.8 million for the same quarter last year. As loan demand declined, the Company lowered rates on interest-bearing deposits in order to lower its cost of funds, resulting in a small decline in deposit balances. Average borrowings also declined to $16.1 million in the second quarter of 2011, compared to $40.3 million in the same quarter last year due to the payoff of $24.5 million in FHLB debt in December 2010 and January 2011.

Allowance for Loan Losses

The following table is a summary of the Company’s loan loss experience for the periods ended June 30, 2011 and 2010 (dollars in thousands):

	Three Months Ended June  30						Six Months Ended June 30
	2011			2010			2011			2010
Balance at beginning of period	$	3,506		$	3,644		$	3,714		$	3,776
Charge-offs:
Commercial and industrial		0			0			(4	)		0
Commercial real estate		(261	)		(110	)		(1,089	)		(531	)
Real estate construction		0			0			0
Agricultural		0			0			0			0
Residential real estate		(146	)		(221	)		(177	)		(355	)
Consumer		(44	)		(51	)		(111	)		(104	)
Total charge-offs		(451	)		(382	)		(1,381	)		(990	)
Recoveries:
Commercial and industrial		12			1			13			2
Commercial real estate		8			13			133			19
Real estate construction		0			2			0			2
Agricultural		1			4			3			5
Residential real estate		2			9			8			9
Consumer		12			26			50			59
Total recoveries		35			55			207			96
Net charge-offs		(416	)		(327	)		(1,174	)		(894	)
Provision for loan losses		385			525			935			960
Balance at end of period	$	3,475		$	3,842		$	3,475		$	3,842

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

	June 30, 2011		December 31, 2010		June 30, 2010
Loans accounted for on non-accrual basis	$	11,452	$	9,490	$	7,587
Accruing loans which are past due 90 days		1,049		1,037		1
Renegotiated loans		452		457		0
Other real estate owned		4,175		4,254		3,894
Total non-performing assets	$	17,128	$	15,238	$	11,482

27

Ratios:
Allowance to total loans	0.85	%	0.89	%	0.88	%
Net charge-offs to average loans (annualized)	0.58	%	0.40	%	0.58	%
Non-performing assets to total loans and other real estate owned	4.15	%	3.63	%	2.62	%

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

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

During the first half of 2011, the Company charged off approximately $591,000 on one commercial real estate loan. The property securing the loan was obtained in foreclosure, and the Company is in the process of selling the property to a third party. As of June 30, 2011, there was $8.1 million in small business relationships on nonaccrual. Approximately $3.0 million of this amount consisted of three relationships, all secured by commercial real estate or business assets. Several other non-performing commercial loans totaling approximately $1.3 million were acquired from ANB, which are covered under the Company’s FDIC loss share agreement with the FDIC sharing in 80% of any future losses on these loans. Non–accrual residential real estate loans totaled $2,905,000 with the largest balance being $300,000. In addition, approximately $600,000 were acquired from ANB and are covered under the FDIC loss share agreement. Non-accrual consumer loans totaled $203,000, and home equity credit loans totaled $214,000.

Liquidity and Capital Resources

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as Company cash needs, are met. The Company manages liquidity on both the asset and liability sides of the balance sheet. The loan-to-deposit ratio at June 30, 2011 was 70.3%, compared to 71.0% at December 31, 2010 and 71.7% at the same date in 2010. Loans to total assets were 60.5% at the end of the second quarter of 2011, compared to 60.1% at December 31, 2010 and 59.8% at the same time last year. At June 30, 2011, the Company had $58.5 million in interest-earning deposits. The Company has $137.1 million in available-for-sale securities that are readily marketable. Approximately 65.4% 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 92.8% core deposits, makes the Company less susceptible to large fluctuations in funding needs. The Company has the ability to borrow short-term funds from two correspondent banks and the Federal Reserve Bank. 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

28

ratios). At June 30, 2011 and December 31, 2010, the Company had the following risk-based capital ratios, which are well above the regulatory minimum requirements (dollar amounts in thousands):

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2011
Total Risk-Based Capital (to Risk-Weighted Assets)
Consolidated	$	78,416		18.81	%	$	33,343		8.0	%		N/A		N/A
Bank		71,806		17.24			33,316		8.0		$	41,645		10.0	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		74,941		17.98			16,671		4.0			N/A		N/A
Bank		68,331		16.41			16,658		4.0			24,987		6.0
Tier I Capital (to Average Assets)
Consolidated		74,941		11.17			26,836		4.0			N/A		N/A
Bank		68,331		10.22			26,751		4.0			33,438		5.0
As of December 31, 2010
Total Risk-Based Capital (to Risk-Weighted Assets)
Consolidated	$	78,385		18.36	%	$	34,161		8.0	%		N/A		N/A
Bank		69,514		16.31			34,099		8.0		$	42,623		10.0	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		74,671		17.49			17,081		4.0			N/A		N/A
Bank		65,800		15.44			17,049		4.0			25,574		6.0
Tier I Capital (to Average Assets)
Consolidated		74,671		10.65			28,033		4.0			N/A		N/A
Bank		65,800		9.45			27,846		4.0			34,807		5.0

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, 2010. 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.

29

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

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

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

Fair Value of Securities - The Company uses the Fair Value Measurements prescribed under the FASB Accounting Standards Codification to value its securities. The ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The ASC also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

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

30

Goodwill and Other Intangibles- The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by the “Intangibles – Goodwill & Other” topic of the FASB Accounting Standards Codification. Goodwill is subject, at a minimum, to annual tests for impairment. Testing includes evaluating the current market price of the stock versus book value, the current economic value of equity versus current book value, and recent market sales of financial institutions. Based on the review of all three factors, management has concluded goodwill is not impaired. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

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

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

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

Simulation models are performed for 100, 200, 300 and 400 basis point increases ramped up over a two year period and also for immediate rate shocks. Due to the low interest rate environment, the down rate changes were not modeled. These rate changes are modeled using both projected dynamic balance sheets and a flat static balance sheet over a two-year period. The results of these simulation models are compared with the stable rate simulation. The model includes assumptions as to repricing and expected prepayments, anticipated calls, and expected decay rates of transaction accounts under the different rate scenarios. The results of these simulations include changes in both net interest income and market value of equity. ALCO guidelines that measure interest rate risk by the percent of change from stable rates, and capital adequacy, have been established, and as the table below indicates at June 30, 2011, the Bank was within the guidelines established by the Board for net interest income changes and economic value of equity changes for increasing rate changes of 100, 200, 300 and 400 basis points.

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

31

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.

	Net Interest Income Change						Economic Value of  Equity Change
Rate Ramp	6/30/11			ALCO Guideline			6/30/11			ALCO Guideline
+400		2.94	%		+20	%		17.7	%		+30	%
+300		1.93			+15	%		15.2			+20
+200		.95			+10			12.1			+15
+100		.20			+5			7.5			+10

Item 4 – Controls and Procedures

(a) The Company’s principal executive officer and principal financial officer have concluded, based upon their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 12a-15e under the Securities Exchange Act of 1934) as of June 30, 2011, that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) During the quarter ended June 30, 2011, 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.

32

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

Not applicable

Item 1A – Risk Factors

For a discussion of the Company’ risk factors, please see Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 15, 2011, and available at www.sec.gov. These risk factors could materially affect the Company’s business, financial condition or future results. The risk factors described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that management currently deems to be immaterial also may adversely affect the Company’s business, financial condition and/or operating results. Moreover, the Company undertakes no obligation and disclaims any intention to publish revised information or updates to forward-looking statements contained in such risk factors or in any other statement made at any time by any director, officer, employee or other representative of the Company unless and until any such revisions or updates are expressly required to be disclosed by applicable securities laws or regulations.

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

(a) Not applicable

(b) Not applicable

(c) Not applicable

Item 3 – Defaults Upon Senior Securities

Not applicable

Item 4 – Reserved

Item 5 - Other Information

Not applicable

Item 6 – Exhibits

Exhibit Number	Index to Exhibits
3.1	Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.
3.2	Amended and Restated Code of Regulations of NB&T Financial Group, Inc.
4	Agreement to furnish instruments and agreements defining rights of holders of long-term debt
15	Accountants’ acknowledgement
31.1	Certification by CEO.
31.2	Certification by CFO.
32.1	Certification by CEO Pursuant to 18 U.S.C. Section 1350.
32.2	Certification by CFO Pursuant to 18 U.S.C. Section 1350.
101*	The following materials from NB&T Financial Group, Inc.’s, Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010; (ii) the Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2011 and 2010 (unaudited); (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited); and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text (furnished herewith). *As provided in Rule 406T of SEC Regulation S-T, the Interactive Data Files are furnished and not deemed filed or part of a Registration Statement or prospectus for purposes of Sections 11 and 12 of the Securities Exchange Act of 1933, as amended, and are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

33

SIGNATURES

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

	NB&T FINANCIAL GROUP, INC.
Date: August 11, 2011	/s/ Craig F. Fortin
	Craig F. Fortin
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)

34

Index to Exhibits

Exhibit Number	Description	Location
3.1	Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.	Incorporated by reference to registrant’s Definitive Proxy Statement filed on March 21, 2003, Exhibit A (SEC File No. 000-23134)
3.2	Amended and Restated Code of Regulations of NB&T Financial Group, Inc.	Incorporated by reference to registrant’s Definitive Proxy Statement filed on March 21, 2003, Exhibit B (SEC File No. 000-23134)
4	Agreement to furnish instruments and agreements defining rights of holders of long-term debt	Included herewith
15	Accountants’ acknowledgement.	Included herewith
31.1	Certification by CEO.	Included herewith
31.2	Certification by CFO.	Included herewith
32.1	Certification by CEO Pursuant to 18 U.S.C Section 1350.	Included herewith
32.2	Certification by CFO Pursuant to 18 U.S.C. Section 1350.	Included herewith
101*	The following materials from NB&T Financial Group, Inc.’s, Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010; (ii) the Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2011 and 2010 (unaudited); (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited); and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text (furnished herewith). *As provided in Rule 406T of SEC Regulation S-T, the Interactive Data Files are furnished and not deemed filed or part of a Registration Statement or prospectus for purposes of Sections 11 and 12 of the Securities Exchange Act of 1933, as amended, and are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.	Included herewith

35