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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

For the transition period from/to

NB&T FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

48 N. South Street, Wilmington, Ohio 45177

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number: (513) 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 is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of April 30, 2004, 3,223,483 common shares were issued and outstanding.

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NB&T FINANCIAL GROUP, INC.

March 31, 2004 FORM 10-Q

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PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements:

NB&T Financial Group, Inc.

Condensed Consolidated Balance Sheets

See Notes to Condensed Consolidated Financial Statements

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NB&T Financial Group, Inc.

Condensed Consolidated Statements of Income

See Notes to Condensed Consolidated Financial Statements

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NB&T Financial Group, Inc.

Condensed Consolidated Statements of Cash Flows

See Notes to Condensed Consolidated Financial Statements

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NB&T Financial Group, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

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, 2003 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 March 31, 2004, and December 31, 2003, and the results of its operations and cash flows for the three months ended March 31, 2004 and 2003. The results of operations for the interim periods reported herein are not necessarily indicative of results of operation to be expected for the entire year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report and Form 10-K for the year ended December 31, 2003 filed with the Commission.

Stock Options

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

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NB&T Financial Group, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

Note 2: Securities

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

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NB&T Financial Group, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

Note 3: Loans

Categories of loans include (thousands):

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

Impaired loans totaled $5,812,000 and $3,827,000 at March 31, 2004 and December 31, 2003, respectively. An allowance for loan losses of $1,180,000 and $1,537,000 relates to impaired loans of $3,885,000 and $3,182,000 at March 31, 2004 and December 31, 2003, respectively. At March 31, 2004 and December 31, 2003, impaired loans of $1,927,000 and $645,000 had no related allowance for loan losses.

At March 31, 2004 and December 31, 2003, accruing loans delinquent 90 days or more totaled $445,000 and $248,000, respectively. Non-accruing loans at March 31, 2004 and December 31, 2003 were $7,743,000 and $5,599,000, respectively.

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NB&T Financial Group, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

Note 4: Commitments

Outstanding commitments to extend credit as of March 31, 2004 total $45,380,000. Standby letters of credit as of March 31, 2004 total $979,000.

Note 5: Earnings Per Share

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

For the three months ended March 31, 2004, all stock options were considered in computing earnings per share. For the three months ended March 31, 2003, stock options covering 38,389 shares of common stock were not considered in computing earnings per share as their exercise prices exceeded the fair market value of the Company’s common shares.

Note 6: Trust Preferred Securities

On June 26, 2002, NB&T Statutory Trust I (“Trust I”), a wholly owned subsidiary of the Corporation, closed a pooled private offering of 8,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Corporation in exchange for junior subordinated debentures with terms similiar to the Capital Securities. The sole assets of Trust I are the junior subordinated debentures of the Corporation and payments thereunder. The junior subordinated debentures and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Corporation of the obligations of Trust I under the Capital Securities. Distributions on the Capital Securities are payable quarterly at the annual rate of 3.45% over the 3 month LIBOR and are included in interest expense in the consolidated financial statements. These securities are considered Tier I capital (with certain limitations applicable) under current regulatory guidelines.

The junior subordinated debentures are subject to mandatory redemption, in whole or in part, upon repayment of the Capital Securities at maturity or their earlier redemption at the liquidation amount. Subject to the Corporation having received prior approval of the Federal Reserve, if then required, the Capital Securities are redeemable prior to the maturity date of June 26, 2032, at the option of the Corporation; on or after June 26, 2007 at par. Upon occurrence of specific events defined within the trust indenture, the Capital Securities may also be redeemed prior to June 26, 2007 at a premium. The Corporation has the option to defer distributions on the Capital Securities from time to time for a period not to exceed 20 consecutive semi-annual periods.

As of March 31, 2004, the outstanding principal balance of the Capital Securities was $8,248,000, and as of December 31, 2003 and March 31, 2003, the outstanding principal balance was $8,000,000. In December 2003, FASB issued a revision to FIN 46 to clarify certain provisions which affected the accounting for trust preferred securities. As a result of the provisions in FIN 46, the trust was deconsolidated as of March 31, 2004, with the Company accounting for its investment in the trust as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense. The Company had always classified the trust preferred securities as debt but eliminated its common stock investment.

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NB&T Financial Group, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

Note 7: Effect of Recent Accounting Standards

In December 2003, the FASB (Financial Accounting Standards Board) revised SFAS No. 132. “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which is an amendment of FASB Statements No. 87, 88, and 106. There was no material impact of the adoption on the financial statements.

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Independent Accountants’ Report

Board of Directors

NB&T Financial Group, Inc.

Wilmington, Ohio

We have reviewed the accompanying condensed consolidated balance sheet of NB&T Financial Group, Inc. as of March 31, 2004 and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. 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 auditing standards generally accepted in the United States of America, 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2003 and the related consolidated statements of income, retained earnings and cash flows for the year then ended (not presented herein); and in our report dated February 6, 2004, 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, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

BKD, LLP

Cincinnati, Ohio

May 4, 2004

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

Forward Looking Statements

Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “may increase,” “may fluctuate,” “will likely result,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts. Results could differ materially from those expressed in such forward-looking statements due to a number of factors, including (1) the effect of economic conditions and interest rates on a national, regional or international basis; (2) competitive pressures in the retail banking, financial services, insurance and other industries; (3) the financial resources of, and products available to, competitors; (4) changes in laws and regulations, including changes in accounting standards; (5) changes in policy by regulatory agencies; and (6) changes in the securities markets. Any forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, and actual results could differ materially from those contemplated by those forward-looking statements. Many of the factors that will determine these results are beyond the Company’s ability to control or predict. The Company disclaims any duty to update any forward-looking statements, all of which are qualified by the statements in this section.

Results of Operations

Net income for the first quarter of 2004 was $1.42 million, a decrease of $216,000 or 13.2%, from the first quarter of 2003 net income of $1.64 million. Net income per share-basic was $.45 for the first quarter of 2004, compared to $.52 per share for the first quarter of 2003, a decrease of 13.5%. Return on average equity and return on average assets for the first quarter of 2004 were 10.01% and 0.85%, respectively, compared to 11.50% and 0.97% for the same period in 2003.

Net Interest Income

Net interest income was $5.17 million for the first quarter of 2004, a decrease of $465,000 compared to the same quarter last year. Interest income totaled $8.12 million for the first quarter of 2004, a decrease of 12.6% from $9.29 million during the same period last year. Although average loans outstanding increased 5.73% compared to the prior year, the effect of the decline in their average yields exceeded the effect of those gains. The yield on average loans decreased from 7.08% in the first quarter of 2003 to 6.12% in the first quarter of 2004. Average securities outstanding decreased 16.8% compared to the prior year with the tax equivalent yield on average securities decreasing from 4.58% for the first quarter last year to 4.15% for the first quarter of this year. A decrease in interest expense of 19.2% to $2.95 million during the first quarter of 2004 from $3.65 million during the same period last year offset part of the decrease in interest income. However, the interest expense on the Bank’s long-term debt has remained relatively unchanged. Average interest bearing liabilities decreased 3.3% from last year to $553.7 million, and their cost decreased from 2.58% during the first quarter of last year to 2.14% in the first quarter of this year. Tax-equivalent net interest margin decreased to 3.49% for the first quarter of this year from 3.74% for the first quarter of last year.

Provision for Loan Losses

The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable credit losses inherent in the Bank’s loan portfolio at each balance sheet date. The provision for loan losses decreased 16.7% to $450,000 during the first quarter of 2004 from $540,000 during the first quarter of last year. The lower provision for loan losses in the first quarter of 2004 is reflective of management’s evaluation of the loan portfolio and potential weaknesses of specific loans and recognition of potential losses in the prior year. The percentage of the allowance for loan losses to total loans was 1.15% at March 31, 2004, compared to 1.05% at March 31, 2003. Net charge-offs were $540,000, or 0.53% (annualized), compared to $427,000, or 0.44% (annualized), for the same period of 2003.

Non-interest Income

Non-interest income, excluding gains on sales of securities, was $2.09 million for the first quarter of 2004, relatively unchanged from the $2.06 million earned in the first quarter of 2003. Trust income increased 30.9% from the first quarter last year due to increases in the market values of managed assets. ATM network fees decreased 28.5% from the first quarter of last year as a result of fewer units in operation during the first quarter of 2004 compared to the same period in 2003 and higher revenue-sharing payouts to merchants.

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The Company realized $527,000 in securities gains in the first quarter of 2004 from the sale of $6.4 million in municipal securities. The municipal securities sold were replaced with U.S. Government agency securities as the investment portfolio was restructured to meet State of Ohio public fund pledging requirements.

Non-interest Expense

Non-interest expense was $5.59 million for the first quarter of 2004, a decrease of 2.3% from the $5.72 million for the first quarter of 2003. The decrease occurred primarily due to decreases in salaries and benefits expense. The number of full-time equivalent employees has decreased from 267 at March 31, 2003, to 248 at March 31, 2004. These decreases were partially offset by final reorganization expenses of $94,000 relating to the closing of three branches in January 2004.

Income Taxes

The provision for income taxes for the first quarter of 2004 was $329,000 compared to $349,000 for the same period in 2003. The effective tax rate for the three months ended March 31, 2004 was 18.8% compared to 17.6% for the same period in 2003.

Financial Condition

The changes that have occurred in NB&T Financial Group, Inc.’s financial condition during 2004 are as follows (in thousands):

At March 31, 2004, total assets were $672.5 million, an increase of $7.6 million from December 31, 2003. The increase is primarily attributable to an increase in the loan portfolio of $4.0 million and securities portfolio of $2.2 million. In addition, Federal Funds sold increased $4.6 million. The asset growth was funded by a combination of an increase in deposits and short-term borrowings. Deposits increased $4.8 million, primarily in the corporate money market accounts. Stockholders’ equity increased $1.3 million during the quarter to $58.0 million due to an increase in retained earnings for the quarter and an increase in other comprehensive income of $552,000 due to a change in market value of securities available for sale.

Average total assets declined 2.10% to $669.8 million from the first quarter of 2003. Average total loans increased to $410.8 million, an increase of 5.73% from the same quarter of last year. The commercial loan average grew $6.2 million, an increase of 3.5%, and the real estate loan average grew $8.7 million, an increase of 8.1%. In addition, the bank’s home equity credit line portfolio grew $5.0 million, an increase of 18.5%, and the personal loan portfolio grew $2.7 million, an increase of 3.4%. Commercial and industrial lending to small to mid-sized companies continues to be an area of growth for the Company, and the Bank has opted to retain shorter term fixed rate mortgage loans in its portfolio. In addition, the Bank has increased its marketing efforts toward home equity lines and continues to originate more indirect auto loans through its dealer network. The securities portfolio average has decreased $39.8 million from the first quarter of 2003 to $197.1 million due to accelerated prepayments and reinvestment of cash flows into loans rather than securities.

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Average total deposits decreased $24.6 million or 5.2% from the end of the first quarter of 2003 to $394.2 million. Average large certificates of deposit decreased $12.8 million or 29.6% and average small certificates of deposit decreased $18.5 million, or 11.3%, as the Company reduced its cost of funds and customers continued to seek out higher rates of return. Average short-term borrowings increased $4.5 million or 19.7% from the first quarter of 2003 due to increased balances in repurchase agreements. Average Federal Home Loan Bank borrowings increased $6.9 million, or 5.9%, due to the Company leveraging security purchases with an additional $20 million in fixed-rate, shorter-term advances in February 2003.

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Allowance for Loan Losses

The following table is a summary of the Company’s loan loss experience for the three months ended March 31, 2004 and 2003:

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

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

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

As of March 31, 2004, there were $5.8 million in twenty-seven non-accrual small business relationships. The majority of this amount consisted of three relationships, one of which is $1.0 million in the nursing home business and has been making monthly payments since January 2002 following the signing of a forbearance agreement. The second relationship amounts to $1.8 million and is currently in foreclosure. The third relationship amounts to $1.3 million and is in the hotel business.

Non–accrual residential real estate loans consisted of twenty-seven loans that total $1.6 million with the largest balance being $157,500. Non-accrual personal loans consisted of five loans that total $127,921, and non-accrual home equity credit lines consisted of eight loans totaling $246,078.

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 March 31, 2004, was 90.9%, compared to 80.6% at the same date in 2003. Loans to total assets were 61.5% at the end of the first quarter of 2004, compared to 55.5% at the same time last year. Management strives to keep this ratio below 70%. Of the total securities portfolio, 80.6% consists of available-for-sale securities that are readily marketable. Approximately 84.1% of the available-for-sale portfolio is pledged to secure public deposits, short-term and long-term borrowings and for other purposes as required by law. The balance of the available-for-sale securities could be sold if necessary for liquidity purposes. Also, a stable deposit base, consisting of 93.5% core deposits, makes the Company less susceptible to large fluctuations in funding needs. The Company has short-term borrowing lines of credit with several correspondent banks. The Company also has both short- and long-term borrowing available through the Federal Home Loan Bank (FHLB). The Company has the ability to obtain deposits in the brokered certificate of deposit market to help provide liquidity to fund loan growth.

The Federal Reserve Board has adopted risk-based capital guidelines that assign risk weightings to assets and off-balance sheet items and also define and set minimum capital requirements (risk-based capital ratios). Bank holding companies must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 8%, 4% and 3%, respectively. At March 31, 2004, NB&T Financial Group, Inc. had a total risk-based capital ratio of 14.50%, a Tier 1 risk-based capital ratio of 13.41%, and a Tier 1 leverage ratio of 8.82%.

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, 2003. 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.

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

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

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

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

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

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

Techniques used to measure interest rate risk include both interest rate gap management and simulation modeling that measures the effect of rate changes on net interest income and market value of equity under different rate scenarios. Currently, the Company is in the process of updating its simulation model as of March 31, 2004. Based on preliminary information, however, the Company does not anticipate a significant market risk change from its December 31, 2003 results.

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 March 31, 2004, that the Company’s disclosure controls and procedures were effective.

(b) During the quarter ended March 31, 2004, 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 2 – Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Not applicable

Item 3 – Defaults Upon Senior Securities

Not applicable

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

On April 27, 2004, the Annual Meeting of the shareholders of the Company was held.

The following members of the Board of Directors of the Company were re-elected for terms expiring in 2006 by the votes indicated:

Item 5 - Other Information

Not applicable

Item 6 – Exhibits and Reports on Form 8-K

(a) Exhibits:

(b) Filings on Form 8-K:

The Company filed a Form 8-K with the Securities and Exchange Commission on January 22, 2004 regarding a press release announcing the results of operations for the fourth quarter of 2004.

The Company filed a Form 8-K with the Securities and Exchange Commission on March 16, 2004 regarding a press release announcing a dividend of $.25 per share payable April 23, 2004 to shareholders of record March 31, 2004.

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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.

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