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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 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 November 4, 2004, 3,226,283 common shares were issued and outstanding.

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NB&T FINANCIAL GROUP, INC.

September 30, 2004 Form 10-Q

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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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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 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. as of September 30, 2004, and December 31, 2003, and the results of its operations for the three and nine month periods and cash flows for the nine months ended September 30, 2004 and 2003. Those adjustments consist of only normal recurring adjustments. The results of operations for the interim periods reported herein are not necessarily indicative of results of operation to be expected for the entire year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report and Form 10-K for the year ended December 31, 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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Note 2: Securities

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

Effective July 30, 2004, the Company reclassified its Held-to-Maturity Securities as Available-for-Sale. Historically, the Held-to-Maturity portfolio contained both out-of-state and Ohio municipal securities which were used to meet State of Ohio public fund pledging requirements and provide non-taxable income for the Company. As a result of a change in the Ohio Revised Code, the State of Ohio public fund pledging requirements eliminated out-of-state municipals as eligible collateral. Because of this change, approximately 77% of the Held-to-Maturity portfolio could not be used as originally intended. Management reclassified the portfolio to provide more flexibility for public fund pledging requirements, interest rate risk management and potential tax savings opportunities.

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Note 3: Loans

Categories of loans include (thousands):

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

Impaired loans totaled $4,210,000 and $3,827,000 at September 30, 2004 and December 31, 2003, respectively. An allowance for loan losses of $722,000 and $1,537,000 relates to impaired loans of $1,588,000 and $3,182,000 at September 30, 2004 and December 31, 2003, respectively. At September 30, 2004 and December 31, 2003, impaired loans of $2,622,000 and $645,000 had no related allowance for loan losses.

At September 30, 2004 and December 31, 2003, accruing loans delinquent 90 days or more totaled $38,000 and $248,000, respectively. Non-accruing loans at September 30, 2004 and December 31, 2003 were $6,012,000 and $5,599,000, respectively.

Note 4: Commitments

Outstanding commitments to extend credit as of September 30, 2004 total $45,107,000. Standby letters of credit as of September 30, 2004 total $1,024,000.

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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 and nine months ended September 30, 2004 and 2003, stock options covering 30,000 and 11,000 shares of common stock, respectively, were not considered in computing earnings per share as their exercise prices exceeded the fair marker value of the Company’s common shares.

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, the Capital Securities are redeemable at par. Upon occurrence of specific events defined within the trust indenture, the Capital Securities may also be redeemed prior to June 26, 2007 at a premium. The Corporation has the option to defer distributions on the Capital Securities from time to time for a period not to exceed 20 consecutive semi-annual periods.

As of September 30, 2004, December 31, 2003 and September 30, 2003, the outstanding principal balance of the Capital Securities 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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Report of Independent Registered Accounting Firm

Audit Committee

NB&T Financial Group, Inc.

Wilmington, Ohio

We have reviewed the accompanying condensed consolidated balance sheet of NB&T Financial Group, Inc. as of September 30, 2004 and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2004 and 2003 and cash flows for the nine-month periods ended September 30, 2004 and 2003. 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, 2003 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 5, 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.

/s/ BKD, LLP

Cincinnati, Ohio

October 27, 2004

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

Results of Operations

Net income for the third quarter of 2004 was $1.18 million, an increase of $365,000, or 45.1%, from the third quarter of 2003 net income of $810,000. Net income per share-basic was $.37 for the third quarter of 2004, compared to $.26 per share for the third quarter of 2003, an increase of 42.3%. Return on average equity and return on average assets for the third quarter of 2004 were 8.18% and 0.71%, respectively, compared to 5.46% and .47% for the same period in 2003. Net income for the first nine months of 2004 was $3.87 million, a decrease of $171,000, or 4.2%, from the first nine months of 2003 net income of $4.04 million. Net income per share-basic was $1.23 for the first nine months of 2004, compared to $1.29 per share for the first nine months of 2003, a decrease of 4.7%. Return on average equity and return on average assets for the first nine months of 2004 were 9.01% and 0.78%, respectively, compared to 9.25% and .78% for the same period in 2003.

Net Interest Income

Net interest income was $4.95 million for the third quarter of 2004 and $15.18 million for the first nine months of 2004, a decrease of $191,000 and $990,000, respectively, compared to the same periods last year. Interest income totaled $7.93 million for the third quarter of 2004, a decrease of 4.6% from $8.31 million during the same period last year. Interest income for the first nine months of 2004 totaled $24.04 million, a decrease of 9.4% from $26.53 million during the same period last year. Although average loans outstanding for the third quarter and the first nine months increased 1.82% and 3.66%, 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 6.47% in the third quarter of 2003 to 5.92% in the third quarter of 2004, while the yield on average loans decreased from 6.76% for the first nine months of 2003 to 6.05% for the same period in 2004. Average securities outstanding for the third quarter and the first nine months of 2004 decreased 16.2% and 16.9% compared to the same periods of the prior year. The yield on average securities increased from 3.01% for the third quarter of 2003 to 3.74% for the third quarter of 2004. The yield on average securities increased from 3.67% for the first nine months of last year to 3.70% for the first nine months of 2004. A decrease in interest expense of 6.1% to $2.98 million during the third quarter of 2004 from $3.17 million during the same period last year offset part of the decrease in the third quarter’s interest income. Similarly, a decrease in interest expense of 14.4% to $8.86 million during the first nine months of 2004 from $10.36 million during the same period last year offset part of the decrease in year-to-date interest income. Average interest-bearing liabilities for the third quarter decreased 5.56% from last year to $543.2 million, and their cost decreased from 2.19% during the third quarter of last year to 2.18% in the third quarter of this year. Average interest-bearing liabilities for the first nine months of 2004 decreased 4.89% from last year to $549.1 million, and their cost decreased from 2.40% to 2.16%. Net interest margin increased to 3.23% for the third quarter of this year from 3.18% for the third quarter of last year while the net interest margin decreased to 3.30% for the first nine months of 2004 from 3.37% for the same period 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 65.1% to $450,000 during the third quarter of 2004 from $1.29 million during the third quarter of last year. For the first nine months of 2004, the provision decreased 41.7% to $1.35 million from $2.32 million for the same period last year. The lower provision for loan losses 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. During 2003, management increased the provision due to charge-offs and reappraisals of collateral. The percentage of the allowance for loan losses to total loans increased to 1.11% at September 30, 2003 and remained at 1.11% at September 30, 2004. The percentage of non-performing assets to total loans and other real estate owned decreased to 1.53% at September 30, 2004 from 1.55% at September 30, 2003. For the year to date, net charge-offs through September 30, 2004 decreased to $1.64 million, or 0.53% (annualized), from $1.78 million, or 0.60% (annualized), for the same period in 2003.

Non-interest Income

Non-interest income was $2.28 million for the third quarter of 2004, an increase of 7.4% from the $2.12 million earned in the third quarter of 2003 primarily due to increases in trust income,service charges on deposits and gains

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on sales of securities Non-interest income was $7.12 million for the first nine months of 2004, compared to $7.39 million for the first nine months of 2003The Company realized $589,000 in securities gains in the first nine months of 2004, compared to $907,000 for the same period in 2003. Securities gains of $62,000 were realized in the third quarter of 2004 with none realized in the third quarter of 2003.

Non-interest Expense

Non-interest expense was $5.38 million for the third quarter of 2004, compared to $5.16 million for the third quarter of 2003 primarily due to increases in salaries and benefits and professional fees. Salaries and benefits increased in the third quarter of 2004, compared to the third quarter of 2003, primarily due to reversals of bonus accruals in the third quarter of 2003. For the first nine months of 2004, non-interest expense was $16.21 million, compared to $16.39 million for the same period in 2003.

Income Taxes

The provision for income taxes for the third quarter of 2004 was $219,000, compared to $1,000 for the same period in 2003. The provision for income taxes for the first nine months of 2004 was $877,000, compared to $808,000 for the same period last year. The effective tax rate for the three months ended and nine months ended September 30, 2004 was 15.7% and 18.5%, respectively, compared to .12% and 16.7% for the same periods in 2003. The lower effective tax rate in the third quarter of 2003 was due to tax-exempt income and the ESOP dividends paid tax deduction exceeding taxable income for the quarter.

Financial Condition

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

At September 30, 2004, total assets were $645.8 million, a decrease of $19.2 million from December 31, 2003. The decrease is primarily attributable to a decrease in the securities portfolio of $18.2 million. Loans increased $3.3 million during 2004. Deposits decreased $9.8 million primarily in the public fund demand and NOW accounts. Stockholders’ equity increased $2.3 million during the year to $60.0 million due to year-to-date earnings, less dividends paid, and an increase in other comprehensive income of $515,000 resulting from a change in market value of securities available for sale.

Average total assets decreased 4.5% to $656.3 million from the third quarter of 2003. Average total loans increased to $411.0 million, an increase of 1.8% from the same quarter of last year. The real estate and personal loan average grew $5.2 million, an increase of 2.3%. These portfolios increased due to the Company’s decision to retain shorter- term fixed-rate mortgages in its portfolio and increased home equity line production. The securities portfolio average has decreased $36.1 million from the third quarter of 2003 to $186.5 million due to security sales, accelerated prepayments and reinvestment of cash flows into loans rather than securities.

Average total deposits declined $19.4 million for the third quarter of 2004 to $443.5 million, compared to an average of $462.9 million for the same quarter last year. Average small certificates of deposit decreased $11.6

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million, or 7.7%, as the Company reduced its cost of funds and customers continued to seek out higher rates of return. In addition, average large certificates of deposit declined $6.6 million. Average Federal Home Loan Bank borrowings decreased $11.0 million, or 8.7%, due to the early payoff of $17.0 million in advances in the third quarter of 2004 as well as regular monthly payments on amortizing advances.

Allowance for Loan Losses

The following table is a summary of the Company’s loan loss experience for the periods ended September 30, 2004 and 2003: