UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2013

Commission file number 0-23134

NB&T FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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

48 N. South Street, Wilmington, Ohio 45177

(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, without par value	The NASDAQ Stock Market LLC (NASDAQ Capital Market)

Securities registered pursuant to 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 of the Act.    Yes  ¨    No  x

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 submitted 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 definitions 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	¨	Smaller reporting company	x

(Do not check if a smaller reporting company)

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

Based on the closing sales price of $21.01 per share on June 30, 2013, the aggregate market value of the issuer’s shares held by nonaffiliates on such date was $52,273,804. For this purpose, shares held by nonaffiliates are all outstanding shares except those held by the directors and executive officers of the registrant and those held by The National Bank and Trust Company (the “Bank”) as trustee with respect to which the Bank has sole or shared voting or dispositive power. As of March 3, 2014, 3,429,560 common shares were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following sections of the definitive Proxy Statement for the 2014 Annual Meeting of Shareholders of NB&T Financial Group, Inc. (the “Proxy Statement”), are incorporated by reference into Part III of this Form 10-K:

1. Proposal 1: Election of Directors;

2. Section 16(a) Beneficial Ownership Reporting Compliance;

3. Compensation of Executive Officers and Directors;

4. Voting Securities and Ownership of Certain Beneficial Owners and Management;

5. Certain Relationships and Related Transactions;

6. Proposal 2: Ratification of Selection of BKD, LLP as the Independent Registered Public Accounting Firm

NB&T FINANCIAL GROUP, INC.

For the Year Ended December 31, 2013

Table of Contents

PART I

Item 1:	Business	3
Item 1A:	Risk Factors	10
Item 1B:	Unresolved Staff Comments	17
Item 2:	Properties	17
Item 3:	Legal Proceedings	17
Item 4:	Mine Safety Disclosures	17
	PART II
Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6:	Selected Financial Data	20
Item 7:	Management’s Discussion and Analysis of Financial Condition And Results of Operations	21
Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8:	Financial Statements and Supplementary Data	38
Item 9:	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	78
Item 9A:	Controls and Procedures	78
Item 9B:	Other Information	78
	PART III
Item 10:	Directors, Executive Officers and Corporate Governance	78
Item 11:	Executive Compensation	79
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
Item 13:	Certain Relationships and Related Transactions, and Director Independence	79
Item 14:	Principal Accountant Fees and Services	79
	PART IV
Item 15:	Exhibits and Financial Statement Schedules	80
Signatures		82
Exhibit Index		83

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PART I

Item 1. Description of Business

GENERAL

NB&T Financial Group, Inc. (“NB&T Financial” or the “Company”), an Ohio corporation, is a financial holding company which owns all of the issued and outstanding common shares of The National Bank and Trust Company, chartered under the laws of the United States (the “Bank”). The Bank is engaged in the commercial banking business primarily in southwestern Ohio, providing a variety of consumer and commercial financial services. The primary business of the Bank consists of accepting deposits, through various consumer and commercial deposit products, and using such deposits to fund loans secured by residential and non-residential real estate, commercial and agricultural loans and consumer loans, including automobile loans. All of the foregoing deposit and lending services are available at each of the Bank’s full-service offices. The Bank also has a trust department with assets under management of approximately $254.4 million. The Bank also, through its wholly-owned subsidiary, NB&T Insurance Group, Inc., offers annuities and brokerage services to the Bank’s customers. As of December 31, 2013, the Bank had 192 employees.

On December 31, 2009, Community National Corporation (“CNC”) merged into NB&T Financial and CNC’s subsidiary, Community National Bank (“CNB”), located in Franklin, Ohio, merged into the Bank. The merger added approximately $86 million to the Company’s assets and $76 million in deposits. CNB had five branches located in Warren, Montgomery and Butler counties in Ohio. NB&T Financial paid $3.6 million in cash and issued 237,582 shares of NB&T Financial in exchange for all of the outstanding common shares of CNC.

On March 19, 2010, the Bank assumed all the deposits and acquired certain assets and other liabilities of American National Bank in Parma, Ohio, from the Federal Deposit Insurance Corporation (the “FDIC”), pursuant to the terms of a purchase and assumption agreement. As part of the acquisition, the Bank and the FDIC entered into loss-sharing agreements that collectively covered approximately $48.2 million of assets, consisting almost entirely of commercial real estate loans and commercial and industrial loans. In 2012, the FDIC and the Bank terminated the single-family loss-sharing agreement which covered approximately $800,000 of remaining assets. In January 2013, the Company closed its Parma branch due to low growth and increased costs.

As a registered bank holding company and financial holding company under the Bank Holding Company Act, NB&T Financial is subject to regulation, examination and oversight by the Board of Governors of the Federal Reserve System (the “FRB”). The Bank, as a national bank, is subject to regulation, examination and oversight by the Office of the Comptroller of the Currency (the “OCC”), the FRB and the Consumer Financial Protection Bureau (the “CFPB”). The Bank is a member of the Federal Reserve Bank of Cleveland. In addition, since its deposits are insured by the FDIC, the Bank is also subject to some regulation, oversight and special examination by the FDIC. The Bank must file periodic financial reports with the FDIC, the OCC and the Federal Reserve Bank of Cleveland. Examinations are conducted periodically by these federal regulators to determine whether the Bank and NB&T Financial are in compliance with various regulatory requirements and are operating in a safe and sound manner.

Since its incorporation in 1980, NB&T Financial’s activities have been limited primarily to holding the common shares of the Bank. Consequently, the following discussion focuses primarily on the business of the Bank.

Lending Activities

General. The Bank’s income consists primarily of interest income generated by lending activities, including the origination of loans secured by residential and nonresidential real estate, commercial and agricultural loans, and consumer loans. Please refer to Table 7 on page 22, which summarizes the loan portfolio mix.

Commercial and Industrial Lending. The Bank originates loans to businesses in its market area, including “floor plan” loans to automobile dealers and loans guaranteed by the Small Business Administration. The typical commercial borrower is a small to mid-sized company with annual sales under $10,000,000. The majority of

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commercial loans are made at adjustable rates of interest tied to the prime rate. Commercial loans typically have terms of up to five years. Commercial and industrial lending entails significant risks. Such loans are subject to greater risk of default during periods of adverse economic conditions. Because such loans are secured by equipment, inventory, accounts receivable and other non-real estate assets, the collateral may not be sufficient to ensure full payment of the loan in the event of a default.

Commercial Real Estate. The Bank makes loans secured by commercial real estate predominately located in its market area. Such loans generally are adjustable-rate loans for terms of up to 25 years. The types of properties securing loans in the Bank’s portfolio include warehouses, retail outlets and general industrial use properties. Commercial real estate lending generally entails greater risks than residential real estate lending. Such loans typically involve larger balances and depend on the income of the property to service the debt. Consequently, the risk of default on such loans may be more sensitive to adverse economic conditions. The Bank attempts to minimize such risks through prudent underwriting practices.

Real Estate Construction. The Bank originates loans for the purpose of constructing both commercial and residential buildings. The Company offers both construction-phase-only and permanent financing.

Agricultural Loans. The Bank makes agricultural loans, which include loans to finance farm operations, equipment purchases, and land acquisition. The repayment of such loans is significantly dependent upon income from farm operations, which can be adversely affected by weather and other physical conditions, government policies and general economic conditions.

Residential Real Estate. The Bank makes loans secured by one-to four-family residential real estate and multi-family (over four units) real estate located in its market area. The Bank originates both fixed-rate mortgage loans and adjustable-rate mortgage loans (“ARMs”) to meet the needs of its customers. The Bank will sell loans in the secondary market it does not intend to hold for the foreseeable future.

Installment Loans. The Bank makes a variety of consumer installment loans, including home equity loans, automobile loans, recreational vehicle loans, and overdraft protection. Consumer loans involve a higher risk of default than loans secured by one- to four-family residential real estate, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciating assets, such as automobiles. Various federal and state laws, including federal and state bankruptcy and insolvency laws, may also limit the amount that can be recovered on such loans.

Credit Card Service. The Bank offers credit card services through a correspondent bank.

Loan Processing. Loan officers are authorized by the Board of Directors to approve loans up to specified limits. Loans exceeding the loan officers’ approval authority are referred to the Bank’s Senior Loan Committee. Any loans made by the Bank in excess of the limits established for the Senior Loan Committee must be approved by the Chairman of the Board and the President of the Bank as representatives of the Board of Directors. All loans in excess of $50,000 are reported to the Board on a monthly basis.

Loan Originations, Purchases and Sales. Although the Bank generally does not purchase loans, purchases could occur in the future. Certain residential real estate loans are originated for sale in the secondary market. From time to time, the Bank sells participation interests in loans it originates.

Allowance for Loan Losses. Federal regulations require that the Bank establish prudent general allowances for loan losses. Senior management, with oversight responsibility provided by the Board of Directors, reviews on a monthly basis the allowance for loan losses as it relates to a number of relevant factors, including but not limited to, historical trends in the level of non-performing assets and classified loans, current charge-offs and the amount of the allowance as a percent of the total loan portfolio. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments, and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the final determination.

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Investment Activities

Funds not used in the Bank’s lending or banking function are dedicated to the investment portfolio. Those funds will be placed in investment programs approved by the Asset/Liability Management Committee (ALCO). The deployment of these funds will be consistent with the overall strategy and risk profile of the Bank. The Bank primarily invests in high-quality securities to provide sufficient liquidity, secure pledged deposits, minimize current tax liability, and increase earnings.

Trust Services

The Bank received trust powers in 1922 and had approximately $254.4 million in assets under management at December 31, 2013 in the Trust Department. These assets are not included in the Bank’s balance sheet because, under federal law, neither the Bank nor its creditors can assert any claim against funds held by the Bank in its fiduciary capacity. In addition to administering trusts, the services offered by the Trust Department include investment purchase and management, estate planning and administration, tax and financial planning and employee benefit plan administration.

Deposits and Borrowings

General. Deposits have traditionally been the primary source of the Bank’s funds for use in lending and other investment activities. In addition to deposits, the Bank derives funds from interest payments and principal repayments on loans and income on earning assets. Loan payments are a relatively stable source of funds, while deposit inflows and outflows fluctuate more in response to general interest rates and money market conditions.

Deposits. Deposits are attracted principally from within the Bank’s market area through the offering of numerous deposit instruments, including checking accounts, savings accounts, money market deposit accounts, and term certificate accounts. Interest rates paid, maturity terms, service fees and withdrawal penalties for the various types of accounts are established periodically by the Bank’s Asset/Liability Committee and the Executive Committee based on the Bank’s liquidity requirements, growth goals and market trends. The Company has also used brokers, on a limited basis, to obtain deposits. Currently the amount of deposits from outside the Bank’s market area is not significant.

Borrowings. The Federal Reserve System functions as a central reserve bank providing credit for its member banks and certain other financial institutions. As a member in good standing of the Federal Reserve Bank of Cleveland, the Bank is authorized to apply for advances, provided certain standards of credit-worthiness have been met. The Bank is also a member of the Federal Home Loan Bank system. The Bank also can borrow short-term through federal funds lines with two correspondent banks.

Competition

The Bank competes for deposits with other commercial banks, savings associations and credit unions and with the issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, the Bank competes with other commercial banks, savings associations, mortgage bankers, consumer finance companies, credit unions, leasing companies, insurance companies and other lenders. The Bank competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of services it provides to borrowers. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable. For years the Bank has competed within its market area with several regional bank holding companies, each with assets far exceeding those of the Bank.

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REGULATION

General

Because of its ownership of all the outstanding stock of the Bank, NB&T Financial is subject to regulation, examination and oversight by the FRB as a bank holding company and financial holding company under the Bank Holding Company Act. The FRB has extensive enforcement authority over financial holding companies. The FRB may assess civil money penalties, issue cease and desist or removal orders and require that a financial holding company divest subsidiaries. The Bank, as a national bank, is subject to regulation, examination and oversight by the OCC, the FRB and the CFPB. The Bank is a member of the Federal Reserve Bank of Cleveland and a member of the Federal Home Loan Bank of Cincinnati. In addition, since its deposits are insured by the FDIC, the Bank is also subject to some regulation, oversight and special examination by the FDIC. The Bank must file periodic financial reports with the FDIC, the OCC and the Federal Reserve Bank of Cleveland. Examinations are conducted periodically by these federal regulators to determine whether the Bank and NB&T Financial are in compliance with various regulatory requirements and are operating in a safe and sound manner. In general, the FRB may initiate enforcement actions for violations of law and regulations.

Bank Holding Company Regulation

The FRB has adopted capital adequacy guidelines for bank holding companies, pursuant to which, on a consolidated basis, NB&T Financial must maintain total capital of at least 8% of risk-weighted assets. Risk-weighted assets consist of all assets, plus credit equivalent amounts of certain off-balance sheet items, which are weighted at percentage levels ranging from 0% to 100%, based on the relative credit risk of the asset. At least half of the total capital to meet this risk-based requirement must consist of core or “Tier 1” capital, which includes common stockholders’ equity, qualifying perpetual preferred stock (up to 25% of Tier 1 capital) and minority interests in the equity accounts of consolidated subsidiaries, less goodwill, certain other intangibles, and portions of certain non-financial equity investments. The remainder of total capital may consist of supplementary or “Tier 2 capital.” In addition to this risk-based capital requirement, the FRB requires bank holding companies to meet a leverage ratio of a minimum level of Tier 1 capital to average total consolidated assets of 3%, if they have the highest regulatory examination rating, well-diversified risk and minimal anticipated growth or expansion. All other bank holding companies are expected to maintain a leverage ratio of at least 4% of average total consolidated assets. NB&T Financial was in compliance with these capital requirements at December 31, 2013. For NB&T Financial’s capital ratios, see Note 15 to the Consolidated Financial Statements in Item 8. The current capital requirements are based on the 1998 capital accord of the Basel Committee on Banking supervision (the “Basel Committee”). In December 2010, the Basel Committee released a new framework, referred to as “Basel III.” These new standards will be effective starting in 2015 through regulations adopted by the banking regulators in 2013.

A bank holding company is required by law to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” (defined in the regulations as not meeting minimum capital requirements) with the terms of the capital restoration plan filed by such subsidiary with its appropriate federal banking agency.

The Bank Holding Company Act restricts NB&T Financial’s ownership or control of the outstanding shares of any class of voting stock of any company engaged in a nonbanking business, other than companies engaged in certain activities determined by the FRB to be closely related to banking. In addition, the FRB has the authority to require a bank holding company to terminate any activity or relinquish control of any nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the determination by the FRB that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. NB&T Financial currently has no nonbank subsidiaries, except subsidiaries of the Bank. The ownership of subsidiaries of the Bank is regulated by the OCC, rather than the FRB.

The Financial Services Modernization Act of 1999 permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other

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activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. In October 2006, NB&T Financial Group, Inc. became a financial holding company. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Financial Services Modernization Act defines “financial in nature” to include:

• securities underwriting, dealing and market making;

• sponsoring mutual funds and investment companies;

• insurance underwriting and agency;

• merchant banking; and

• activities that the Federal Reserve Board has determined to be closely related to banking.

A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of satisfactory or better. NB&T Insurance Group, Inc. is a financial subsidiary.

Transactions between NB&T Financial and the Bank are subject to statutory limits in Sections 23A and 23B of the Federal Reserve Act, which limit the amounts of such transactions and require that the terms of the transactions be at least as favorable to the Bank as the terms would be of a similar transaction between the Bank and an unrelated party. NB&T Financial and the Bank were in compliance with these requirements and restrictions at December 31, 2013.

The FRB must approve the application of a bank holding company to acquire any bank or savings association. The Company’s ability to pay dividends to its shareholders may be restricted. Current FRB policy requires bank holding companies to act as a source of financial strength to its banking subsidiaries. Under this policy, the FRB may require the Company to commit resources or contribute additional capital to the Bank, which could restrict the amount of cash available for dividends to the Company’s shareholders. The FRB has issued guidance on the payment of dividends by bank holding companies, which includes conditions under which bank holding companies must provide advance notification of their intentions to declare and pay dividends.

National Bank Regulation

Office of the Comptroller of the Currency. The OCC is an office in the Department of the Treasury and is subject to the general oversight of the Secretary of the Treasury. The OCC is responsible for the regulation and supervision of all national banks, including the Bank. The OCC issues regulations governing the operation of national banks and, in accordance with federal law, prescribes the permissible investments and activities of national banks. The Bank is authorized to exercise trust powers in accordance with OCC guidelines. National banks are subject to regulatory oversight under various consumer protection and fair lending laws. These laws

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govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and community reinvestment. The OCC has the authority to impose sanctions on the Bank and, under certain circumstances, may appoint a receiver for the Bank.

The Bank is required to meet certain minimum capital requirements set by the OCC. These requirements consist of risk-based capital guidelines and a leverage ratio, which are substantially the same as the capital requirements imposed on NB&T Financial. The Bank was in compliance with those capital requirements at December 31, 2013. For the Bank capital ratios, see Note 15 to the Consolidated Financial Statements in Item 8. The OCC may adjust the risk-based capital requirement of a national bank on an individualized basis to take into account risks due to concentrations of credit or nontraditional activities.

The OCC has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled national banks. At each successively lower defined capital category, a national bank is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the OCC has less flexibility in determining how to resolve the problems of the institution. In addition, the OCC generally can downgrade a national bank’s capital category, notwithstanding its capital level, if, after notice and opportunity for hearing, the national bank is deemed to be engaging in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. The Bank’s capital at December 31, 2013, met the standards for the highest capital category, a well-capitalized bank.

Community banking organizations, including the Company and the Bank, will begin transitioning to new capital rules on January 1, 2015. The new minimum capital requirements are effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phase in from January 1, 2016, through January 1, 2019, and most deductions from common equity tier 1 capital will phase in from January 1, 2015, through January 1, 2019.

The following is a summary of the major changes from the current general risk-based capital rule:

1. higher minimum capital requirements, including a new common equity tier 1 capital ratio of 4.5 percent and criteria instruments must meet in order to be considered common equity tier 1 capital; a tier 1 capital ratio of 6.0 percent; the retention of a total capital ratio of 8.0 percent; and a minimum leverage ratio of 4.0 percent;

2. stricter eligibility criteria for regulatory capital instruments;

3. restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers, if the organization does not hold a capital conservation buffer of greater than 2.5 percent composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter;

4. replacement of the external credit ratings approach to standards of creditworthiness with a simplified supervisory formula approach;

5. stricter limitations on the extent to which mortgage servicing assets, deferred tax assets and significant investments in unconsolidated financial institutions may be included in common equity tier 1 capital and the risk weight to be assigned to any amounts of such assets not deducted; and

6. increased risk weights for past-due loans, certain commercial real estate loans and some equity exposures, and selected other changes in risk weights and credit conversion factors. A national bank is subject to restrictions on the payment of dividends, including dividends to a holding company. The Bank may not pay a dividend if it would cause the Bank not to meet its capital requirements. In addition, the dividends that a Bank subsidiary can pay to its holding company without prior approval of regulatory agencies is limited to net income plus its retained net income for the preceding two years. Based on the current

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financial condition of the Bank, the Bank does not expect these provisions to affect the current ability of the Bank to pay dividends to NB&T Financial in an amount customary for the Bank.

OCC regulations generally limit the aggregate amount that a national bank can lend to one borrower or aggregated groups of related borrowers to an amount equal to 15% of the bank’s unimpaired capital and surplus. A national bank may loan to one borrower an additional amount not to exceed 10% of the association’s unimpaired capital and surplus, if the additional amount is fully secured by certain forms of “readily marketable collateral”. Loans to executive officers, directors and principal shareholders and their related interests must conform to the OCC lending limits. All transactions between national banks and their affiliates, including NB&T Financial, must comply with Sections 23A and 23B of the Federal Reserve Act.

Federal Deposit Insurance Corporation. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally insured banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC is authorized to establish annual assessment rates for deposit insurance. The FDIC has established a risk-based assessment system for members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution’s capital level and the FDIC’s level of supervisory concern about the institution. Insurance of deposits may be terminated by the FDIC if it finds that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the institution’s regulatory agency. On February 7, 2011, the FDIC issued final regulations, effective April 1, 2011, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), to change the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as well as changing the assessment for larger institutions and the assessment rate schedules.

Federal Reserve Board. The Federal Reserve Act requires national banks to maintain reserves against their net transaction accounts (primarily checking and NOW accounts). The amounts are subject to adjustment by the FRB. At December 31, 2013, the Bank was in compliance with its reserve requirements.

Consumer Financial Protection Bureau. The Dodd-Frank Act established the CFPB, which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive or abusive acts or practices and ensures consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. The CFPB has rulemaking and interpretive authority.

Federal Home Loan Banks. The Federal Home Loan Banks (the “FHLBs”) provide credit to their members in the form of advances. As a member, the Bank must maintain an investment in the capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1% of the aggregate outstanding principal amount of the Bank’s residential real estate loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of its advances from the FHLB. The Bank is in compliance with this requirement with an investment in FHLB of Cincinnati stock having a book value of $9.1 million at December 31, 2013. The FHLB advances are secured by collateral in one or more specified categories. The amount a member may borrow from the FHLB is limited based upon the amounts of various assets held by the member.

Insurance Agency Regulation

The Bank’s insurance agency subsidiary is subject to insurance laws and regulations of the State of Ohio and the Ohio Department of Insurance. The insurance laws and regulations require education and licensing of agencies and individual agents, require reports and impose business conduct rules.

Recent Legislation

On July 21, 2010, President Obama signed into law the Dodd-Frank Act. This law is significantly changing the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires

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various federal agencies to adopt a broad range of regulations with significant discretion and many of such regulations still have not been adopted, many of the details of the law and the effects they will have on our Company will not be known for years. For further information about the Dodd-Frank Act, see “Item 1.A. Risk Factors—The enactment of new legislation and increased regulatory oversight may significantly affect our financial condition and results of operations.”

Volcker Rule

In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank Act (the “Volcker Rule”). The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempts specified U.S. Government, agency and/or municipal obligations, and it excepts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities.

The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, with a number of exceptions.

The Bank does not engage in any of the trading activities or own any of the types of funds regulated by the Volcker Rule.

Item 1A. Risk Factors

Like all financial companies, NB&T Financial’s business and results of operations are subject to a number of risks, many of which are outside of our control. In addition to the other information in this report, readers should carefully consider that the following important factors could materially impact our business and future results of operations.

Our business may be adversely affected by current conditions in the financial markets, the real estate market and economic conditions generally.

Beginning in the latter half of 2007, negative developments in the capital markets resulted in uncertainty in the financial markets and an economic downturn. The housing market declined, resulting in decreasing home prices and increasing delinquencies and foreclosures. The credit performance of mortgage and construction loans resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. The declines in the performance and value of mortgage assets encompassed all mortgage and real estate asset types, leveraged bank loans and nearly all other asset classes, including equity securities. These write-downs have caused many financial institutions to seek additional capital or to merge with larger and stronger institutions. Some financial institutions have failed. Although some improvements in the U.S. economy have occurred, housing prices are still depressed and continue to decline in some markets and unemployment remains high compared to levels prior to the recession. Debt concerns in Europe have added to volatility in the capital markets and concerns over whether such improvements in the U.S. economy will continue. Economic turmoil in Europe may become global. In addition, the uncertainty over whether the United States Congress will fail to raise the federal government’s debt ceiling and budget battles may have a negative effect on the economy and the stock market.

In addition to the increases in delinquencies and foreclosures on existing loans and the reductions in the value of collateral, the slowing of business activity and the high unemployment rates have had an adverse effect on loan demand from both businesses and consumers. A worsening of current conditions would likely adversely affect our business and results of operations, as well as those of our customers. As a result, we may experience increased foreclosures, delinquencies and customer bankruptcies, as well as decreased loan demand.

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The enactment of new legislation and increased regulatory oversight may significantly affect our financial condition and results of operations.

The Federal Reserve Board, Congress, the Treasury, the FDIC and others have taken numerous actions to address the current liquidity and credit situation in the financial markets. These measures include actions to encourage loan restructuring and modification for homeowners; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; and coordinated efforts to address liquidity and other weaknesses in the banking sector. The long-term effect of actions already taken as well as new legislation is unknown. Continued or renewed instability in the financial markets could weaken public confidence in financial institutions and adversely affect our ability to attract and retain new customers.

Further, legislation has been proposed that would reduce the amount that our customers are required to pay under existing loan contracts or limit our ability to foreclose on collateral. There can be no assurance that future legislation will not significantly impact our ability to collect on our current loans or foreclose on collateral.

The Dodd-Frank Act is significantly changing the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations with significant discretion, many of the details of the law and the effects they will have on our company will not be known for years.

Many of the provisions of the Dodd-Frank Act apply directly only to institutions much larger than ours, and some will affect only institutions with different charters than ours or institutions that engage in activities in which we do not engage. Among the changes to occur pursuant to the Dodd-Frank Act that can be expected to have an effect on our business in the future are the following:

• the Dodd-Frank Act creates a Consumer Financial Protection Bureau with broad powers to adopt and enforce consumer protection regulations;

• new capital regulations for bank holding companies have been adopted, which require the Company to have increased capital, and any new trust preferred securities will no longer count toward Tier I capital;

• the federal law prohibition on the payment of interest on commercial demand deposit accounts was eliminated effective in July 2011;

• the assessment base for determining deposit insurance premiums has been expanded to include liabilities other than just deposits; and

• new corporate governance requirements applicable generally to all public companies in all industries require new compensation practices, including providing shareholders the opportunity to cast a non-binding vote on executive compensation, providing new executive compensation disclosures, and requiring companies to “claw back” incentive compensation under certain circumstances.

New regulations pertaining to debit card fees were enacted by the Federal Reserve in October 2011. The new rules cap debit interchange fees for banks with more than $10 billion in assets. Although there is no cap for smaller banks, including the Bank, it is still unclear what other market changes may impact debit card fees as the debit cards with higher fees become less competitive and larger banks take steps to recover income lost due to the caps on their debit card interchange fees.

In addition, the FDIC has issued guidance prescribing the order in which Banks may process customer debit items and imposing limits on the overdraft fees Banks may charge. Currently, these limits only apply to banks governed by the FDIC. The OCC has not adopted this guidance at this time. Should the OCC adopt this guidance in the future these limitations could negatively impact the Company’s earnings.

Although it is impossible for us to predict at this time all the effects the Dodd-Frank Act will have on us and the rest of our industry, it is possible that our non-interest income could decrease, both our interest expense and

11

our non-interest expense could increase, deposit insurance premiums could change, and steps may need to be taken to increase qualifying capital. We expect that our operating and compliance costs will continue to increase and could adversely affect our financial condition and results of operations.

Adverse changes in the financial markets may adversely impact our results of operations.

The global financial markets have experienced increased volatility in recent years. While we generally invest in securities issued by U.S. government agencies and sponsored entities and U.S. state and local governments with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations and other similar asset-backed assets. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates, implied credit spreads and credit ratings.

Over the last few years, structured investments, like our collateralized debt obligations, have been subject to significant market volatility due to the uncertainty of the credit ratings, deterioration in credit losses occurring within certain types of residential mortgages, changes in prepayments of the underlying collateral and the lack of transparency related to the investment structures and the collateral underlying the structured investment vehicles. These conditions have resulted in our recognizing impairment charges on certain investment securities since 2009. Given recent market conditions and changing economic factors, we may be required to recognize additional impairment changes on securities held in our investment portfolio in the future.

Increased capital requirements become effective starting in 2015, and we may not be able to access capital when needed.

We are required by regulatory authorities to maintain specified levels of capital. Federal banking agencies have adopted extensive changes to their capital requirements, including raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital. Should we experience significant loan losses, we may need additional capital. We may also elect to raise additional capital to support our business, to finance acquisitions, if any, or for other purposes. Our ability to raise additional capital, if needed, will depend on our financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control. There can be no assurance, therefore, that we can raise additional capital at all or on terms acceptable to us. If we cannot raise additional capital when needed or desired, it may have a material adverse effect on our financial condition, results of operations and prospects.

A default by another larger financial institution could adversely affect financial markets generally.

The commercial soundness of many financial institutions may be closely interrelated as a result of relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This “systemic risk” may adversely affect our business.

Changes in national and local economic and political conditions could adversely affect our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline and as loans and deposits decline.

There are inherent risks associated with our lending activities, including credit risk, which is the risk that borrowers may not repay outstanding loans or the value of the collateral securing loans will decrease. Conditions such as inflation, recession, unemployment, changes in interest rates and money supply and other factors beyond our control may adversely affect the ability of our borrowers to repay their loans and the value of collateral securing the loans, which could adversely affect our earnings. Because we have a significant amount of real estate loans, a decline in the value of real estate could have a material adverse affect on us. As of December 31, 2013, 67% of our loan portfolio consisted of commercial and industrial, commercial real estate, real estate construction, installment and agricultural loans, all of which are generally viewed as having more risk of default

12

than residential real estate loans and all of which, with the exception of installment loans, are typically larger than residential real estate loans. Residential real estate loans held in the portfolio are typically originated using conservative underwriting standards that do not include sub-prime lending. We attempt to manage credit risk through a program of underwriting standards, the review of certain credit decisions and an on-going process of assessment of the quality of the credit already extended. Economic and political changes could also adversely affect our deposits and loan demand, which could adversely affect our earnings and financial condition. Since substantially all of our loans are to individuals and businesses in Ohio, any decline in the economy of this market area could have a materially adverse effect on our credit risk and on our deposit and loan levels.

Changes in our local economy resulting from the departure of a large employer may adversely affect our financial condition and results of operations.

Although the Company has branch offices in several counties, the departure of a large employer in any of these communities could adversely affect our market area. This occurred with the departure of DHL Express (USA), Inc. and DHL Network Operations (USA), Inc. (collectively, “DHL”) and ABX Air, Inc. (“ABX Air”), which employed more people in Clinton County than any other employer. Clinton County’s unemployment rate continues to exceed state and national unemployment rates as a result of this departure.

Changes in interest rates could adversely affect our financial condition and results of operations.

Our results of operations depend substantially on our net interest income, which is the difference between (i) the interest earned on loans, securities and other interest-earning assets and (ii) the interest paid on deposits and borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions, inflation, recession, unemployment, money supply and the policies of various governmental and regulatory authorities. If the interest we pay on deposits and other borrowings increases at a faster rate than the interest we receive on loans and other investments, our net interest income and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and borrowings. While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that these measures will be effective in avoiding undue interest rate risk.

Increases in interest rates also can affect the value of loans and other assets, including our ability to realize gains on the sale of assets. We originate loans for sale and for our portfolio. Increasing interest rates may reduce the origination of loans for sale and consequently the fee income we earn on such sales. Further, increasing interest rates may adversely affect the ability of borrowers to pay the principal or interest on loans and leases, resulting in an increase in non-performing assets and a reduction of income recognized.

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

During the last few years, there have been higher levels of bank failures, which dramatically increased resolution costs of the FDIC and depleted the deposit insurance fund. In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund, the FDIC increased assessment rates of insured institutions uniformly by 7 basis points (7 cents for every $100 of deposits) for 2009 and 2010. Additional changes were also made to require riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels.

The Emergency Economic Stabilization Act of 2008 (the “EESA”) instituted two temporary programs to further insure customer deposits at FDIC-member banks: deposit accounts became insured up to $250,000 per customer (up from $100,000) and noninterest bearing transactional accounts became fully insured (unlimited coverage). Since then, the Dodd-Frank Act made the increase in the standard maximum insurance amount permanent. Beginning January 1, 2013, non-interest bearing transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution. This change has had some impact on our overall liquidity because those deposits are now being secured by a portion of the Company’s investment portfolio.

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On February 7, 2011, the FDIC issued final regulations, effective April 1, 2011, as required by the Dodd-Frank Act to change the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as well as changing the assessment for larger institutions and the assessment rate schedules. These changes have reduced the Bank’s FDIC premiums due to a lower assessment rate.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional financial institution failures, we may be required to pay higher FDIC premiums. Increases in FDIC insurance premiums may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all.

Changes to tax laws could adversely affect our performance.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.

The effect of changes to the healthcare laws in the United States may increase the number of employees who choose to participate in our healthcare plans, which may significantly increase our healthcare costs and negatively impact our financial results.

We offer healthcare coverage to our eligible employees with part of the cost subsidized by the Company. With recent changes to the healthcare laws in the United States becoming effective in 2014, more of our employees may choose to participate in our health insurance plans, which could increase our costs for such coverage and materially adversely impact our costs of operations.

Our allowance for loan losses may be insufficient.

We maintain an allowance for loan losses to provide for probable loan losses based on management’s quarterly analysis of the loan portfolio. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not be required to charge earnings for significant unexpected loan losses. For more information on the sensitivity of these estimates, refer to the discussion of our “Critical Accounting Policies” on page 28 and 29.

We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses within the loan portfolio. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition, results of operations and cash flows could be negatively impacted to the extent that we rely on financial statements that do not comply with GAAP or on financial statements and other financial information that are materially misleading.

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Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loans and performance of customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the loss allowance will be adequate in the future. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions that could have a material adverse impact on our financial condition and results of operations. In addition, federal and state regulators periodically review our allowance for loan losses as part of their examination process and may require management to increase the allowance or recognize further loan charge-offs based on judgments different than those of management. Moreover, the Financial Accounting Standards Board may change its requirements for establishing the allowance. Any increase in the provision for loan losses to raise the allowance to the required amount would decrease our pretax and net income.

We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

In our market area, we encounter significant competition from other banks, savings and loan associations, credit unions, mortgage banking firms, securities brokerage firms, asset management firms, insurance companies and government lenders, such as the Farm Service Agency and United States Department of Agriculture. The increasingly competitive environment is a result primarily of changes in regulation and the accelerating pace of consolidation among financial service providers. NB&T Financial is smaller than many of our competitors. Many of our competitors have substantially greater resources and lending limits than we do and may offer services that we do not or cannot provide.

We are dependent primarily upon the earnings of our operating subsidiaries for funds to pay dividends on our common shares. The payment of dividends by us and our subsidiaries is subject to certain regulatory restrictions. As a result, any payment of dividends in the future will be dependent, in large part, on our ability to satisfy these regulatory restrictions and our subsidiaries’ earnings, capital requirements, financial condition and other factors. Although our financial earnings and financial condition have allowed us to declare and pay periodic cash dividends to our shareholders, there can be no assurance that our dividend policy or size of dividend distribution will continue in the future.

The preparation of financial statements requires management to make estimates about matters that are inherently uncertain.

Management’s accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with generally accepted accounting principles and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In addition, changes in the applicable accounting rules can require us to change our estimates. One of the most critical estimates is the level of the allowance of loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not significantly increase the allowance for loan losses or sustain loan losses that are significantly higher than the provided allowance.

Material breaches in security of our systems and those of third parties providing services to us may have a significant effect on our business.

We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third party service providers. We have security and backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will

15

not be inoperable, to the extent possible. We also have implemented security controls to prevent unauthorized access to the computer systems and require our third-party service providers to maintain similar controls. However, management cannot be certain that these measures will be successful. A security breach of the computer systems and loss of confidential information, such as customer account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business. In addition, customers also utilize Bank products (i.e. debit cards, bill pay, mobile banking) with third parties beyond the control of the Bank where customer information could be obtained fraudulently. The Bank has processes to limit losses on such fraudulent transactions but cannot limit losses entirely.

Trading in our common shares is very limited, which may adversely affect the time and the price at which you can sell your NB&T Financial common shares.

Although the common shares of NB&T Financial are quoted on The NASDAQ Capital Market, trading in NB&T Financial’s common shares is not active, and the spread between the bid and the asked price is often wide. As a result, you may not be able to sell your shares on short notice, and the sale of a large number of shares at one time could temporarily depress the market price. The price at which you may be able to sell your common shares may be significantly lower than the price at which you could buy NB&T Financial common shares at that time.

Our organizational documents and the large percentage of shares controlled by management and family members of management may have the effect of discouraging a third party from acquiring us.

Our articles of incorporation and code of regulations contain provisions, including a staggered board of directors and a supermajority vote requirement, that make it more difficult for a third party to gain control or acquire us without the consent of the board of directors. These provisions could also discourage proxy contests and may make it more difficult for dissident shareholders to elect representatives as directors and take other corporate actions. Moreover, as of March 3, 2014, directors and executive officers controlled the vote of 21.0% of the outstanding common shares of NB&T Financial in addition to the 3.5% of the outstanding shares with respect to which the Bank controls the vote as trustee and an additional 27.5% owned by relatives of a director. The provisions in our articles and code of regulations and the percentage of voting control by NB&T Financial affiliates and relatives could have the effect of delaying or preventing a transaction or a change in control that a shareholder might deem to be in the best interests of that shareholder.

Future expansion may adversely affect our financial condition and results of operations.

We may acquire other financial institutions or parts of institutions in the future and may open new branches. We also may consider and enter into new lines of business or offer new products or services. Expansions of our business involve a number of expenses and risks, including:

• the time and costs associated with identifying and evaluating potential acquisitions;

• the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to the target institutions;

• the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the expansion;

• our ability to finance an acquisition or other expansion and the possible dilution to our existing shareholders;

• the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;

• entry into unfamiliar markets;

• the introduction of new products and services into our existing business;

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• the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and

• the risk of loss of key employees and customers.

We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.

The Company undertakes no obligation and disclaims any intention to publish revised information or updates to forward-looking statements contained in the above 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 required to be disclosed by applicable securities laws or regulations.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

NB&T Financial and the Bank own and occupy their main offices located at 48 North South Street, Wilmington, Ohio. The Bank also owns or leases 22 full-service branch offices and one remote drive-through ATM facility, all of which are located in Brown, Clermont, Clinton, Highland, Montgomery and Warren counties in Ohio. The Bank closed its Parma, Ohio location in January 2013. The Bank owns a building at 1600 West Main Street, Wilmington, Ohio, which serves as an operation center for the Bank and is leased in part to third parties.

Item 3. Legal Proceedings

Neither NB&T Financial nor the Bank is presently involved in any legal proceedings of a material nature. From time to time, the Bank is a party to legal proceedings incidental to its business to enforce its security interest in collateral pledged to secure loans made by the Bank.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There were 3,429,560 common shares of the Company outstanding on December 31, 2013 held by approximately 419 shareholders of record.

The Company’s shares trade on the NASDAQ Capital Market under the symbol NBTF. The following table summarizes the quarterly common stock prices and dividends declared for the last two years.

	2013						2012
	High		Low		Dividend		High		Low		Dividend
Fourth Quarter	$	22.00	$	19.01	$	0.30	$	18.50	$	17.00	$	0.30
Third Quarter		22.97		19.88		0.30		19.50		18.22		0.30
Second Quarter		23.26		18.99		0.30		19.52		18.00		0.30
First Quarter		21.00		17.04		0.30		20.90		19.01		0.30

As a national bank, the Bank is subject to restrictions on the payment of dividends to the Company, which could restrict the ability of the Company to pay dividends. The Bank may not pay a dividend if it would cause the Bank not to meet its capital requirements. In addition, without regulatory approval, the Bank is limited to paying dividends equal to net income to date in the fiscal year plus its retained net income for the preceding two years. The Company’s ability to pay dividends to its shareholders may be restricted. Current FRB policy requires bank holding companies to act as a source of financial strength to its banking subsidiaries. Under this policy, the FRB may require the Company to commit resources or contribute additional capital to the Bank, which could restrict the amount of cash available for dividends to the Company’s shareholders. The FRB has issued guidance on the payment of dividends by bank holding companies, which includes conditions under which bank holding companies must provide advance notification of their intentions to declare and pay dividends.

The Company has an equity plan under which the Company may grant options, restricted stock and stock appreciation rights to selected directors and employees for up to 270,000 common shares of the Company. The Company also has a stock option plan that has been terminated but under which options to purchase shares remain exercisable. Finally, an option to purchase 30,000 shares was awarded to Mr. Limbert upon his employment. These options may be exercised at $20.88, vested over five years and expire in 2016. The following table summarizes the securities authorized for issuance at December 31, 2013 under all equity compensation plans in existence at that date:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price  of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders:
2006 Equity Plan		212,622	$	19.33		30,067
1992 Nonqualified Stock Option Plan (Terminated 2006)		25,000		26.75		0
Equity compensation plans not approved by security holders		30,000		20.88		0
Total		267,622	$	20.19		30,067

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Unregistered Sales of Equity Securities and Use of Proceeds

Period	(a) Total Number of Shares Sold		(b) Average Price Received per Share		(c) Total Number of Shares Sold as Part of  Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Sold Under the Plans or Programs
10/1/13 to 10/31/13		0	$	0		0		0
11/1/13 to 11/30/13		0		0		0		0
12/1/13 to 12/31/13		1,695		19.76		0		0
Total		1,695	$	19.76		0		0

The Company sold 1,695 shares of treasury stock to the NB&T Financial Group, Inc. Employee Stock Ownership Plan on December 18, 2013 for $33,493. No underwriting discounts or commissions were paid. The shares were needed to meet dividend reinvestment requirements of the plan. The sale was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as they were sold to the ESOP Trust, of which the Bank is the Trustee. The proceeds of the sale have been used for general corporate purposes.

Issuer Purchases of Equity Securities

None.

Performance Graph

The following line graph compares the yearly percentage change in NB&T Financial’s cumulative total shareholder return against the cumulative return of The NASDAQ Composite Index, which includes all Nasdaq domestic and international based common type stocks listed on The NASDAQ Stock Market, and an index of banks with total assets of $500 million to $1 billion. The graph assumes the investment of $100 on December 31, 2008. Cumulative total shareholder return is measured by dividing (i) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (B) the difference between the price of NB&T Financial’s common shares at the end and at the beginning of the measurement period; by (ii) the price of NB&T Financial’s common shares at the beginning of the measurement period.

NB&T Financial Group, Inc.

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	Period Ending
Index	12/31/08		12/31/09		12/31/10		12/31/11		12/31/12		12/31/13
NB&T Financial Group, Inc.		100.00		121.71		214.54		165.75		152.85		183.56
NASDAQ Composite		100.00		145.36		171.74		170.38		200.63		281.22
SNL Bank $500M-$1B		100.00		95.24		103.96		91.46		117.25		152.05

Item 6. Selected Financial Data

(Dollars and shares in thousands, except per share data)

	2013			2012			2011			2010			2009
Consolidated Statements of Income
Interest income	$	22,472		$	25,279		$	28,172		$	31,613		$	25,916
Interest expense		1,844			3,169			4,734			7,333			7,475
Net interest income		20,628			22,110			23,438			24,280			18,441
Provision for loan losses		2,590			4,287			2,935			1,610			1,550
Non-interest income		9,642			10,541			9,724			16,397			9,924
Non-interest expense		22,391			23,494			25,123			26,458			22,481
Income before income taxes		5,289			4,870			5,104			12,609			4,334
Income taxes		1,046			993			1,303			3,800			297
Net income	$	4,243		$	3,877		$	3,801		$	8,809		$	4,037
Per Share Data
Basic earnings per share	$	1.24		$	1.13		$	1.11		$	2.58		$	1.28
Diluted earnings per share		1.24			1.13			1.11			2.58			1.28
Dividends per share		1.20			1.20			1.20			1.17			1.16
Book value at year end		19.84			20.70			20.68			20.74			18.91
Weighted average shares outstanding—basic		3,419			3,424			3,424			3,411			3,154
Weighted average shares outstanding—diluted		3,431			3,430			3,436			3,414			3,154
Consolidated Balance Sheets (Year End)
Total assets	$	638,312		$	651,075		$	675,588		$	690,618		$	649,340
Securities		138,098			133,020			139,744			133,855			142,424
Loans, including loans held for sale		399,496			402,184			404,469			414,978			395,548
Allowance for loan losses		4,053			4,760			4,668			3,714			3,776
Deposits		550,800			559,568			581,383			584,373			541,422
Long-term debt		14,310			15,310			15,310			15,310			39,810
Total shareholders’ equity		68,035			70,820			70,790			71,019			64,485
Selected Financial Ratios
Return on average assets		0.64	%		0.56	%		0.56	%		1.27	%		0.74	%
Return on average equity		6.10			5.45			5.33			12.65			6.76
Dividend payout ratio		96.77			106.19			108.11			45.35			90.63
Net interest margin		3.37			3.48			3.77			3.83			3.70
Non-interest expense to total revenue		73.97			71.95			75.66			65.04			79.26
Average loans to average total assets		61.02			57.69			59.62			60.53			60.83
Average equity to average total assets		10.51			10.34			10.47			10.04			10.93
Total risk-based capital ratio (at year end)		19.10			19.51			19.15			18.36			16.87
Ratio of non-performing loans to total loans		1.44			2.63			3.00			2.65			1.74
Ratio of loan loss allowance to total loans		1.01			1.18			1.15			0.89			0.95
Ratio of loan loss allowance to non-performing loans		70			45			38			34			55
Net charge-offs to average loans		.82			1.06			0.49			0.40			0.36

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis comparing 2013 to prior years should be read in conjunction with the audited consolidated financial statements at December 31, 2013 and 2012 and for the three years ended December 31, 2013.

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) changes in interest rates; (2) changes in national and local economic and political conditions, including the effects of implementation of the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012, the failure of the federal government to reach an agreement on the federal budget and debt and the continuing economic uncertainty in various parts of the world; (3) competitive pressures in the retail banking, financial services, insurance and other industries; (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. See Item 1.A. “Risk Factors” in this annual report for further discussion of the risks affecting the business of the Company and the value of an investment in its shares.

RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

Net income for 2013 was $4.2 million, or $1.24 per share, an increase of 9% compared to net income of $3.9 million for 2012, or $1.13 per share. Net income increased primarily due to decreases in the loan loss provision of $1.7 million and non-interest expenses of $1.1 million, offset by a net interest income decrease of approximately $1.5 million.

Net income for 2012 declined to $3.9 million, or $1.13 per share, from $3.8 million, or $1.11 per share, for 2011. Net income increased primarily due to an increase of $817,000 in non-interest income and a reduction of $1.6 million in non-interest expenses, offset by a decline in net interest income and increased provision for loan losses.

Net interest income has decreased approximately 6.7% and 5.7% for the last two years, respectively, due to continued weakness in the economy and the historically-low interest rate environment. The Company’s low funding cost leaves little room for reduction in interest expense while loans and securities either refinance or reprice to lower market rates. To offset the decline in net interest income, the Company has reduced non-interest expenses from $25.1 million in 2011 to $22.4 million in 2013.

NET INTEREST INCOME

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Company’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. Table 1 reflects the components of the Company’s net interest income for each of the three years ended December 31, 2013, setting forth: (i) average assets, liabilities and shareholders’ equity,

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(ii) interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, (iii) average yields earned on interest-earning assets and average costs incurred on interest-bearing liabilities, and (iv) the net interest margin (i.e., net interest income divided by average interest-earning assets). Non-accrual loans have been included in the average loan balances.

TABLE 1—NET INTEREST INCOME AND NET INTEREST MARGIN

(Dollars in thousands)

	2013							2012							2011
	Average Outstanding Balance		Yield / Rate			Interest Earned/ Paid		Average Outstanding Balance		Yield / Rate			Interest Earned/ Paid		Average Outstanding Balance		Yield / Rate			Interest Earned / Paid
Assets
Loans (1)	$	403,462		4.86	%	$	19,627	$	397,203		5.49	%	$	21,808	$	405,809		5.88	%	$	23,873
Taxable securities		104,368		1.28			1,341		130,517		1.87			2,436		138,591		2.70			3,745
Tax-exempt securities (2)		45,206		3.01			1,360		27,190		3.07			835		9,951		3.86			384
Deposits in banks		57,933		.25			144		79,422		.25			200		67,722		.25			169
Federal funds sold		435		0			0		359		0			0		373		.06			1
Total interest-earning assets		611,404		3.68			22,472		634,691		3.98			25,279		622,446		4.53			28,172
Non-earning assets		49,839							53,868							58,212
Total assets	$	661,243						$	688,559						$	680,658
Liabilities and Stockholder’s Equity
Interest-bearing demand deposits	$	142,828		.03			41	$	133,941		.04			50	$	122,896		.07			90
Savings deposits		206,849		.13			261		217,743		.15			317		202,704		.26			536
Time deposits		107,239		1.14			1,225		137,773		1.53			2,103		168,056		1.91			3,206
Short-term borrowings		4		0			0		56		0			0		1,284		2.43			31
Junior subordinated debentures		9,776		1.80			176		10,310		5.41			558		10,310		7.08			730
FHLB advances		5,000		2.82			141		5,000		2.82			141		5,000		2.82			141
Total interest-bearing liabilities		471,696		.39			1,844		504,823		.63			3,169		510,250		.93			4,734
Non-interest-bearing demand deposits	$	115,566						$	106,068						$	92,349
Other liabilities		4,461							6,467							6,772
Equity		69,520							71,201							71,287
Total liabilities and equity	$	661,243						$	688,559						$	680,658
Net interest income						$	20,628						$	22,110						$	23,438
Net interest margin				3.37	%						3.48	%						3.77	%

(1) Includes nonaccrual loans and loan fees.

(2) Yields are not on a tax equivalent basis.

Net interest income was $20.6 million for 2013, compared to $22.1 million for 2012. Net interest margin decreased to 3.37% for 2013, compared to 3.48% for the previous year. Net interest margin is down primarily as a result of loan and investment yields continuing to decrease more in this low interest rate environment than our cost of funds. Interest expense fell $1.3 million in 2013 to $1.8 million from $3.2 million in 2012; however, interest income on loans and investments of $22.5 million in 2013 was down $2.8 million from $25.3 million in 2012. The yield on loans decreased to 4.86% in 2013 from 5.49% in 2012 due to continued repricing of new and adjustable rate loans to lower rates. Average total loans increased $6.3 million during the year primarily due to an increase in fixed rate mortgage loans. The yield on taxable securities decreased to 1.28% in 2013 compared to 1.87% in 2012 primarily due to higher premium amortization on mortgage-related securities due to accelerated

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prepayments from mortgage loan refinancing. Average balances on taxable securities also decreased $26.1 million to $104.4 million in 2013 due primarily to the sale of securities valued at $28.9 million.

Net interest income was $22.1 million for 2012, compared to $23.4 million for 2011. Net interest margin declined to 3.48% for 2012 from 3.77% for 2011. The net interest margin decreased primarily due to a change in asset mix from higher-yielding loans to lower-yielding securities. Average loans, which had an average rate of 5.49%, declined $8.6 million, while average overnight investments and securities, with an average rate of 1.46%, increased $20.9 million in 2012, compared to 2011. As shown in Table 2, a decline in interest rates on loans and securities also contributed to the decline in the net interest margin with adjustable-rate loans repricing to lower rates and increased cash flows on maturing or prepaying loans and securities being reinvested at lower market rates.

Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. Table 2 presents an analysis of increases and decreases in interest income and expense in terms of changes in volume and interest rates during the three years ended December 31, 2013. Changes attributable to both rate and volume are allocated to each of rate and volume on an equal basis.

TABLE 2—NET INTEREST INCOME—RATE/VOLUME ANALYSIS

(Dollars in thousands)

	Years ended December 31, 2013 vs. 2012									Years ended December 31, 2012 vs. 2011
	Increase (decrease) due to									Increase (decrease) due to
	Volume			Rate			Total			Volume			Rate			Total
Interest income attributable to:
Loans	$	246		$	(2,427	)	$	(2,181	)	$	(581	)	$	(1,483	)	$	(2,064	)
Taxable securities		(411	)		(684	)		(1,095	)		(183	)		(1,126	)		(1,309	)
Tax-exempt securities		548			(23	)		525			598			(147	)		451
Deposits in banks		(54	)		(2	)		(56	)		29			1			30
Federal funds sold		0			0			0			0			0			0
Total interest-earning assets		329			(3,136	)		(2,807	)		(137	)		(2,755	)		(2,892	)
Interest expense attributable to:
Interest-bearing demand deposits		3			(13	)		(10	)		6			(45	)		(39	)
Savings deposits		112			(168	)		(56	)		28			(247	)		(219	)
Time deposits		(406	)		(471	)		(877	)		(519	)		(585	)		(1,104	)
Short-term borrowings		0			0			0			(16	)		(15	)		(31	)
Junior subordinated debentures		(105	)		(277	)		(382	)		0			(172	)		(172	)
FHLB advances		0			0			0			0			0			0
Total interest-bearing liabilities		(396	)		(929	)		(1,325	)		(501	)		(1,064	)		(1,565	)
Net interest income	$	725		$	(2,207	)	$	(1,482	)	$	364		$	(1,691	)	$	(1,327	)

NON-INTEREST INCOME

Table 3 details the components of non-interest income, excluding securities gains and losses, and the percentage change from the two previous years. Total non-interest income, excluding net realized gains on sales of available-for-sale securities, was $8.6 million in 2013, $9.4 million in 2012 and $7.9 million in 2011. In 2013, the decrease in non-interest income was primarily due to the non-recurring income in 2012 related to the termination of the single-family FDIC loss share guarantee for approximately $405,000 and the bank-owned life

23

insurance death benefit of $359,000. The Bank still maintains an FDIC loss share guarantee on approximately $20.4 million of non-single family loans. In addition, service charges on deposits decreased by $217,000 in 2013, or 7%, from 2012 due to lower overdraft fees resulting from fewer overdraft items. The decline in non-interest income was primarily offset by a gain of $300,000 realized on the extinguishment of $1.0 million in trust preferred debt at a market discount and an increase in trust income of $143,000, or 13%, due to an increase in market value and number of accounts.

The higher non-interest income for 2012, compared to 2011, is largely due to the Bank’s termination of its rights under the single-family FDIC loss share guarantee for which approximately $405,000 was received in 2012. The Company also realized non-taxable income of approximately $359,000 on a bank-owned life insurance death benefit in excess of surrender value received in 2012. Other service charges on deposits also increased by $283,000, or 9.0%, over 2011 due to higher overdraft fees resulting from a higher number of overdraft items.

TABLE 3—NON-INTEREST INCOME

(Dollars in thousands)

								Percent Change
	2013		2012			2011		2013 vs. 2012			2012 vs. 2011
Trust	$	1,267	$	1,124		$	1,030		12.72	%		9.13	%
Service charges on deposits		2,995		3,212			2,929		(6.76	)		9.66
Other service charges		2,129		2,076			1,925		2.55			7.84
Investment services commissions		407		361			396		12.74			(8.84	)
Income from BOLI		467		478			486		(2.40	)		(1.65	)
Death benefit in excess of life insurance cash value		0		359			0		NM			NM
Gain on the extinguishment of long-term debt		300		0			0		NM			NM
Other		1,069		1,792			1,138		(40.35	)		57.47
Total Noninterest Income Before Securities Gains/Losses	$	8,634	$	9,402		$	7,904		(8.17	)%		18.95	%
Net realized gains on sales of available-for-sale securities		1,008		1,174			1,820		(14.14	)		(35.49	)
Security impairment charge		0		(35	)		0		NM			NM
Total Noninterest Income	$	9,642	$	10,541		$	9,724		(8.53	)%		8.40	%

Gross gains of $1,044,000 and gross losses of $36,000 were realized on security sales of approximately $28.9 million in 2013. The $36,000 loss resulted from the sale of a private-label collateralized mortgage obligation for which security impairment charges of $235,000 were recognized in prior years with the most recent impairment charge of $35,000 in 2012. Gross gains of $1,174,000 and gross losses of $0 were realized on security sales of approximately $14.8 million in 2012. In 2011, gross gains of $1,830,000 and gross losses of $10,000 were realized on security sales of approximately $45.4 million.

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NON-INTEREST EXPENSE

Table 4 details the components of non-interest expense and the percentage change from the two previous years.

TABLE 4—NON-INTEREST EXPENSE

(Dollars in thousands)

							Percent Change
	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Salaries & employee benefits	$	10,915	$	11,263	$	11,971		(3.09	)%		(5.91	)%
Occupancy		2,139		2,259		2,382		(5.31	)		(5.16	)
Equipment		1,363		1,426		1,480		(4.42	)		(3.65	)
Data processing		1,883		1,740		1,611		8.22			8.01
Professional fees		1,770		1,647		1,867		7.47			(11.78	)
Marketing		259		500		648		(48.20	)		(22.84	)
Printing, postage and supplies		626		674		834		(7.12	)		(19.18	)
State franchise tax		905		907		829		(.22	)		9.41
FDIC Insurance		453		512		622		(11.52	)		(17.68	)
Amortization of intangibles		244		275		353		(11.27	)		(22.10	)
Expenses related to OREO		361		922		1,259		(60.85	)		(26.77	)
Other		1,473		1,369		1,267		7.60			8.05
Total	$	22,391	$	23,494	$	25,123		(4.69	)%		(6.48	)%

Total non-interest expense was $22.4 million in 2013, compared to $23.5 million in 2012. A continued focus on expense reduction, primarily in the areas of personnel, marketing and processing efficiency contributed to the decline in non-interest expense in 2013. In January 2013, the Company also closed its Parma branch due to low growth and costs associated with operating a branch outside our southwestern Ohio branch network. In addition, expenses related to OREO decreased approximately $561,000 in 2013 with a significant amount of the decline due to lower losses of $229,000 in 2013, compared to $551,000 in 2012. Losses declined as market values stabilized. The cost to maintain properties also declined due to a lower average number of properties in 2013, compared to 2012.

Total non-interest expense for 2012 was $23.5 million, compared to $25.1 million for 2011. The decline in expense is due to focus by management on overall expense reduction primarily in the areas of personnel, benefit costs, branch hours, occupancy, equipment, office supplies and marketing . The cost of FDIC insurance also declined 17.7% in 2012, compared to 2011, due to a decline in total assets. In addition, the cost to maintain other-real-estate properties has declined in the past year as the number of properties held declined from twenty five properties at December 31, 2011 to fifteen properties at December 31, 2012.

INCOME TAXES

In 2013, the effective tax rate was 19.8%, compared to 20.4% in 2012 and 25.5% in 2011. The declining effective tax rate for 2013 and 2012 is primarily due to an increase in tax-exempt securities interest in both years. In addition, 2012 included a non-taxable bank owned life insurance benefit of $359,000.

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FINANCIAL CONDITION

ASSETS

Total assets declined from $651.1 million at December 31, 2012 to $638.3 million at December 31, 2013. The decrease is primarily attributable to a reduction in cash and cash equivalents, resulting from a decrease in deposit liabilities of $8.8 million since December 31, 2012. Most of the decline in deposit liabilities was in higher-rate time deposits. Net loans also declined $1.7 million in 2013 due to decreased loan demand in our market area and increased competitive factors.

SECURITIES

The following table sets forth the composition of the Bank’s securities portfolio, based on fair value, at the dates indicated:

TABLE 5—SECURITIES PORTFOLIO

(Dollars in thousands)

	At December 31,
	2013		2012		2011
Securities available for sale:
U.S. Government sponsored entities	$	23,539	$	20,082	$	6,434
Mortgage-backed securities:
U.S. Government agency and sponsored entity		60,153		68,075		99,168
Private-label-residential		1,951		4,023		6,942
Municipals		52,455		40,840		27,200
Total securities available for sale	$	138,098	$	133,020	$	139,744

At December 31, 2013, the securities portfolio increased to $138.1 million, compared to $133.0 million at December 31, 2012. The $5.1 million increase is due to increases in tax-exempt municipal and agency securities, offset by reductions in mortgage-backed securities. The Company continued to increase its investment in longer-term tax–exempt municipals to compliment the shorter-term cash flows of the mortgage-backed securities and improve the total return of the securities portfolio. In addition, the Company sold $28.9 million of mortgage-backed, agency and municipal securities in 2013 at a net realized gain of $1.0 million to take advantage of current market pricing.

At December 31, 2012, the securities portfolio declined to $133.0 million, compared to $139.7 million at December 31, 2011. Approximately $14.8 million in taxable municipals and mortgage-backed securities were sold in 2012 at a net realized gain of $1.2 million to take advantage of current market pricing. The Company experienced increased pay downs of $47.2 million in its mortgage-backed securities portfolio in 2012 with proceeds reinvested primarily in U.S. Government agency and tax-exempt municipals.

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The following table sets forth the fair value of the Bank’s securities portfolio at December 31, 2013. Expected maturities of individual securities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are presented in the table based on current prepayment assumptions. U.S. Government agency and sponsored entity notes, as well as municipal securities, are categorized based on contractual maturity. Yields do not include the effect of income taxes.

TABLE 6—SECURITIES PORTFOLIO REPRICING

(Dollars in thousands)

	One Year or Less					Over 1 Year Through 5 Years					Over 5 Years Through 10 Years					Over 10 Years					Total
	Fair Value		Weighted Average Yield			Fair Value		Weighted Average Yield			Fair Value		Weighted Average Yield			Fair Value		Weighted Average Yield			Fair Value		Weighted Average Yield
Securities available for sale:
U.S. Government sponsored entity notes	$	2,010		1.13	%	$	21,529		.98	%	$	0		0	%	$	0		0	%	$	23,539		.99	%
Mortgage-backed securities:
U.S. Government agency and sponsored entity		8,459		3.07			51,694		2.20			0		0			0		0			60,153		2.32
Private-label- residential		0		0			1,951		4.90			0		0			0		0			1,951		4.90
Municipals		833		3.92			780		4.12			7,170		3.06			43,672		2.95			52,455		3.00
Total securities available for sale	$	11,302		2.79		$	75,954		1.94		$	7,170		3.06		$	43,672		2.95		$	138,098		2.39

LOANS

Table 7 shows loans outstanding at period end by type of loan. In 2010, total loans increased due to the assumption of certain loans of American National Bank (“ANB”) from the Federal Deposit Insurance Corporation (the “FDIC”) on March 19, 2010. Since 2010, total loans have declined from $414.3 million at December 31, 2010 to $399.5 million at December 31, 2013. Most of the decline has occurred in the commercial and industrial portfolio, which has decreased approximately $28.5 million since December 31, 2010. The decline is primarily due to decreased new loan demand and pay-downs of the acquired portfolios. One of the Bank’s primary target markets continues to be commercial lending to small- to medium-sized companies with established track records in the Company’s market area.

Residential real estate loans increased $14.7 million to $131.0 million from December 31, 2011 to December 31, 2013. The growth reflected origination and refinancing activity due to the low interest rate environment and management’s decision, in 2012, to maintain certain fixed-rate mortgage loans underwritten to secondary market guidelines in the Bank’s portfolio in an effort to increase interest income. Currently, the Company has approximately $13.7 million in residential real estate loans with a loan-to-value ratio, based on original appraised value, greater than 80% for which private mortgage insurance has not been required. The Company does not offer residential real estate loan products with negative amortization.

The Company has avoided concentration of commercial lending in any one industry. As of December 31, 2013, the highest commercial lending concentration was in commercial rental real estate properties at 19.2% of the total commercial loan portfolio.

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TABLE 7—LOAN PORTFOLIO

(Dollars in thousands)

	At December 31,
	2013			2012			2011			2010			2009
Commercial & industrial	$	36,792		$	54,961		$	67,298		$	65,304		$	58,013
Commercial real estate		189,660			179,905			180,257			182,076			140,277
Agricultural		35,160			33,679			32,460			31,354			28,130
Residential real estate		131,032			127,007			116,283			125,090			153,172
Installment		6,766			6,319			8,257			10,510			15,995
Deferred net origination costs (fees)		86			58			(86	)		(44	)		(39	)
Total		399,496			401,929			404,469			414,290			395,548
Allowance for loan losses		(4,053	)		(4,760	)		(4,668	)		(3,714	)		(3,776	)
	$	395,443		$	397,169		$	399,801		$	410,576		$	391,772

Table 8 shows the amount of commercial, construction and agricultural loans outstanding as of December 31, 2013, which, based on contractual maturities, are due in each of the periods indicated. The table also sets forth the amounts of loans due after one year from December 31, 2013, divided into those that have predetermined rates and those that have floating or adjustable rates.

TABLE 8—LOAN MATURITIES AND PRICE SENSITIVITY

(Dollars in thousands)

	Due in 1 Year or Less		Due After 1 Year to 5 Years		Due after 5 Years		Total
Commercial and industrial	$	17,763	$	12,141	$	6,888	$	36,792
Commercial real estate		4,716		12,307		172,637		189,660
Agricultural		16,156		3,165		15,839		35,160
Total	$	38,635	$	27,613	$	195,364	$	261,612
	Predetermined Rates		Floating or Adjustable Rates		Total
Commercial and industrial	$	12,896	$	23,896	$	36,792
Commercial real estate		16,836		172,824		189,660
Agricultural		2,761		32,399		35,160
Total	$	32,493	$	229,119	$	261,612

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NON-PERFORMING ASSETS

Table 9 shows the amount of non-performing assets outstanding as of December 31 for each of the last five years:

TABLE 9—NON-PERFORMING ASSETS

(Dollars in thousands)

	2013			2012			2011			2010			2009
Non-accrual loans	$	5,734		$	9,815		$	12,007		$	9,490		$	6,857
Accruing loans 90 days or more past due		32			778			133			1,037			19
Other real estate owned		1,224			1,327			3,520			4,254			3,455
Total non-performing assets	$	6,990		$	11,920		$	15,660		$	14,781		$	10,331
Troubled debt restructurings, accruing	$	2,694		$	2,382		$	2,050		$	457		$	0
RATIOS
Non-performing assets to total loans and other real estate owned		1.74	%		2.96	%		3.84	%		3.64	%		2.59	%
Ratio of loan loss allowance to non-performing loans		70	%		45	%		38	%		35	%		55	%

The Company’s policy is to place a commercial loan on non-accrual status when it reaches 90 days past due and any of the following conditions exist: 1) the borrower cannot meet the payment obligations under the loan; 2) full payment of principal and interest is not expected; 3) the borrower has filed for bankruptcy and a plan of reorganization or liquidation is not imminent; or 4) foreclosure action has been initiated. All other loans are typically placed on non-accrual status when legal action or charge-off is anticipated but no later than 120 days past due. The amount of non-accrual loans was $5.7 million at year-end 2013, compared to $9.8 million at year-end 2012. During 2013, the Bank charged off $2.4 million on one commercial loan that was on nonaccrual at December 31, 2012. This charge-off and resolution of other problem loans in 2013 were the primary reasons for the $4.1 million decline in non-accrual loans. Of the total non-accrual loans outstanding at December 31, 2013, $4.3 million are commercial and commercial real estate loans primarily secured by commercial real estate, equipment, accounts receivable and general intangibles. Nonaccrual loans secured by one- to four -family mortgages represent $1.1 million, or 18 loans, with the largest loan balance being $167,000. The specific analysis of projected cash flows from business operations and estimated collateral values indicates the specific reserves on these loans are adequate. In addition, approximately $1.8 million in nonaccrual loans and $240,000 in other real estate owned at December 31, 2013 are covered under the FDIC loss share agreement.

At December 31, 2013, other real estate owned (“OREO”) was $1.2 million, compared to $1.3 million at December 31, 2012. Of the $1.2 million at December 31, 2013, approximately $700,000 consisted of three commercial properties.

No interest income was recognized in 2013 on non-accrual loans outstanding at December 31, 2013. Had the non-accrual loans been accruing, the interest income recognized would have been approximately $373,000. Interest income of $146,000 was recognized in 2013 on accruing, restructured loans outstanding at December 31, 2013.

As of December 31, 2013, other than the loans identified in Table 9, the Company is not aware of any other loans with possible credit problems of borrowers which causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms.

29

ALLOWANCE FOR LOAN LOSSES

TABLE 10—ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)

	December 31,
	2013			2012			2011			2010			2009
Balance at beginning of period	$	4,760		$	4,668		$	3,714		$	3,776		$	3,411
Charge-offs:
Commercial and industrial		(2,883	)		(1,513	)		(350	)		(102	)		(206	)
Commercial real estate		(415	)		(2,239	)		(1,300	)		(1,071	)		(616	)
Agricultural		0			0			(2	)		0			(4	)
Residential real estate		(289	)		(504	)		(402	)		(500	)		(172	)
Installment		(33	)		(109	)		(198	)		(207	)		(425	)
Total charge-offs		(3,620	)		(4,365	)		(2,252	)		(1,880	)		(1,423	)
Recoveries:
Commercial and industrial		10			7			16			5			18
Commercial real estate		230			59			167			81			18
Agricultural		0			3			6			8			22
Residential real estate		17			27			12			17			36
Installment		65			74			70			97			144
Total recoveries		322			170			271			208			238
Net charge-offs		(3,298	)		(4,195	)		(1,981	)		(1,672	)		(1,185	)
Provision for loan losses		2,591			4,287			2,935			1,610			1,550
Balance at end of period	$	4,053		$	4,760		$	4,668		$	3,714		$	3,776
Ratio of net charge-offs to average loans outstanding during the period		.82	%		1.06	%		0.49	%		0.40	%		0.36	%
Average loans outstanding	$	403,462		$	397,203		$	405,809		$	419,701		$	332,281

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. The provision for loan losses for 2013 was $2.6 million, compared to $4.3 million in 2012. For the year, net charge-offs were $3.3 million in 2013, compared to $4.2 million in 2012. Of the $3.3 million total charge-offs in 2013, $2.4 million related to one commercial loan that previously had a specific reserve of $2.0 million. The liquidation of the collateral securing that loan yielded lower proceeds than previously projected.

The provision for loan losses for 2012 was $4.3 million, compared to $2.9 million in 2011. For the year, net charge-offs were $4.2 million in 2012, compared to $2.0 million in 2011. Charge-offs in 2012 increased primarily due to the charge-off in the first quarter of 2012 of one commercial loan for $850,000. This loan was specifically reserved for at December 31, 2011. In addition, one commercial real estate loan was charged off in the fourth quarter of 2012 for $745,000 and another commercial real estate loan was charged down $498,000 in the fourth quarter of 2012 based on an auction price. Both commercial real estate loans had total specific reserves of approximately $423,000 at December 31, 2011.

The allowance is maintained to absorb probable incurred losses in the portfolio. 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 future loan losses, a provision for loan losses is recorded to increase the allowance. Loans deemed not collectible are charged off and deducted from the reserve. Recoveries on loans previously charged off are added to the reserve.

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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.

Table 11 shows the allocation of the allowance for loan losses as of December 31, 2009 through 2013. In 2012 and 2013, more of the allowance was allocated to the commercial portfolio due to increased charge offs on problem commercial loans. The allowance for agricultural loans declined in 2012 due to a change in allowance calculation methodology, which now uses actual loss trends on agricultural loans. In the past, loss trends on commercial loans were used on agricultural loans.

TABLE 11—ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)

	December 31,
	2013			2012			2011			2010			2009
Commercial and industrial	$	1,457		$	1,697		$	1,380		$	474		$	481
Commercial real estate		1,962			2,285			2,372			2,057			2,468
Agricultural		69			85			231			184			112
Residential real estate		562			659			568			865			506
Installment		3			34			117			134			209
Total	$	4,053		$	4,760		$	4,668		$	3,714		$	3,776
Percent of loans in each category to total loans
Commercial and industrial		9	%		14	%		17	%		16	%		15	%
Commercial real estate		47			45			45			44			35
Agricultural		9			8			8			8			7
Residential real estate		33			32			29			30			39
Installment		2			2			2			3			4
Total		100	%		100	%		100	%		100	%		100	%

OTHER ASSETS

In September 2000, $10 million was used to purchase bank owned life insurance with a cash surrender value that increases tax-free at a current adjustable rate of approximately 3%. At December 31, 2013, the cash surrender value was $16.1 million.

At December 31, 2013, core deposit intangibles were $312,000, of which $266,000 relates to the CNB acquisition and $46,000 relates to the ANB acquisition, and goodwill was $3.6 million. The core deposit intangibles are amortized over the expected life of the related core deposits, and the goodwill is tested annually for impairment.

In 2013 and 2012, no goodwill was expensed due to impairment of value. As of September 30, 2013, management considered the market value of the stock of $22.00 compared to the book value of $19.89 in evaluating goodwill impairment and concluded that the goodwill was not impaired in 2013. In 2012, management considered the market value of the stock, but also evaluated the economic value of equity using discounted cash flows and recent acquisition prices for community-oriented banks. Both the economic value calculation and comparison with acquisition prices exceeded the book value of the Company, including the goodwill. As a result, management concluded that the goodwill was not impaired in 2012.

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LIABILITIES

DEPOSITS

Table 12 presents a summary of period end deposit balances. Total deposits declined $8.8 million from December 31, 2012 to December 31, 2013 and $21.8 million from December 31, 2011 to December 31, 2012. As loan volume declined in 2012 and 2013, the Company was not aggressive in seeking significant deposit growth, maintaining deposit rates in the middle of the local market. Customers did continue to move deposits to more liquid, interest-bearing accounts such as NOW, savings and money market accounts, while balances in time deposits declined.

Throughout the last six years, the Federal Reserve Board maintained lower managed interest rates throughout the country. The accounts immediately affected by lower rates were NOW and money market accounts. For certificates of deposit, the decline in rates did not occur as quickly due to the timing of maturities. Additionally, other banks in some of our markets maintained higher rates to meet their liquidity needs. Although we experienced some loss in accounts due to higher competitive rates, the impact on our core deposits was minimal. Core deposits remained at 96.7% and 95.2% of total deposits at December 31, 2013 and 2012. Deposits are attracted principally from within the Company’s market area through the offering of numerous deposit instruments. Interest rates, maturity terms, service fees, and withdrawal penalties for the various types of accounts are established periodically by management based on the Company’s liquidity requirements, growth goals and market trends. The Company had approximately $430,000 of brokered deposits at December 31, 2013 through the Certificate of Deposit Account Registry Service (“CDARS”). CDARS allows the Bank to offer FDIC insurance to local certificate customers in excess of the $250,000 limit through a national relationship with other banks. The amount of deposits currently from outside the Company’s market area is not significant.

TABLE 12—DEPOSITS

	2013					2012					2011
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
Demand	$	115,206		21	%	$	105,535		19	%	$	97,732		17	%
NOW		138,217		25			135,969		24			125,374		22
Savings		87,227		16			79,282		14			71,923		12
Money market		113,816		21			117,790		21			134,227		23
CD’s less than $100,000		78,006		14			94,001		17			115,130		20
CD’s $100,000 and over		18,328		3			26,991		5			36,997		6
Total	$	550,800		100	%	$	559,568		100	%	$	581,383		100	%

The following table sets forth the dollar amount of time deposits maturing in the periods indicated:

TABLE 13—MATURITY OF TIME DEPOSITS

(Dollars in thousands)

	$100,000 or More		Less than $100,000		Total
Three months or less	$	3,622	$	14,145	$	17,767
Over 3 months to 6 months		2,620		13,896		16,516
Over 6 months to 12 months		3,437		16,427		19,864
Over twelve months		8,649		33,538		42,187
Total	$	18,328	$	78,006	$	96,334

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OTHER BORROWINGS

At December 31, 2013, the Bank had outstanding $5.0 million of total borrowings from the FHLB. This advance is at a fixed rate of interest of 2.82% and matures on January 14, 2015. Until maturity, the Federal Home Loan Bank has the option quarterly to terminate the advance and require full payment. One advance of $12.0 million was paid off in January 2011. At December 31, 2013, the Company had no short-term borrowings. Table 14 sets forth certain information regarding the Company’s outstanding short-term borrowings at the dates and for the periods indicated:

TABLE 14—SHORT-TERM BORROWINGS

(Dollars in thousands)

	December 31,
	2013			2012			2011
Amount of short-term borrowings outstanding at end of period	$	0		$	0		$	0
Maximum amount of short-term borrowings outstanding at any month end during period	$	0		$	0		$	10,507
Average amount of short-term borrowings outstanding during period	$	4		$	56		$	1,284
Weighted average interest rate of short-term borrowings during period		0.25	%		0.25	%		2.43	%
Weighted average interest rate of short-term borrowings at end of period		0	%		0	%		0	%

On June 25, 2007, the Company participated in a securities sale commonly referred to as a “pooled trust preferred securities offering”. In that offering, the Company issued to a trust controlled by the Company $10.3 million in thirty-year debt securities. These securities had a fixed rate of 7.071% through September 6, 2012. These securities currently reprice quarterly at the rate of 1.50% over the three-month LIBOR rate, which is at 1.74% at December 31, 2013. In June 2013, the Company extinguished $1.0 million in debt at a discount with a gain of $300,000 recognized. The securities issued by the Company are classified as Tier I capital for regulatory purposes, and the interest is deductible for federal income tax purposes.

The Company has a line of credit of $30.0 million with the Federal Home Loan Bank of Cincinnati and two lines of credit with two other correspondent banks totaling $20.0 million at December 31, 2013.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CAPITAL

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 December 31, 2013, NB&T Financial met all of its capital requirements with a total risk-based capital ratio of 19.10%, a Tier 1 risk-based capital ratio of 18.12%, and a Tier 1 leverage ratio of 11.56%. For further information regarding NB&T Financial’s capital, see Note 15 to the Financial Statements in Item 8 of this annual report. Federal banking agencies have adopted extensive changes to their capital requirements; including raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital for some larger banking organizations. Community banking organizations, like the Bank, are subject to the new rule January 1, 2015. The new minimum capital requirements are effective January 1, 2015, whereas the capital conservation buffer and certain deductions from common equity Tier 1 phase in over a five year period. Based on our current capital position, the Bank’s capital would be sufficient for the Bank to be deemed well-capitalized under the new guidelines.

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LIQUIDITY

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. As part of the process, daily management reports are produced to monitor fluctuations in the balance sheet and liquidity ratios. As part of its monthly Asset/Liability Committee reporting, the Bank updates cash flow projections for investments, loans, deposits and significant borrowings. Additionally, the Asset/Liability Committee reviews the Bank’s liquidity position relative to available sources of funds, both on the balance sheet and from third parties, and deposits and short-term liabilities.

The loan to deposit ratio at December 31, 2013, was 72.5%, compared to 71.9% at December 31, 2012. Loans to total assets were 62.6% at the end of 2013, compared to 61.8% at the same time last year. At December 31, 2013, the Company had $41.9 million in interest-bearing deposits. The securities portfolio is 100% available-for-sale securities that are readily marketable. Approximately 45.0% of the investment portfolio consists of mortgage-backed securities which provide monthly principal and interest cash flow. Approximately 48.5% 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 expiration of the Dodd-Frank Act provision of unlimited FDIC insurance on non-interest bearing transaction accounts effective December 31, 2012 has necessitated the Company’s pledging of additional amounts of securities to secure public deposits. The balance of the available-for-sale securities could be sold if necessary for liquidity purposes. Also, a stable deposit base, consisting of over 96.7% core deposits, makes the Company less susceptible to large fluctuations in funding needs. The Company has short-term borrowing lines of credit with two correspondent banks. The Company also has both short- and long-term borrowing available through the FHLB. The Company has the ability to obtain deposits in the brokered certificate of deposit market to help provide liquidity to fund loan growth.

INTEREST RATE RISK MANAGEMENT

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 over a two-year horizon 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 one year period and also for immediate rate shocks. Historically, simulation models would also be performed for similar basis point decreases. However, 200,300 and 400 basis point decreases are not calculated because the rates would be less than zero for most of the Bank’s liabilities in today’s current low interest rate environment. 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

34

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 December 31, 2013, the Bank is 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 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.

	Two-Year Net Interest Income Change						Economic Value of Equity Change
Rate Ramp	Year End 2013			ALCO Guideline			Year End 2013			ALCO Guideline
+400		12.4	%	±	20	%		-2.8	%	±	30	%
+300		9.3		±	15			-1.2		±	20
+200		6.7		±	10			.3		±	15
+100		3.8		±	5			.6		±	10
-100		-4.5		±	5			-2.5		±	10
-200		NA		±	10			NA		±	15
-300		NA		±	15			NA		±	20
-400		NA		±	20			NA		±	30

IMPACT OF INFLATION AND CHANGING PRICES

The majority of a financial institution’s assets and liabilities are monetary in nature. Changes in interest rates affect the financial condition of a financial institution to a greater degree than inflation. Although interest rates are determined in large measure by changes in the general level of inflation, they do not change at the same rate or in the same magnitude, but rather react in correlation to changes in expected rate of inflation and to changes in monetary and fiscal policy. The Company’s ability to react to changes in interest rates has a significant impact on financial results. As discussed previously, management attempts to control interest rate sensitivity in order to protect against wide interest rate fluctuations.

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, 2013. 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.

35

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. The Company has no securities classified as Level 1 or Level 3. 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.

36

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 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

37

Item 8. Financial Statements and Supplementary Data

- I N D E X -

	PAGE
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING		39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		40
FINANCIAL STATEMENTS
Consolidated Balance Sheets		41
Consolidated Statements of Income		42
Consolidated Statements of Comprehensive Income		43
Consolidated Statements of Shareholders’ Equity		44
Consolidated Statements of Cash Flows		45
Notes to Consolidated Financial Statements		46-77

38

NB&T Financial Group, Inc.

Management’s Report on Internal Control Over Financial Reporting

Management of NB&T Financial Group, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management of the Company has concluded the Company maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934 Rules 13a-15(f), as of December 31, 2013.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. These inherent limitations, however, are known features of the financial reporting process. It is possible, therefore, to design into the process safeguards to reduce, though not eliminate, this risk.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

/s/ John J. Limbert	/s/ Craig F. Fortin
President & Chief Executive Officer March 18, 2014	Chief Financial Officer March 18, 2014

39

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

NB&T Financial Group, Inc.

Wilmington, Ohio

We have audited the accompanying consolidated balance sheets of NB&T Financial Group, Inc. (Company) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2013. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NB&T Financial Group, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ BKD, LLP

Cincinnati, Ohio

March 18, 2014

40

NB&T Financial Group, Inc.

Consolidated Balance Sheets

December 31, 2013 and 2012

(Dollars in Thousands)

	2013			2012
Assets
Cash and due from banks	$	9,155		$	14,085
Interest-bearing deposits		41,901			50,002
Federal funds sold		443			422
Cash and cash equivalents		51,499			64,509
Available-for-sale securities		138,098			133,020
Loans held for sale		0			255
Loans, net of allowance for loan losses of $4,053 and $4,760 at December 31, 2013 and 2012, respectively		395,443			397,169
Premises and equipment		16,895			18,417
Federal Reserve and Federal Home Loan Bank stock		10,035			10,030
Earned income receivable		2,546			2,732
Goodwill		3,625			3,625
Core deposits and other intangibles		312			556
Bank-owned life insurance		16,111			15,644
Other real estate owned		1,224			1,327
FDIC loss share receivable		525			1,340
Other		1,999			2,451
Total assets	$	638,312		$	651,075
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	115,206		$	105,535
Savings, NOW and money market		339,260			333,041
Time		96,334			120,992
Total deposits		550,800			559,568
Long-term debt		14,310			15,310
Interest payable and other liabilities		5,167			5,377
Total liabilities		570,277			580,255
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; outstanding 2013—3,429,560 and 2012—3,421,580		1,000			1,000
Additional paid-in capital		12,733			12,440
Retained earnings		59,820			59,683
Accumulated other comprehensive income (loss)		(900	)		2,333
Treasury stock, at cost
Common: 2013—389,390 shares, 2012—397,370 shares		(4,618	)		(4,636	)
Total stockholders’ equity		68,035			70,820
Total liabilities and stockholders’ equity	$	638,312		$	651,075

See Notes to Consolidated Financial Statements.

41

NB&T Financial Group, Inc.

Consolidated Statements of Income

Years Ended December 31, 2013, 2012 and 2011

(Dollars in Thousands, except per share amounts)

	2013		2012			2011
Interest and Dividend Income
Loans	$	19,627	$	21,808		$	23,873
Securities
Taxable		903		1,975			3,302
Tax-exempt		1,360		835			384
Dividends on Federal Home Loan and Federal Reserve Bank stock		438		461			443
Deposits with financial institutions		144		200			170
Total interest and dividend income		22,472		25,279			28,172
Interest Expense
Deposits		1,527		2,470			3,832
Short-term borrowings		0		0			31
Long-term debt		317		699			871
Total interest expense		1,844		3,169			4,734
Net Interest Income		20,628		22,110			23,438
Provision for Loan Losses		2,590		4,287			2,935
Net Interest Income After Provision for Loan Losses		18,038		17,823			20,503
Noninterest Income
Trust income		1,267		1,124			1,030
Service charges on deposits		2,995		3,212			2,929
Other service charges and fees		2,129		2,076			1,925
Investment services commissions		407		361			396
Net realized gains on sales of available-for-sale securities		1,008		1,174			1,820
Income from bank owned life insurance		467		478			486
Gain on extinguishment of long-term debt		300		0			0
Death benefit in excess of life insurance cash value		0		359			0
Other-than-temporary losses on investments:
Total other-than-temporary losses		0		(35	)		0
Portion of loss recognized in other comprehensive income (before taxes)		0		0			0
Net impairment losses recognized in earnings		0		(35	)		0
Other		1,069		1,792			1,138
Total noninterest income		9,642		10,541			9,724
Noninterest Expense
Salaries and employee benefits	$	10,915	$	11,263		$	11,971
Net occupancy expense		2,139		2,259			2,382
Equipment expense		1,363		1,426			1,480
Data processing fees		1,883		1,740			1,611
Professional fees		1,770		1,647			1,867
Marketing expense		259		500			648
Printing, postage and supplies		626		674			834
State franchise tax		905		907			829
FDIC insurance		453		512			622
Amortization of intangibles		244		275			353
Net costs of operation of other real estate		361		922			1,259
Other		1,473		1,369			1,267
Total non-interest expense		22,391		23,494			25,123
Income Before Income Tax		5,289		4,870			5,104
Provision for Income Taxes		1,046		993			1,303
Net Income	$	4,243	$	3,877		$	3,801
Basic Earnings Per Share	$	1.24	$	1.13		$	1.11
Diluted Earnings Per Share	$	1.24	$	1.13		$	1.11

See Notes to Consolidated Financial Statements.

42

NB&T Financial Group, Inc.

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2013, 2012 and 2011

(Dollars in Thousands)

	2013			2012			2011
Net income	$	4,243		$	3,877		$	3,801
Other comprehensive income (loss), before tax effect:
Unrealized gains (losses) on securities available-for-sale		(3,891	)		1,172			1,706
Net unrealized gain on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income		0			156			0
Reclassification of gains realized in income		(1,008	)		(1,139	)		(1,820	)
Other comprehensive income (loss), before tax effect		(4,899	)		189			(114	)
Tax expense (credit)		(1,666	)		64			(39	)
Other comprehensive income (loss)		(3,233	)		125			(75	)
Comprehensive Income	$	1,010		$	4,002		$	3,726

See Notes to Consolidated Financial Statements.

43

NB&T Financial Group, Inc.

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2013, 2012 and 2011

(Dollars in Thousands, except per share amounts)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, January 1, 2011	$	1,000	$	12,013	$	60,221		$	2,283		$	(4,498	)	$	71,019
Net income		0		0		3,801			0			0			3,801
Other comprehensive loss		0		0		0			(75	)		0			(75	)
Dividends on common stock, $1.20 per share		0		0		(4,109	)		0			0			(4,109	)
Purchase of stock (910 shares)		0		0		0			0			(16	)		(16	)
Stock options expense		0		170		0			0			0			170
Balance, December 31, 2011		1,000		12,183		59,913			2,208			(4,514	)		70,790
Net income		0		0		3,877			0			0			3,877
Other comprehensive income		0		0		0			125			0			125
Dividends on common stock, $1.20 per share		0		0		(4,107	)		0			0			(4,107	)
Stock options exercised		0		14		0			0			38			52
Purchase of stock (14,866 shares)		0		0		0			0			(276	)		(276	)
Sale of stock (9,966 shares)		0		69		0			0			116			185
Stock options expense		0		174		0			0			0			174
Balance, December 31, 2012		1,000		12,440		59,683			2,333			(4,636	)		70,820
Net income		0		0		4,243			0			0			4,243
Other comprehensive loss		0		0		0			(3,233	)		0			(3,233	)
Dividends on common stock, $1.20 per share		0		0		(4,106	)		0			0			(4,106	)
Stock options exercised		0		87		0			0			196			283
Purchase of stock (10,300 shares)		0		0		0			0			(198	)		(198	)
Sale of stock (1,695 shares)		0		14		0			0			20			34
Stock options expense		0		192		0			0			0			192
Balance, December 31, 2013	$	1,000	$	12,733	$	59,820		$	(900	)	$	(4,618	)	$	68,035

See Notes to Consolidated Financial Statements.

44

NB&T Financial Group, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2013, 2012 and 2011

(Dollars in Thousands)

	2013			2012			2011
Operating Activities
Net income	$	4,243		$	3,877		$	3,801
Items not requiring (providing) cash:
Depreciation and amortization		1,560			1,630			1,748
Provision for loan losses		2,590			4,287			2,935
Amortization of premiums and discounts on securities		3,706			3,560			2,351
Increase in cash surrender value on bank owned life insurance		(467	)		(478	)		(486	)
Death benefit in excess of life insurance cash value		0			(359	)		0
Gain on extinguishment of long-term debt		(300	)		0			0
Proceeds from FDIC loss share receivable		815			588			163
Stock options expense		192			174			170
Deferred income taxes		(46	)		(227	)		40
Proceeds from sale of loans held for sale		5,554			8,081			11,753
Originations of loans held for sale		(5,220	)		(8,277	)		(11,020	)
Gain from sale of loans		(79	)		(59	)		(45	)
Impairment loss on other real estate		229			551			506
(Gain) loss on sale of other real estate		(87	)		73			226
(Gain) loss on sale of fixed assets		11			(7	)		108
Other-than-temporary impairment of available-for-sale securities		0			35			0
Net realized gains on available-for-sale securities		(1,008	)		(1,174	)		(1,820	)
Changes in:
Interest receivable		186			215			(39	)
Other assets		452			625			1,068
Interest payable and other liabilities		473			(1,539	)		967
Net cash provided by operating activities		12,804			11,576			12,426
Investing Activities
Purchases of available-for-sale securities		(87,132	)		(62,153	)		(113,670	)
Proceeds from sales of available-for-sale securities		28,857			14,845			45,396
Proceeds from maturities of available-for-sale securities		45,600			51,801			61,740
Purchase of Federal Reserve Bank stock		(5	)		(5	)		(4	)
Proceeds from death benefit on bank owned life insurance		0			680			0
Net change in loans		(1,832	)		(2,510	)		6,153
Proceeds from sale of other real estate		1,485			2,426			2,003
Purchases of premises and equipment		(392	)		(857	)		(587	)
Proceeds on sales of premises and equipment		31			26			354
Net cash provided by (used in) investing activities		(13,388	)		4,253			1,385
Financing Activities
Net increase in demand deposits, money market, now and savings accounts		15,890			9,320			31,296
Net decrease in certificates of deposit		(24,658	)		(31,135	)		(34,286	)
Repayment of short-term borrowings		0			0			(12,779	)
Extinguishment of long-term debt		(700	)		0			0
Proceeds from stock options exercised		283			52			0
Purchase of treasury stock		(198	)		(276	)		(16	)
Proceeds from sale of treasury stock		34			185			0
Dividends paid		(3,077	)		(5,134	)		(4,109	)
Net cash used in financing activities		(12,426	)		(26,988	)		(19,894	)
Decrease in Cash and Cash Equivalents		(13,010	)		(11,159	)		(6,083	)
Cash and Cash Equivalents, Beginning of Year		64,509			75,668			81,751
Cash and Cash Equivalents, End of Year	$	51,499		$	64,509		$	75,668
Supplemental Cash Flows Information
Interest paid	$	1,878		$	3,263		$	4,884
Income taxes paid (net of refunds)		1,843			1,498			593
Transfers of loans into other real estate owned		1,562			857			2,001

See Notes to Consolidated Financial Statements.

45

Notes to Consolidated Financial Statements

Years Ended December 31, 2013, 2012 and 2011

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

NB&T Financial Group, Inc. (the “Company”) is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries, The National Bank and Trust Company (the “Bank”), NB&T Insurance Group, Inc. (the “Group”), and NB&T Statutory Trust III (“Trust III”). In accordance with the Consolidation topic of the FASB Accounting Standards Codification (“ASC”), Trust III is not consolidated into these financial statements. The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers in Brown, Clermont, Clinton, Highland, Montgomery and Warren counties in Ohio. The Bank offers certain investment products through its wholly-owned subsidiary, the Group. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Bank and the Group. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties and collateral securing impaired loans.

Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2013 and 2012, cash equivalents consisted primarily of interest-bearing accounts with the Federal Reserve Bank and the Federal Home Loan Bank of Cincinnati and non-interest bearing cash accounts with other financial institutions.

Currently, FDIC insurance limits are $250,000 per covered institution. At December 31, 2013, the Company’s cash accounts exceeded federally insured limits by $41,291,000. Of that amount, $41,098,000 was held at the Federal Reserve Bank.

Securities

The Company classifies all securities as available-for-sale securities, which are carried at fair value. The Company has no immediate plan to sell but may sell securities in the future. Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.

Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are recorded on the trade date and are determined on the specific-identification method.

46

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The Company handles other-than-temporary impairment in the securities portfolio in accordance with current accounting standards (ASC 320-10). When the Company does not intend to sell a debt security, and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

As a result of this guidance, with respect to available-for-sale debt securities that management has no intent to sell and believes it is more likely than not the debt security will not be required to be sold prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except residential and consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

47

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The Company charges-off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance, which provide for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

Generally, most impaired loans, except for certain troubled debt restructurings, are on nonaccrual. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Allowance for Loan Losses

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 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.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior one to three years. Management believes the one-to-three year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

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.

48

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

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. For impaired loans where the Company utilizes the discounted cash flows to determine the level of impairment, the Company includes the entire change in the present value of cash flows as bad debt expense.

The fair values of collateral dependent impaired loans are based on independent appraisals of the collateral. In general, the Company acquires an updated appraisal upon identification of impairment and periodically thereafter for commercial, commercial real estate and multi-family loans. After determining the collateral value as described, the fair value is calculated based on the determined collateral value less selling expenses. The potential for outdated appraisal values is considered in our determination of the allowance for loan losses through our analysis of various trends and conditions including the local economy, trends in charge-offs and delinquencies, etc. and the related qualitative adjustments assigned by the Company.

Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In this scenario, the Company attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. If such efforts by the Company do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Company may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status. If a loan was accruing at the time of restructuring, the Company reviews the loan to determine if it is appropriate to continue the accrual of interest on the restructured loan.

With regard to determination of the amount of the allowance for credit losses, troubled debt restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. Buildings and building improvements are

49

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

depreciated over an average of 40 years and 10 years, respectively. Furniture, fixtures and equipment is depreciated over a range of three to seven years. Leasehold improvements are amortized over the lesser of the asset’s useful life or the lease term, including any renewal periods for which renewal is reasonably assured.

Federal Reserve and Federal Home Loan Bank Stock

Federal Reserve and Federal Home Loan Bank stock are required investments for institutions that are members of the Federal Reserve and Federal Home Loan Bank systems. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair 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 cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.

Goodwill

Goodwill is tested at least annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.

Intangible Assets

Intangible assets are being amortized on an accelerated basis over periods ranging from seven to ten years. Such assets are periodically evaluated as to the recoverability of their carrying value.

Treasury Stock

Treasury stock is stated at cost. Cost is determined based on the average cost of all shares.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and

50

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2010. The Company recognizes interest and penalties, if any, on income taxes as a component of income tax expense.

Earnings Per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.

Treasury stock shares are not deemed outstanding for earnings per share calculations.

Marketing Expenses

Marketing costs are expensed as incurred.

Reclassifications

Certain reclassifications have been made to the 2012 and 2011 financial statements to conform to the 2013 financial statement presentation. These reclassifications had no effect on net income.

Note 2: Effect of Recent Accounting Standards

In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08 regarding the testing for goodwill impairment. The objective of this ASU is to simplify how entities, both public and nonpublic, test goodwill for impairment. Under the revised standard, an entity will be allowed to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The amendments are effective on annual or interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this standard has not had a material effect on the Company’s financial statements.

In July 2012, the FASB issued ASU No. 2012-02 regarding testing indefinite-lived intangible assets for impairment other than goodwill. The objective of this ASU is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. Under this revised standard, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying

51

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Adoption of this standard has not had a material effect on the Company’s financial statements.

In October 2012, the FASB issued ASU No. 2012-06, Business Combinations: Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. The objective of this ASU is to address the diversity in practice about how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement). When a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (i.e., the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). For public and nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. Adoption of this standard has not had a significant impact on the valuation of the FDIC loss share receivable indemnification asset currently on the Company’s balance sheet.

FASB also issued ASU 2013-02, which amended ASU 2011-05, Comprehensive Income, Topic 220: Presentation of Comprehensive Income, and establishes requirements and an effective date for amendments deferred by ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The update requires public companies to report information on reclassifications out of accumulated other comprehensive income (AOCI), in their financial statements in one place (either in the financial statements or in a single note) using information currently required to be disclosed elsewhere in the financial statements. Public companies are also required to comply with the requirements of this ASU at each reporting date. The information may be condensed in accordance with the level of detail required by Subtopic 270-10. The amendments in the update do not change the requirements for reporting net income or other comprehensive income in the financial statements. The new disclosure requirement takes effect prospectively for public companies in interim and annual reporting periods beginning after December 15, 2012. The Company adopted this standard on January 1, 2013. The effect of adopting this standard increased our disclosure of items reclassified out of accumulated other comprehensive income.

Note 3: Restriction on Cash and Due From Banks

The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2013 was $2,423,000.

52

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Note 4: Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows (thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Approximate Fair Value
Available-for-Sale Securities:
December 31, 2013:
U.S. government sponsored entities	$	23,594	$	45	$	(100	)	$	23,539
Mortgage-backed securities:
U.S. Government sponsored entities-residential		59,565		793		(205	)		60,153
Private label-residential		1,895		56		0			1,951
State and political subdivisions		54,408		326		(2,279	)		52,455
	$	139,462	$	1,220	$	(2,584	)	$	138,098
December 31, 2012:
U.S. government sponsored entities	$	19,668	$	414	$	(0	)	$	20,082
Mortgage-backed securities:
U.S. Government sponsored entities-residential		66,735		1,389		(49	)		68,075
Private label-residential		3,945		131		(53	)		4,023
State and political subdivisions		39,137		1,816		(113	)		40,840
	$	129,485	$	3,750	$	(215	)	$	133,020

The amortized cost and fair value of securities available for sale at December 31, 2013, 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
Within one year	$	2,808	$	2,843
One to five years		22,348		22,308
Five to ten years		7,204		7,170
After ten years		45,642		43,673
		78,002		75,994
Mortgage-backed securities		61,460		62,104
Totals	$	139,462	$	138,098

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $66,965,000 at December 31, 2013, and $61,727,000 at December 31, 2012.

Gross gains of $1,044,000 and gross losses of $36,000 resulting from sales of available-for sale securities were realized during 2013. The $36,000 loss resulted from the sale of a private-label collateralized mortgage obligation for which other-than-temporary impairment charges were recognized in prior periods. The $1,008,000 net gain in 2013 is a reclassification from accumulated other comprehensive income and is included in the net realized gains on sales of available-for-sale securities line item in the income statement. The related $343,000 tax expense is a reclassification from accumulated other comprehensive income and is included in the provision for

53

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

income taxes line item in the income statement. In 2012, gross gains of $1,174,000 and gross losses of $0 were realized. Gross gains of $1,830,000 and gross losses of $10,000 resulting from sales of available-for sale securities were realized in 2011. Gross gains are determined under the specific identification method.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. These declines primarily resulted from recent changes in market interest rates, failure of certain investments to maintain consistent credit quality ratings, changes in the market’s perception of the current risks or failure to meet projected earnings targets.

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 December 31, 2013 and 2012 (thousands):

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2013
U.S. government sponsored entities	$	4,727	$	(100	)	$	0	$	0		$	4,727	$	(100	)
Mortgage-backed securities:
U.S. Government-sponsored entities-residential		17,547		(205	)		0		0			17,547		(205	)
Municipal securities		31,351		(1,800	)		3,726		(479	)		35,077		(2,279	)
Total Securities	$	53,625	$	(2,105	)	$	3,726	$	(479	)	$	57,351	$	(2,584	)
December 31, 2012
Mortgage-backed securities:
U.S. Government-sponsored entities-residential	$	12,902	$	(48	)	$	1,352	$	(1	)	$	14,254	$	(49	)
Private label-residential		0		0			604		(53	)		604		(53	)
Municipal securities		6,656		(113	)		0		0			6,656		(113	)
Total Securities	$	19,558	$	(161	)	$	1,956	$	(54	)	$	21,514	$	(215	)

The unrealized losses on the Company’s investments at December 31, 2013 were caused by interest rate increases. For the U.S. government sponsored entities and municipal securities, the contractual terms do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. For the mortgage-backed securities, the Company expects to recover the amortized cost basis over the remaining term. All securities are regularly reviewed for other than temporary credit impairment. The review consists of many factors, including but not limited to, the nature of the investment, credit ratings and financial condition of the issuer, the existence of any government or agency guarantees, cash flows of the underlying collateral and market conditions. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be to be other-than-temporarily impaired at December 31, 2013.

54

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Credit Losses Recognized on Investments

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 (thousands):

	Accumulated Credit Losses
	2013			2012			2011
Credit losses on debt securities held
Balance, beginning of year	$	(119	)	$	(118	)	$	(170	)
Additions related to other-than-temporary losses not previously recognized		0			(35	)		0
Reductions related to losses realized which were previously recognized		119			34			52
Balance, end of period	$	0		$	(119	)	$	(118	)

The beginning accumulated credit loss balance related to one private-label collateralized mortgage obligation. That security was sold during the first quarter of 2013 with an additional loss of $36,000 realized at the time of sale.

Note 5: Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), included in stockholders’ equity, are as follows (thousands):

	December 31, 2013			December 31, 2012
Net unrealized gain (loss) on available-for-sale securities	$	(1,364	)	$	3,588
Net unrealized loss on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income		0			(53	)
		(1,364	)		3,535
Tax effect		464			1,202
Net-of-tax amount	$	(900	)	$	2,333

Note 6: Loans and Allowance for Loan Losses

Categories of loans at December 31, include (thousands):

	2013			2012
Commercial and industrial	$	36,792		$	54,961
Commercial real estate		189,660			179,905
Agricultural		35,160			33,679
Residential real estate		131,032			127,007
Consumer		6,766			6,319
Total loans		399,410			401,871
Less: Net deferred loan fees, premiums and discounts		86			58
Allowance for loan losses		(4,053	)		(4,760	)
Net loans	$	395,443		$	397,169

55

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The risk characteristics of each significant loan portfolio segment are as follows:

Commercial and Industrial

Commercial and industrial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial Real Estate

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus non-owner-occupied loans.

Agricultural

Agricultural loans are viewed primarily as cash flow loans where repayment comes from sales of crops and secondarily as loans secured by real estate, farm equipment or livestock. Repayment of these loans is generally dependent on the successful operation of the farming operation and is highly dependent on weather conditions.

Residential and Consumer

Residential and consumer loans consist of two segments—residential mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

56

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The following tables present the balance of the allowance for loan losses based on portfolio segment for the years ended December 31, 2013, 2012 and 2011(thousands):

Allowance for loan losses:

	Commercial			Commercial Real Estate			Agricultural			Residential 1-4 Family			Residential Home Equity			Consumer			Total
January 1, 2011	$	474		$	2,057		$	184		$	528		$	337		$	134		$	3,714
Charge-offs		(350	)		(1,300	)		(2	)		(262	)		(140	)		(198	)		(2,252	)
Recoveries		16			167			6			9			3			70			271
Provision		1,240			1,448			43			98			(5	)		111			2,935
December 31, 2011		1,380			2,372			231			373			195			117			4,668
Charge-offs		(1,513	)		(2,239	)		0			(343	)		(161	)		(109	)		(4,365	)
Recoveries		7			59			3			15			12			74			170
Provision		1,823			2,093			(149	)		415			153			(48	)		4,287
December 31, 2012		1,697			2,285			85			460			199			34			4,760
Charge-offs		(2,883	)		(415	)		0			(120	)		(169	)		(33	)		(3,620	)
Recoveries		10			230			0			17			1			65			323
Provision		2,633			(138	)		(16	)		0			174			(63	)		2,590
December 31, 2013	$	1,457		$	1,962		$	69		$	357		$	205		$	3		$	4,053

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2013 and December 31, 2012 (thousands):

	Evaluated for Impairment
	Individually		Collectively		Total
December 31, 2013
Allowance for loan losses:
Commercial	$	108	$	1,349	$	1,457
Commercial Real Estate		418		1,544		1,962
Agricultural		0		69		69
Residential—1-4 Family		0		357		357
Residential—Home equity		0		205		205
Consumer		0		3		3
Total	$	526	$	3,527	$	4,053
Loans:
Commercial	$	902	$	35,890	$	36,792
Commercial Real Estate		5,364		184,296		189,660
Agricultural		38		35,122		35,160
Residential—1-4 Family		952		101,829		102,781
Residential—Home equity		44		28,207		28,251
Consumer		9		6,757		6,766
Total	$	7,309	$	392,101	$	399,410

57

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

	Evaluated for Impairment
	Individually		Collectively		Total
December 31, 2012
Allowance for loan losses:
Commercial	$	1,029	$	668	$	1,697
Commercial Real Estate		413		1,872		2,285
Agricultural		0		85		85
Residential—1-4 Family		1		459		460
Residential—Home equity		0		199		199
Consumer		0		34		34
Total	$	1,443	$	3,317	$	4,760
Loans:
Commercial	$	4,489	$	50,472	$	54,961
Commercial Real Estate		5,524		174,381		179,905
Agricultural		75		33,604		33,679
Residential—1-4 Family		1,008		95,659		96,667
Residential—Home equity		36		30,304		30,340
Consumer		16		6,303		6,319
Total	$	11,148	$	390,723	$	401,871

The following table presents the Company’s corporate and consumer credit exposure by category and standard regulatory classification as of December 31, 2013 and December 31, 2012 (thousands):

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category:

	Commercial				Commercial Real Estate				Agricultural
December 31,	2013		2012		2013		2012		2013		2012
Pass	$	32,436	$	47,481	$	173,630	$	161,671	$	35,122	$	33,378
Other Assets Especially Mentioned		1,800		2,647		3,377		3,983		0		226
Substandard		2,410		4,687		12,653		14,251		38		75
Doubtful		146		146		0		0		0		0
Total	$	36,792	$	54,961	$	189,660	$	179,905	$	35,160	$	33,679

Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Residential-1 to 4 Family				Residential-Home Equity				Consumer
December 31,	2013		2012		2013		2012		2013		2012
Pass	$	100,362	$	94,262	$	28,072	$	30,110	$	6,696	$	6,295
Substandard		2,419		2,405		179		230		70		24
Total	$	102,781	$	96,667	$	28,251	$	30,340	$	6,766	$	6,319

58

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.

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 and leases 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.

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 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 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 or lease, 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 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.

59

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

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. Most impaired loans are on non-accrual status. Past due status is based on the contractual terms of the loan. Payments made while a loan is on non-accrual 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 present the Company’s past due and non-accrual loans as of December 31, 2013 and December 31, 2012 (thousands):

December 31, 2013:

	Past Due Days								Current		Total Financing Receivables		90+ Days & Accruing		Non- accrual
	30-59		60-89		90+		Total
Commercial	$	309	$	22	$	432	$	763	$	36,029	$	36,792	$	32	$	890
Commercial Real Estate		212		0		2,789		3,001		186,659		189,660		0		3,402
Agricultural		0		25		28		53		35,107		35,160		0		38
Residential—1 to 4 Family		0		150		502		652		102,129		102,781		0		1,175
Residential—Home Equity		40		32		100		172		28,079		28,251		0		164
Consumer		10		1		24		35		6,731		6,766		0		65
Total	$	571	$	230	$	3,875	$	4,676	$	394,734	$	399,410	$	32	$	5,734

December 31, 2012:

	Past Due Days								Current		Total Financing Receivables		90+ Days & Accruing		Non- accrual
	30-59		60-89		90+		Total
Commercial	$	65	$	91	$	4,594	$	4,750	$	50,211	$	54,961	$	620	$	4,418
Commercial Real Estate		602		26		3,590		4,218		175,687		179,905		0		3,950
Agricultural		0		0		53		53		33,626		33,679		0		75
Residential—1 to 4 Family		460		24		540		1,024		95,643		96,667		134		1,116
Residential—Home Equity		54		3		173		230		30,110		30,340		24		196
Consumer		22		38		10		70		6,249		6,319		0		60
Total	$	1,203	$	182	$	8,960	$	10,345	$	391,526	$	401,871	$	778	$	9,815

60

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The following tables present impaired loan information at and for the years ended December 31, 2013 and 2012 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):

	December 31, 2013						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	342	$	497	$	0	$	1,255	$	1,571	$	0
Commercial real estate		3,275		3,727		0		3,940		4,145		0
Agricultural		38		52		0		75		87		0
Residential—1 to 4 Family		952		1,086		0		1,008		1,126		0
Residential—Home equity		29		39		0		36		40		0
Consumer		9		10		0		16		16		0
With an allowance recorded:
Commercial	$	560	$	569	$	108	$	3,234	$	3,290	$	1,029
Commercial real estate		2,089		2,174		418		1,584		1,665		413
Agricultural		0		0		0		0		0		0
Residential—1 to 4 Family		0		0		0		0		80		1
Residential—Home equity		15		14		0		0		0		0
Consumer		0		0		0		0		2		0
Total:
Commercial	$	902	$	1,066	$	108	$	4,489	$	4,861	$	1,029
Commercial real estate		5,364		5,901		418		5,524		5,810		413
Agricultural		38		52		0		75		87		0
Residential—1 to 4 Family		952		1,086		0		1,008		1,206		1
Residential—Home equity		44		53		0		36		40		0
Consumer		9		10		0		16		18		0
	$	7,309	$	8,168	$	526	$	11,148	$	12,022	$	1,443

61

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

	For the year ended December 31, 2013				For the year ended December 31, 2012				For the year ended December 31, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	694	$	51	$	1,218	$	5	$	982	$	0
Commercial real estate		3,174		211		4,744		202		3,659		136
Agricultural		45		3		45		0		0		0
Residential—1 to 4 Family		963		29		1,293		38		1,105		51
Residential—Home equity		35		1		28		0		0		0
Consumer		12		1		12		0		0		0
With an allowance recorded:
Commercial	$	2,725	$	0	$	3,264	$	0	$	1,090	$	0
Commercial real estate		2,373		0		3,928		0		2,191		0
Agricultural		0		0		9		0		0		0
Residential—1 to 4 Family		29		0		40		0		0		0
Residential—Home equity		10		0		0		0		0		0
Consumer		0		0		1		0		0		0
Total:
Commercial	$	3,419	$	51	$	4,482	$	5	$	2,072	$	0
Commercial real estate		5,547		211		8,672		202		5,850		136
Agricultural		45		3		54		0		0		0
Residential—1 to 4 Family		992		29		1,333		38		1,105		51
Residential—Home equity		45		1		28		0		0		0
Consumer		12		1		13		0		0		0
	$	10,060	$	296	$	14,582	$	245	$	9,027	$	187

The following tables present information regarding troubled debt restructurings (“TDRs”) by segment: (dollars in thousands):

Newly classified troubled debt restructurings (dollars in thousands):

	Year Ended December 31, 2013						Year Ended December 31, 2012
			Outstanding Recorded Investment						Outstanding Recorded Investment
	Number of Contracts		Pre-Modification		Post- Modification		Number of Contracts		Pre-Modification		Post- Modification
Commercial		1	$	24	$	22		3	$	473	$	399
Commercial real estate		2		1,111		850		0		0		0
Residential		1		15		14		1		42		36
Consumer		1		8		2		2		20		16

The following table provides information on how restructured loans were modified during the years ended December 31, 2013 and 2012 (dollars in thousands):

	Years Ended
	December 31, 2013						December 31, 2012
	Recorded Investment		Amount charged off		Allowance Increased		Recorded Investment		Amount charged off		Allowance Increased
Extended maturities	$	463	$	0	$	0	$	451	$	0	$	0
Extended maturities and lowered interest rate		423		0		8		0		0		0
Lowered interest rate		2		0		0	$	0		0		0

62

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

All TDRs are considered impaired loans. The Company considers TDRs that become 30 days or more past due under the modified terms as subsequently defaulted. The Company had the following TDR’s modified in the past twelve months that subsequently defaulted during the years ended December 31, 2013 and December 31, 2012 (dollars in thousands):

	Years Ending
	December 31, 2013				December 31, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Consumer		1	$	22		1	$	2

The allowance for loan loss on the above restructured loan is based on present value of future expected cash flows and takes into account the past due payments.

The Company acquired loans from American National Bank on March 19, 2010 and by its acquisition by merger of Community National Corporation on December 31, 2009. At the time of each acquisition, there was evidence of deterioration of credit quality since origination associated with these loans for which it was probable, at acquisition, that all contractually required payments would not be collected. As of December 31, 2013 and 2012, such acquired credit-impaired loans represent less than one percent of total loans and the disclosures required under ASC 310-30 are not considered material to the overall financial statements.

Note 7: Premises and Equipment

Major classifications of premises and equipment, stated at cost, were as follows (thousands):

	2013			2012
Land	$	4,474		$	4,588
Buildings and improvements		18,537			18,922
Leasehold improvements		445			420
Equipment		11,689			12,638
	$	35,145		$	36,568
Less accumulated depreciation and amortization		(18,250	)		(18,151	)
Net premises and equipment	$	16,895		$	18,417

Note 8: Operating Leases

The Bank has entered into certain operating leases for some of its branch locations. Operating lease expense was $99,000, $94,000, and $80,000 for years 2013, 2012, and 2011, respectively. The minimum future lease payments for each of the next five years are as follows (thousands):

2014	$	91
2015		91
2016		50
2017		42
2018		42

63

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Note 9: Goodwill

All goodwill is allocated to the banking segment of the business and totaled $3,625,000 at December 31, 2013 and December 31, 2012.

Note 10: Other Intangible Assets

The carrying basis and accumulated amortization of recognized intangible assets at December 31, 2013 and 2012, were (thousands):

	2013					2012
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Core deposit intangibles	$	1,523	$	(1,211	)	$	4,515	$	(3,959	)

Amortization expense for the years ended December 31, 2013, 2012 and 2011, was $244,000, $275,000 and $353,000, respectively. Estimated amortization expense for each of the following five years is (thousands):

2014	$	179
2015		89
2016		44
2017		0
2018		0

Note 11: Interest-Bearing Deposits

Interest-bearing deposits in denominations of $100,000 or more were $18,328,000 on December 31, 2013, and $26,991,000 on December 31, 2012. At December 31, 2013, the scheduled maturities of time deposits were as follows (thousands):

2014	$	54,147
2015		17,282
2016		8,577
2017		5,966
2018		5,760
Thereafter		4,602
	$	96,334

Included in time deposits at December 31, 2013 and 2012 were $430,000 and $1,325,000 respectively, of deposits which were obtained through the Certificate of Deposit Account Registry Service (CDARS). This service allows deposit customers to maintain fully insured balances in excess of the $250,000 FDIC insurance limit without the inconvenience of having multi-banking relationships. Under the reciprocal program in which the Bank is currently participating, customers agree to allow the Bank to place their deposits with other participating banks in the CDARS program in insurable amounts under $250,000. In exchange, other banks in the program agree to place their deposits with the Bank also in insurable amounts under $250,000.

Note 12: Short-Term Borrowings

The Company had no short-term borrowings at December 31, 2013 or December 31, 2012.

64

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The Company has a line of credit of $30.0 million with the Federal Home Loan Bank of Cincinnati and two lines of credit with two other correspondent banks totaling $20.0 million at December 31, 2013. The Company has also pledged $7.5 million of securities with the Federal Reserve Bank to secure discount window borrowing if necessary.

Note 13: Long-Term Debt

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

	2013		2012
Federal Home Loan Bank advances	$	5,000	$	5,000
Junior subordinated debentures		9,310		10,310
Total	$	14,310	$	15,310

The Federal Home Loan Bank advances are secured by a blanket pledge of certain mortgage loans totaling $110,439,838 at December 31, 2013. The advance of $5.0 million, at a fixed interest rate of 2.82%, matures on January 14, 2015. Until maturity, the Federal Home Loan Bank has the option quarterly to terminate the advance and require full payment.

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 Company and payments thereunder. The junior subordinated debentures and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of Trust III under the Capital Securities. Distributions on the Capital Securities were 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, which was 1.74% at December 31, 2013. 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. Since September 6, 2012, the Capital Securities are redeemable at par. 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 December 31, 2013 and December 31, 2012, the outstanding principal balance of the Capital Securities was $9,000,000 and $10,000,000, respectively. In June 2013, the Company extinguished $1.0 million in debt at a discount with a gain of $300,000 recognized. The Company accounts for its investment in the trust as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense.

65

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Note 14: Income Taxes

The provision for income taxes includes these components (thousands):

	2013			2012			2011
Taxes currently payable	$	1,092		$	1,220		$	1,263
Deferred income taxes		(46	)		(227	)		40
Income tax expense	$	1,046		$	993		$	1,303

A reconciliation of income tax expense at the statutory rate to actual income tax expense is shown below (thousands):

	2013			2012			2011
Computed at the statutory rate (34%)	$	1,798		$	1,656		$	1,735
Increase (decrease) resulting from
Tax exempt interest		(464	)		(291	)		(153	)
ESOP dividend		(131	)		(144	)		(158	)
Bank owned life insurance		(159	)		(284	)		(165	)
Other		2			56			44
Actual tax expense	$	1,046		$	993		$	1,303

The tax effects of temporary differences related to deferred taxes shown on the balance sheets were (thousands):

	2013			2012
Deferred tax assets
Allowance for loan losses	$	1,337		$	1,563
Accruals not currently deductible		225			235
Nonaccrual loan interest collected		271			280
Stock options not currently deductible		116			100
OREO expenses not currently deductible		240			403
Other-than-temporary impairment charge		0			37
Unrealized losses on available-for-sale securities		464			0
Other		16			23
		2,669			2,641
Deferred tax liabilities
Deferred loan costs		(242	)		(214	)
Depreciation		(477	)		(537	)
FHLB stock dividends		(1,453	)		(1,453	)
Prepaid assets currently deductible		(32	)		(53	)
Unrealized gains on available-for-sale securities		0			(1,202	)
ANB purchase		(981	)		(1,423	)
Non-taxable purchase accounting adjustments		(260	)		(262	)
Bad debt recapture		0			(131	)
Intangible asset amortization		(709	)		(544	)
Other		(35	)		(48	)
		(4,189	)		(5,867	)
Net deferred tax liability	$	(1,520	)	$	(3,226	)

66

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Note 15: Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2013, that the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2013, the Company and the Bank met the capital requirements to be deemed well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s and Bank’s category.

The Company’s and the Bank’s actual and required capital amounts and ratios are presented in the following table (dollars in thousands):

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2013
Total Risk-Based Capital to Risk-Weighted Assets:
Consolidated	$	79,041		19.10	%	$	33,107		8.0	%		N/A		N/A
Bank		71,729		17.35			33,080		8.0		$	41,349		10.0	%
Tier I Capital to Risk-Weighted Assets:
Consolidated		74,988		18.12			16,553		4.0			N/A		N/A
Bank		67,676		16.37			16,540		4.0			24,810		6.0
Tier I Capital to Average Assets:
Consolidated		74,988		11.56			25,952		4.0			N/A		N/A
Bank		67,676		10.41			25,992		4.0			32,490		5.0
As of December 31, 2012
Total Risk-Based Capital to Risk-Weighted Assets:
Consolidated	$	79,975		19.51	%	$	32,791		8.0	%		N/A		N/A
Bank		71,899		17.55			32,766		8.0		$	40,957		10.0	%
Tier I Capital to Risk-Weighted Assets:
Consolidated		75,215		18.35			16,396		4.0			N/A		N/A
Bank		67,139		16.39			16,383		4.0			24,574		6.0
Tier I Capital to Average Assets:
Consolidated		75,215		11.27			26,701		4.0			N/A		N/A
Bank		67,139		10.12			26,534		4.0			33,167		5.0

67

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2013, approximately $10,000 in retained earnings were available for dividend declaration without prior regulatory approval.

Note 16: Related Party Transactions

The Bank had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties). A summary of the related party loan activity follows (thousands):

	2013			2012
Balance, January 1	$	3,777		$	3,011
New loans		407			1,239
Payments		(1,437	)		(95	)
Other changes		0			(378	)
Balance, December 31	$	2,747		$	3,777

In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features. Other changes represent reclassification of a loan previously reported as a related party transaction where the borrower is no longer a related party.

Deposits from related parties held by the Bank at December 31, 2013 and 2012 totaled $1,172,000 and $1,255,000 respectively.

Note 17: Employee Benefits

The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute up to 50% of their compensation. The Bank’s plan was amended in 2013, and the Bank will now match 100% of the first 3% of compensation contributed by an employee and 50% of the next 2% of compensation contributed by an employee. In 2012 and 2011, the Bank matched up to 3% of an employee’s compensation for the first 8% of their compensation contributed to the plan. Employer contributions charged to expense for 2013, 2012 and 2011 were $273,000, $164,000, and $195,000, respectively.

Also, the Bank has a deferred compensation agreement with one retired officer. The agreement provides level monthly or annual payments for twenty years after retirement. The charge to expense for the agreement was $43,000, $45,000 and $47,000 for 2013, 2012 and 2011, respectively. Such charges reflect the straight-line interest accrual using a 6.5% discount factor.

The Company sponsors an employee stock ownership plan (ESOP) that covers substantially all employees who meet minimum age and length of service requirements. Shares of the Company’s common stock held by the ESOP were purchased with the proceeds of borrowings from the Company. In December 2010, the Plan’s debt, which was due to mature in 2011, was paid in full and all remaining shares were released for allocation. There was no ESOP compensation expense in 2013, 2012 and 2011 due to all shares being fully allocated. Total ESOP shares, which were fully allocated, were 308,712 and 351,463, respectively, as of December 31, 2013 and 2012.

68

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Note 18: Stock Option Plans

The Company adopted an equity plan in 2006, which is shareholder approved and permits the Company to grant options, restricted stock or stock appreciation rights of up to 270,000 shares of common stock. The Company believes that such awards better align the interests of its directors and employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on three years of continuous service and have a ten-year contractual term. The previous plan, which was terminated in 2006, still had options to purchase 25,000 shares outstanding at December 31, 2013. These options vest over five years. In addition, an option to purchase 30,000 shares was awarded to the Company’s President upon his employment, which vested over five years. Certain option and share awards provide for an exchange of unvested options for a cash payment or shares of stock if there is a change in control (as defined in the plan). The compensation cost for the stock option expense recognized in 2013, 2012 and 2011 was calculated for all grants based on the grant date’s fair value and totaled $192,000, $174,000 and $171,000, respectively. The related tax benefit for 2013, 2012 and 2011 was $65,000, $59,000 and $58,000, respectively.

The fair value of each option award is estimated on the date of grant using a binomial option valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and participant termination within the valuation model; separate groups of participants that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	2013			2012			2011
Expected volatility		49.2	%		50.2	%		50.4	%
Weighted-average volatility		49.2	%		50.2	%		50.4	%
Expected dividends		6.0	%		6.0	%		6.0	%
Expected term (in years)		6.0			6.0			6.0
Risk-free rate		0.9	%		1.1	%		2.4	%
Weighted-average fair value of options granted during the year	$	4.88		$	5.01		$	6.16

Historically, the Company has fulfilled option exercises through available treasury shares.

A summary of option activity under the plans as of December 31, 2013, and changes during the year then ended, is presented below.

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, beginning of year		267,874		$	20.54
Granted		52,000			19.30
Exercised		16,585			17.10
Forfeited or expired		(35,667	)		22.96
Outstanding, end of year		267,622		$	20.19		5.34	$	141,763
Exercisable, end of year		197,246		$	20.37		4.10	$	139,203

69

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The total intrinsic value of options exercised during the year ended December 31, 2013 was $72,000. The total intrinsic value of options exercised during the year ended December 31, 2012 was $12,000. There were no options exercised during the year ended December 31, 2011. As of December 31, 2013, there was $205,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of ten months.

Note 19: Earnings Per Share

Earnings per share (EPS) were computed as follows (thousands, except share and per share amounts):

	2013		2012		2011
Basic earnings per share:
Net income	$	4,243	$	3,877	$	3,801
Weighted average common shares outstanding		3,419,259		3,423,800		3,423,995
Basic earnings per share	$	1.24	$	1.13	$	1.11
Diluted earnings per share:
Net income	$	4,243	$	3,877	$	3,801
Weighted average common shares outstanding		3,419,259		3,423,800		3,423,995
Effect of dilutive securities—stock options		11,458		6,550		12,364
Average shares and dilutive potential common shares		3,430,717		3,430,350		3,436,359
Diluted earnings per share	$	1.24	$	1.13	$	1.11

As of December 31, 2013, options to purchase 197,100 shares of common stock at $19.22 to $30.50 per share were outstanding but not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares.

As of December 31, 2012, options to purchase 212,267 shares of common stock at $19.00 to $30.50 per share were outstanding but not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares.

As of December 31, 2011, options to purchase 193,600 shares of common stock at $20.88 to $30.50 per share were outstanding but not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares.

Note 20: Commitments and Contingencies

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

70

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

At December 31, 2013 and 2012, the Bank had the following commitments outstanding (thousands):

	2013		2012
Commitments at variable rates of interest	$	3,090	$	18,394
Commitments at fixed rates of interest		130		4,200
Total business loan commitments	$	3,220	$	22,594

The commitments extended over varying periods of time with the majority being disbursed within a one-year period.

Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

At December 31, 2013 and 2012, the Bank had total outstanding letters of credit of (thousands):

	2013		2012
Letters of credit	$	747	$	1,742
Range of terms		30 days to two years		30 days to one year

Mortgage loans in the process of origination represent amounts that the Bank plans to fund within a normal period of 60 to 90 days, some of which are intended for sale to investors in the secondary market. Forward commitments to sell mortgage loans are obligations to deliver loans at a specified price on or before a specified future date. The Bank acquires such commitments to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale.

At December 31, 2013 and 2012, total mortgage loans in the process of origination amounted to (thousands):

	2013		2012
Commitments to originate mortgage loans	$	410	$	2,276
Commitments at fixed rates of interest		410		2,056
Commitments to sell mortgage loans		0		255

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

At December 31, 2013 and 2012, the Bank had the following lines of credit outstanding (thousands):

	2013		2012
Commercial lines	$	33,670	$	29,700
Consumer lines		41,617		40,886

71

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

At December 31, 2013, the Bank had $443,000 in Federal Funds sold invested at U.S. Bank.

Note 21: Fair Value Measurements

The Company accounts for fair values in accordance with accounting guidance for Fair Value Measurements prescribed under the FASB Accounting Standards Codification. The ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

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 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 sheets, as well as the general classification of such assets pursuant to the valuation hierarchy:

Available-for-Sale Securities

The fair value of available-for-sale securities are determined by various valuation methodologies. The Company has no securities classified as Level 1 or Level 3. 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 ASC fair value hierarchy in which the fair value measurements fall at December 31, 2013 and December 31, 2012. (See fair values by type of security in Note 2) (thousands):

	Fair Value		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
December 31, 2013:
Available-for-sale securities	$	138,098	$	0	$	138,098	$	0
December 31, 2012:
Available-for-sale securities	$	133,020	$	0	$	133,020	$	0

72

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

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 sheets, as well as the general classification of such assets pursuant to the valuation hierarchy:

Impaired Loans (Collateral Dependent)

At December 31, 2013 and 2012, impaired loans consisted primarily of loans secured by commercial real estate. Management has determined fair value measurements on impaired loans secured by real estate primarily through evaluations of appraisals performed, less estimated cost to sell. Appraisals are reviewed for accuracy and consistency by the Bank’s Credit Administration area, and appraisers are selected from the list of approved appraisers maintained by management. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. The Bank also has some impaired loans secured by accounts receivable, inventory or equipment. Management has determined fair value measurements based on review of recent financial statements or research of current equipment values.

Other Real Estate Owned

Real estate acquired through, or in lieu of, loan foreclosure (OREO) 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, new appraisals are periodically obtained by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Appraisals are reviewed for accuracy and consistency by the Bank’s Credit Administration area, and appraisers are selected from the list of approved appraisers maintained by management. OREO is classified within Level 3 of the fair value hierarchy.

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the ASC fair value hierarchy in which the fair value measurements fall at December 31, 2013 and December 31, 2012. The values below only represent those assets with a change in their fair value estimate since the previous year end (thousands).

	Fair Value		Fair Value Measurements at Reporting Date Using
Description			Level 1		Level 2		Level 3
December 31, 2013:
Impaired loans Other real estate owned	$	2,907 140	$	0 0	$	0 0	$	2,907 140
December 31, 2012:
Impaired loans	$	2,047	$	0	$	0	$	2,047
Other real estate owned		613		0		0		613

73

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill (thousands).

Description	Fair Value		Valuation Technique	Unobservable Inputs	Estimated Cost
December 31, 2013:
Impaired loans	$	2,907	Market comparable properties	Estimated costs to sell		10	%
Other real estate owned	$	140	Market comparable properties	Comparability adjustments		10	%
December 31, 2012:
Impaired loans	$	2,047	Market comparable properties	Estimated costs to sell		10	%
Other real estate owned	$	613	Market comparable properties	Comparability adjustments		10	%

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall. 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):

	Fair Value Measurements Using
	Carrying Amount		Level 1		Level 2		Level 3
December 31, 2013:
Financial assets
Cash and cash equivalents	$	51,499	$	51,499	$	0	$	0
Loans including loans held for sale, net		395,443		0		0		398,491
Stock in FRB and FHLB		10,035		0		10,035		0
Earned income receivable		2,546		0		2,546		0
FDIC loss share receivable		525		0		0		525
Financial liabilities
Deposits		550,800		0		552,467		0
Long-term debt		14,310		0		8,250		0
Interest payable		74		0		74		0
December 31, 2012:
Financial assets
Cash and cash equivalents	$	64,509	$	64,509	$	0	$	0
Loans including loans held for sale, net		397,424		0		0		407,145
Stock in FRB and FHLB		10,030		0		10,030		0
Earned income receivable		2,732		0		2,732		0
FDIC loss share receivable		1,340		0		0		1,340
Financial liabilities
Deposits		559,568		0		561,871		0
Long-term debt		15,310		0		9,165		0
Interest payable		108		0		108		0

74

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and Cash Equivalents

The carrying amount approximates fair value.

Loans, Including Loans Held for Sale, Net

Fair value is estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities. The market rates used are based on current rates the Bank would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions.

Stock in FRB and FHLB

Fair value is estimated at book value due to restrictions that limit the sale or transfer of such stock.

FDIC Loss Share Receivable

The carrying amount approximates fair value. The carrying amount is based on future expected losses on loans covered under the loss share agreement with the FDIC.

Earned Income Receivable and Interest Payable

The carrying amount approximates fair value. The carrying amount for interest receivable and interest payable is determined using the interest rate, balance and last payment date. Trust income and commissions receivable is based on trust fee schedules, market value of trust assets and brokerage commission schedules.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were based on current rates the Bank would offer on similar term deposits. The estimated fair value of demand, NOW, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

Long-term Debt

Fair value of Federal Home Loan debt is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by FHLB. Fair value of trust preferred debt is estimated by discounting the future cash flows using rates of similar trust preferred debt issuances. These rates were obtained from a knowledgeable independent third party and reviewed by the Company.

Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit, and Lines of Credit

The fair value of commitments to originate loans 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 forward sale commitments is estimated based on

75

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are 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 December 31, 2013 and 2012, the fair value of commitments was not material.

Note 22: Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company at and for the years ended December 31 (thousands):

CONDENSED BALANCE SHEETS

	2013		2012
Assets
Cash and due from banks	$	7,414	$	7,167
Investment in common stock of banking subsidiary		69,723		72,745
Investment in nonbanking subsidiary		303		302
Other assets		941		929
Total assets	$	78,381	$	81,143
Liabilities
Long-term debt	$	9,310	$	10,310
Other liabilities		1,036		13
Total liabilities		10,346		10,323
Stockholders’ Equity		68,035		70,820
Total liabilities and stockholders’ equity	$	78,381	$	81,143

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	2013			2012			2011
Income
Dividends from banking subsidiary	$	4,100		$	4,200		$	4,000
Dividends from non-banking subsidiary		5			45			0
Gain on extinguishment of long-term debt		300			0			0
Total income		4,405			4,245			4,000
Expenses
Interest expense		176			558			730
Directors fees		60			70			66
Other expenses		82			83			88
Total expenses		318			711			884
Income Before Income Tax and Equity in Undistributed Income of Subsidiaries		4,087			3,534			3,116
Income Tax Benefit		(135	)		(379	)		(451	)
Income Before Equity in Undistributed Income of Subsidiaries		4,222			3,913			3,567
Equity in Undistributed Income (Excess Distributions) of Banking Subsidiary		20			(9	)		212
Equity in Undistributed Income (Loss) of Nonbanking Subsidiary		1			(27	)		22
Net Income	$	4,243		$	3,877		$	3,801
Comprehensive Income	$	1,010		$	4,002		$	3,726

76

Notes to Consolidated Financial Statements—(Continued)

Years Ended December 31, 2013, 2012 and 2011

CONDENSED STATEMENTS OF CASH FLOWS

	2013			2012			2011
Operating Activities
Net income	$	4,243		$	3,877		$	3,801
Items providing (using) cash		(338	)		895			(685	)
Net cash provided by operating activities		3,905			4,772			3,116
Financing Activities
Cash dividends paid		(3,077	)		(5,134	)		(4,109	)
Proceeds from stock options exercised		283			52			0
Purchase of treasury stock		(198	)		(276	)		(16	)
Sale of treasury stock		34			185			0
Repayment of long-term debt		(700	)		0			0
Net cash used in financing activities		(3,658	)		(5,173	)		(4,125	)
Net Change in Cash and Cash Equivalents		247			(401	)		(1,009	)
Cash and Cash Equivalents at Beginning of Year		7,167			7,568			8,577
Cash and Cash Equivalents at End of Year	$	7,414		$	7,167		$	7,568

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Based upon their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of December 31, 2013, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective. During the quarter ended December 31, 2013, no changes have occurred in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

The “Management’s Report on Internal Control Over Financial Reporting” in Item 8 of this annual report is incorporated herein by reference.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information contained in the Proxy Statement under the captions “PROPOSAL 1: ELECTION OF DIRECTORS,” “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS-Executive Officers” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” is incorporated herein by reference.

The Board of Directors has determined that Audit Committee Member, Charles L. Dehner, is an “audit committee financial expert,” as defined in 17 C.F.R. Section 229.407(d)(5), and that he is “independent” under the applicable rules of The NASDAQ Stock Market LLC.

NB&T Financial Group, Inc. has adopted a Code of Ethics applicable to its principal executive officer, principal financial officer, principal accounting officer and others. The Code of Ethics is posted on the registrant’s web site at www.nbtdirect.com. Amendments to the Code of Ethics and waivers of the provisions of the Code of Ethics will also be posted on the registrant’s web site.

Directors as of March 3, 2014 were as follows:

S. Craig Beam, Member of Thorobeam Farm, LLC.

Charles L. Dehner, Retired Executive Vice President and CFO of NB&T Financial Group, Inc. and The National Bank and Trust Company.

Daniel A. DiBiasio, President of Ohio Northern University.

G. David Hawley, Retired Minister of Indian Hill Episcopal-Presbyterian Church of Cincinnati.

Brooke Williams James, Business Administrator of WMSALL Farms.

John J. Limbert, President and CEO of NB&T Financial Group, Inc. and The National Bank and Trust Company.

78

D. Jeffery Lykins, President of Lykins Companies, a petroleum marketing company.

James M. Reynolds, President of Wilmington College.

Timothy L. Smith, Chairman, Retired President and CEO of NB&T Financial Group, Inc. and The National Bank and Trust Company.

Item 11. Executive Compensation

The information contained in the Proxy Statement under the caption “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS” is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

The information contained in the Proxy Statement under the caption “VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference. The information in Item 5 of this Form 10-K regarding shares to be issued upon the exercise of options and restricted stock awards is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information contained in the Proxy Statement under the caption “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” is incorporated herein by reference. The Board of Directors of NBTF has determined that all of the directors except Mr. Limbert are “independent” under the listing standards of The NASDAQ Stock Market, LLC (“Nasdaq”). In determining independence, the Board of Directors considered loan and deposit relationships with each director. The rules of Nasdaq do not deem such relationships to disqualify a director from being deemed independent. In addition, all loans and other extensions of credit to directors were made and deposits accepted in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with persons not related to the Bank. Further, in management’s opinion, the loans did not involve more than normal risk of collectibility or present other unfavorable features. The Board of Directors does not believe such relationships interfere with the directors’ exercise of independent judgment in carrying out their responsibilities as directors.

Item 14. Principal Accountant Fees and Services

The information contained in the Proxy Statement under the caption “PROPOSAL 2: RATIFICATION OF THE SELECTION OF BKD, LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” is incorporated herein by reference.

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PART IV

Item  15. Exhibits and Financial Statement Schedules

(a)

(1) Financial Statements—See Index to Consolidated Financial Statements in Item 8 of this Form 10-K.

(2) Financial Statement Schedules—None

(b) Exhibits

EXHIBIT NUMBER	DESCRIPTION
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.
4.0	Agreement to furnish instruments and agreements defining rights of holders of long-term debt
10.1*	InterCounty Bancshares, Inc. Non-qualified Stock Option Plan
10.2*	NB&T Financial Group, Inc. Supplemental Executive Retirement Plan
10.3*	NB&T Financial Group, Inc. Supplemental Executive Retirement Plan Participation Agreement – Timothy L. Smith
10.4*	Stock Option Award Agreement for John J. Limbert
10.5*	Severance Agreement for Craig F. Fortin
10.6*	Severance Agreement for W. Keith Argabright
10.7*	Employment Agreement with John J. Limbert
10.8*	NB&T Financial Group, Inc. Amended and Restated 2006 Equity Plan
10.9*	First Amendment to Stock Option Award Agreement for John J. Limbert
10.10*	First Amendment to Employment Agreement with John J. Limbert
10.11*	First Amendment to the Severance Agreement with Craig F. Fortin and W. Keith Argabright
10.12*	Form of Amended and Restated 2006 Equity Plan Award Agreement (Employee Award) for awards beginning 4/23/08
10.13*	Form of Amended and Restated 2006 Equity Plan Award Agreement (Directors’ Nonqualified Stock Option)-for awards beginning 4/23/08
10.14*	Form of NB&T Financial Group, Inc. 2006 Equity Plan Award Agreement for Employee Awards – for awards prior to 4/23/08
10.15*	Form of NB&T Financial Group, Inc. 2006 Equity Plan Award Agreement for Directors’ Nonqualified Stock Options – for awards prior to 4/23/08
10.16*	The National Bank and Trust Company Annual Incentive Plan Amended and Restated Effective January 1, 2011
10.17	Purchase and Assumption Agreement Whole Bank All Deposits, Among Federal Deposit Insurance Corporation, Receiver of American National Bank, Parma, Ohio, Federal Deposit Insurance Corporation and the National Bank and Trust Company, dated as of March 19, 2010

80

EXHIBIT NUMBER	DESCRIPTION
10.18*	Retirement Pay Agreement and General Release between The National Bank and Trust Company and Stephen G. Klumb
21	Subsidiaries of NB&T Financial Group, Inc.
23	Consent of Independent Accountants – BKD, LLP
31.1	Rule 13a-14(a)/Section 302 Certification of Chief Executive Officer
31.2	Rule 13a-14(b)/Section 302 Certification of Chief Financial Officer
32.1	Rule 13a-14(b)/Section 906 Certification of Chief Executive Officer
32.2	Rule 13a-14(b)/Section 906 Certification of Chief Financial Officer
101	The following materials from NB&T Financial Group, Inc.’s, Annual Report on Form 10-K for the annual period ended December 31, 2013 formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012; (ii) the Consolidated Statements of Income for the three years ended December 31, 2013, 2012 and 2011 ; (iii) the Consolidated Statements of Cash Flows for the three years ended December 31, 2013, 2012 and 2011; the Consolidated Statements of Changes in Shareholders Equity for the three years ended December 31, 2013, 2012 and 2011; the Consolidated Statements of Comprehensive Income for the three years ended December 31, 2013, 2012 and 2011 and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text (furnished herewith).

* Indicates a management contract or compensatory plan or arrangement.

81

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
	By	/S/    JOHN J. LIMBERT
		John J. Limbert
		President and Chief Executive Officer
March 18, 2014		(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/S/    CRAIG F. FORTIN	By:	/S/    JOHN J. LIMBERT
	Craig F. Fortin Senior Vice President and Chief Financial Officer (Principal Accounting Officer)		John J. Limbert President, Chief Executive Officer and a Director
Date: March 18, 2014		Date: March 18, 2014
By:	/S/    TIMOTHY L. SMITH	By:	/S/    G. DAVID HAWLEY
	Timothy L. Smith Director		G. David Hawley Director
Date: March 18, 2014		Date: March 18, 2014
By:	/S/    CRAIG BEAM	By:	/S/    BROOKE WILLIAMS JAMES
	S. Craig Beam Director		Brooke Williams James Director
Date: March 18, 2014		Date: March 18, 2014
By:	/S/    D. JEFFERY LYKINS	By:	/S/    CHARLES L. DEHNER
	D. Jeffery Lykins Director		Charles L. Dehner Director
Date: March 18, 2014		Date: March 18, 2014
By:	/S/    DANIEL A. DIBIASIO	By:	/S/    JAMES M. REYNOLDS
	Daniel A. DiBiasio Director		James M. Reynolds Director
Date: March 18, 2014

82

INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION	PAGE REFERENCE
3.1	Third Amended and Restated Articles of Incorporation of NB&T Financial Group, Inc.	Incorporated by reference to registrant’s Definitive Proxy Statement filed on March 21, 2003, Exhibit A (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 (File No. 000-23134)
4.0	Agreement to furnish instruments and agreements defining rights of holders of long-term debt	Included herewith
10.1*	InterCounty Bancshares, Inc. Non-qualified Stock Option Plan	Incorporated by reference to the Registration Statement on Form S-1 filed by registrant on July 2, 1993 (Registration No. 33-65608), Exhibit 10.1
10.2*	NB&T Financial Group, Inc. Supplemental Executive Retirement Plan	Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002, Exhibit 10.1 (File No. 000-23134)
10.3*	NB&T Financial Group, Inc. Supplemental Executive Retirement Plan Participation Agreement – Timothy L. Smith	Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002, Exhibit 10.2 (File No. 000-23134)
10.4*	Stock Option Award Agreement for John J. Limbert	Incorporated by reference to registrant’s Form 10-Q filed on May 11, 2006, Exhibit 10.4 (File No. 000-23134)
10.5*	Severance Agreement for Craig F. Fortin	Incorporated by reference to registrant’s Form 10-Q filed on November 9, 2007, Exhibit 10.2 (File No. 000-23134)
10.6*	Severance Agreement for W. Keith Argabright	Incorporated by reference to registrant’s Form 10-Q filed on November 9, 2007, Exhibit 10.3 (File No. 000-23134)
10.7*	Employment Agreement with John J. Limbert	Incorporated by reference to registrant’s Form 8-K filed on November 23, 2007, Exhibit 1 (File No. 000-23134)
10.8*	NB&T Financial Group, Inc. Amended and Restated 2006 Equity Plan	Incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 17, 2009, Exhibit 10.9 (File No. 000-23134)
10.9*	First Amendment to Stock Option Award Agreement for John J. Limbert	Incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 17, 2009, Exhibit 10.10 (File No. 000-23134)
10.10*	First Amendment to Employment Agreement with John J. Limbert	Incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 17, 2009, Exhibit 10.11 (File No. 000-23134)

83

EXHIBIT NUMBER	DESCRIPTION	PAGE REFERENCE
10.11*	First Amendment to the Severance Agreement with Craig F. Fortin and W. Keith Argabright	Incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 17, 2009, Exhibit 10.12 (File No. 000-23134)
10.12*	Form of Amended and Restated 2006 Equity Plan Award Agreement (Employee Award) for awards beginning 4/23/08	Incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 17, 2009, Exhibit 10.13 (File No. 000-23134)
10.13*	Form of Amended and Restated 2006 Equity Plan Award Agreement (Directors’ Nonqualified Stock Option) for awards beginning 4/23/08	Incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 17, 2009, Exhibit 10.14 (File No. 000-23134)
10.14*	Form of NB&T Financial Group, Inc. 2006 Equity Plan Award Agreement for Employee Awards – for awards prior to 4/23/08	Incorporated by reference to registrant’s Form 10-Q filed on November 13, 2006 (File No. 000-23134)
10.15*	Form of NB&T Financial Group, Inc. 2006 Equity Plan Award Agreement for Directors’ Nonqualified Stock Options – for awards prior to 4/23/08	Incorporated by reference to registrant’s Form 8-K filed on April 28, 2006 (File No. 000-23134)
10.16*	The National Bank and Trust company Annual Incentive Plan Amended and Restated Effective January 1, 2011	Incorporated by reference to registrant’s Current Report on Form 8-K filed on February 24, 2012 (File No. 000-23134)
10.17	Purchase and Assumption Agreement Whole Bank All Deposits, Among Federal Deposit Insurance Corporation, Receiver of American National Bank, Parma, Ohio, Federal Deposit Insurance Corporation and the National Bank and Trust Company, dated as of March 19, 2010	Incorporated by reference to registrant’s Current Report on Form 8-K filed on March 23, 2010, Exhibit 2.1 (SEC File No. 000-23134)
10.18*	Retirement Pay Agreement and General Release between The National Bank and Trust Company and Stephen G. Klumb	Incorporated by reference to registrant’s Quarterly Report on Form 10-Q filed on November 8, 2012, Exhibit 10.1 (SEC File No. 000-23134)
21	Subsidiaries of NB&T Financial Group, Inc.	Included herewith
23	Consent of Independent Accountants – BKD, LLP	Included herewith
31.1	Rule 13a-14(a)/Section 302 Certification of Chief Executive Officer	Included herewith
31.2	Rule 13a-14(b)/Section 302 Certification of Chief Financial Officer	Included herewith
32.1	Rule 13a-14(b)/Section 906 Certification of Chief Executive Officer	Included herewith
32.2	Rule 13a-14(b)/Section 906 Certification of Chief Financial Officer	Included herewith

84

EXHIBIT NUMBER	DESCRIPTION	PAGE REFERENCE
101	The following materials from NB&T Financial Group, Inc.’s, Annual Report on Form 10-K for the annual period ended December 31, 2013 formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012; (ii) the Consolidated Statements of Income for the three years ended December 31, 2013, 2012 and 2011 ; (iii) the Consolidated Statements of Cash Flows for the three years ended December 31, 2013, 2012 and 2011; the Consolidated Statements of Changes in Shareholders Equity for the three years ended December 31, 2013, 2012 and 2011; the Consolidated Statements of Comprehensive Income for the three years ended December 31, 2013, 2012 and 2011 and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text (furnished herewith).	Included herewith

* Indicates a management contract or compensatory plan or arrangement.

85