Merger and Acquisition Activity

12 Months Ended

Dec. 31, 2012

Merger and Acquisition Activity [Abstract]

Merger and Acquisition Activity

(2) Merger and Acquisition Activity

Acquisition of Alliance Financial Corporation

On October 7, 2012, NBT Bancorp and Alliance Financial Corporation ("Alliance") entered into a definitive agreement and plan of merger pursuant to which Alliance will merge with and into NBT Bancorp, with NBT Bancorp continuing as the surviving corporation. The agreement also provides for Alliance Bank, National Association ("Alliance Bank"), a wholly owned subsidiary of Alliance, to be merged with and into NBT Bank following completion of the merger. Alliance, with assets of approximately $1.4 billion at December 31, 2012, is headquartered in Syracuse, N.Y. Its primary subsidiary, Alliance Bank, is a nationally chartered community bank with 26 banking locations in central New York. The transaction is valued at approximately $233.4 million, to be paid in the form of shares of the Company's common stock. Subject to the required approvals of NBT Bancorp and Alliance shareholders, requisite regulatory approvals (which were received in early 2013) and other customary closing conditions, the merger is expected to be completed in early 2013.

Acquisition of Hampshire First Bank

On June 8, 2012, the Company acquired all of the outstanding common shares of Hampshire First Bank ("Hampshire First"). The five banking centers operated by Hampshire First located in Manchester, Londonderry, Nashua, Keene and Portsmouth, New Hampshire continue to do business under the Hampshire First name as a division of the Bank. This business combination is a strategic extension of the Company's franchise.

Hampshire First shareholders received approximately 1.3 million shares of the Company's common stock and $17.2 million in cash. On the acquisition date, Hampshire First had approximately 2.8 million outstanding common shares. Under the terms of the merger agreement between the Company, NBT Bank and Hampshire First, the Company paid $15.00 per share for 35% of the outstanding Hampshire First common shares, while the remaining 65% of outstanding Hampshire First shares received 0.7019 shares of the Company's common stock for each share. The Company's common stock issued in this exchange were valued at $20.34 per share based on the average of the daily closing price of the Company's common stock for the ten trading days immediately prior to June 8, 2012. The Company paid $2.6 million in cash to retire outstanding Hampshire First stock options and warrants.

The results of Hampshire First's operations are included in the Consolidated Statements of Income from the date of acquisition. In connection with the merger, the consideration paid, the assets acquired, and the liabilities assumed were recorded at fair value on the date of acquisition, as summarized in the following tables, in thousands, as of June 8, 2012

Consideration Paid:
NBT Bancorp common stock issued to Hampshire First common stockholders	$	25,824
Cash consideration paid to Hampshire First common stockholders		14,616
Cash consideration paid for Hampshire First employee stock options and warrants		2,583
Total consideration paid	$	43,023
Recognized Amounts of Identifiable Assets Acquired and (Liabilities Assumed), At Fair Value:
Cash and short term investments	$	22,149
Loans		218,801
Federal Home Loan Bank common stock		1,014
Core deposit intangibles		797
Other assets		12,926
Deposits		(228,198	)
Borrowings		(41	)
Other liabilities		(2,848	)
Total identifiable net assets	$	24,600
Goodwill	$	18,423

The fair values for most loans acquired from Hampshire First were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. The Company acquired the loan portfolio at a fair value discount of approximately $5.7 million. The discount represents expected credit losses, net of market interest rate adjustments. The discount on loans receivable will be amortized to interest income over the estimated remaining life of the acquired loans using the level yield method.

To estimate the fair value of collateral dependent problem loans, we analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral. We discounted those values using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of Hampshire First's allowance for credit losses associated with the loans we acquired as the loans were initially recorded at fair value.

Information about the acquired loan portfolio as of June 8, 2012 is as follows (in thousands):

Contractually required principal and interest at acquisition	$	226,631
Contractual cash flows not expected to be collected		(7,985	)
Expected cash flows at acquisition		218,646
Interest component of expected cash flows (accretable premium)		155
Fair value of acquired loans	$	218,801

The core deposit intangible asset recognized as part of the Hampshire First merger is being amortized over its estimated useful life of approximately ten years utilizing an accelerated method.

The goodwill is not amortized for book purposes and is not deductible for tax purposes.

The fair value of savings and transaction deposit accounts acquired from Hampshire First was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates. The projected cash was calculated by discounting their contractual cash flows at a market rate for a certificate of deposit with a corresponding maturity.

In addition to the goodwill and intangible assets from the Hampshire First merger noted above, the Company also acquired approximately $1.9 million of goodwill and $1.4 million of other intangible assets from other acquisition activity during 2012.