10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, DC 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, 2012

COMMISSION FILE NUMBER: 0-14703

NBT BANCORP INC.

(Exact name of registrant as specified in its charter)

Delaware	16-1268674
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

52 SOUTH BROAD STREET

NORWICH, NEW YORK 13815

(Address of principal executive office) (Zip Code)

(607) 337-2265 (Registrant’s telephone number, including area code)

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

Title of each class:		Name of each exchange on which registered:
	Common Stock, par value $0.01 per share	The NASDAQ Stock Market LLC
	Stock Purchase Rights Pursuant to Stockholders Rights Plan

Securities registered pursuant to section 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 x  No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.  Yes o  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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 o

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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.  o

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.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

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

Based on the closing price of the registrant’s common stock as of June 30, 2012, the aggregate market value of the voting stock, common stock, par value, $0.01 per share, held by non-affiliates of the registrant is $688,194,085.

The number of shares of common stock outstanding as of February 15, 2013, was 33,795,298.

DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the registrant’s definitive Proxy Statement for its Annual Meeting  of Stockholders to be held on May 7, 2013 are incorporated by reference into  Part  III,  Items  10,  11,  12,  13  and  14  of  this  Form  10-K.

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NBT BANCORP INC.

FORM 10-K – Year Ended December 31, 2012

TABLE OF CONTENTS

PART I
ITEM 1	BUSINESS	5
ITEM 1A	RISK FACTORS	19
ITEM 1B	UNRESOLVED STAFF COMMENTS	27
ITEM 2	PROPERTIES	28
ITEM 3	LEGAL PROCEEDINGS	29
ITEM 4	MINE SAFETY DISCLOSURES	29
PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	29
ITEM 6	SELECTED FINANCIAL DATA	32
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	60
ITEM  8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	62
	Report of Independent Registered Public Accounting Firm	62
	Consolidated Balance Sheets at December 31, 2012 and 2011	63
	Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2012	64
	Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2012	65
	Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period ended December 31, 2012	66
	Consolidated Statements of Cash Flows for each of the years in the three- year period ended December 31, 2012	67
	Notes to Consolidated Financial Statements	69
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	124

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ITEM 9A	CONTROLS AND PROCEDURES	124
ITEM 9B	OTHER INFORMATION	126
PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	126
ITEM 11	EXECUTIVE COMPENSATION	127
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	127
ITEM 13	CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	127
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	127
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	128
SIGNATURES		131

4

PART I

ITEM 1. Business

NBT Bancorp Inc. (the “Registrant” or the “Company”) is a registered financial holding company incorporated in the state of Delaware in 1986, with its principal headquarters located in Norwich, New York. The Company, on a consolidated basis, at December 31, 2012 had assets of $6.0 billion and stockholders’ equity of $582.3 million.  Return on average assets and return on average equity were 0.93% and 9.72%, respectively, for the year ending December 31, 2012.  The Company had net income of $54.6 million or $1.62 per diluted share for 2012 and the fully taxable equivalent (“FTE”) net interest margin was 3.86% for the same year.

The principal assets of the Registrant consist of all of the outstanding shares of common stock of its subsidiaries, including:  NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”), NBT Holdings, Inc. (“NBT Holdings”), Hathaway Agency, Inc., and CNBF Capital Trust I, NBT Statutory Trust I and NBT Statutory Trust II (collectively, the “Trusts”).  The Company’s principal sources of revenue are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings.

The Company’s business, primarily conducted through the Bank but also through its other subsidiaries, consists of providing commercial banking and financial services to customers in its market area, which includes central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts and the greater Burlington, Vermont area.  The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services.  The Company’s business philosophy is to operate as a community bank with local decision-making, principally in non-metropolitan markets, providing a broad array of banking and financial services to retail, commercial, and municipal customers.  The financial condition and operating results of the Company are dependent on its net interest income which is the difference between the interest and dividend income earned on its earning assets, primarily loans and investments, and the interest expense paid on its interest bearing liabilities, primarily consisting of deposits and borrowings. Among other factors, net income is also affected by provisions for loan losses and noninterest income, such as service charges on deposit accounts, insurance and other financial services fees, trust revenue, and gains/losses on securities sales, bank owned life insurance income, ATM and debit card fees, and retirement plan administration fees as well as noninterest expense, such as salaries and employee benefits, occupancy, equipment, data processing and communications, professional fees and outside services, office supplies and postage, amortization, loan collection and other real estate owned expenses, advertising, FDIC expenses, and other expenses.

Substantially all of the Company’s business activities are with customers located in the United States and are summarized by state below:

	Interest  Income			Noninterest Income			Total Revenue
New York		55	%		27	%		82	%
Pennsylvania		7	%		4	%		11	%
New Hampshire		2	%		0	%		2	%
Vermont		3	%		0	%		3	%
Massachusetts		1	%		1	%		2	%
		68	%		32	%		100	%

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	Commercial			Consumer			Residential Real Estate			Total Loan Portfolio
New York		35	%		30	%		10	%		75	%
Pennsylvania		5	%		6	%		3	%		14	%
New Hampshire		4	%		0	%		1	%		5	%
Vermont		3	%		1	%		1	%		5	%
Massachusetts		0	%		1	%		0	%		1	%
		47	%		38	%		15	%		100	%

	Secured By				Not Secured
	Real Estate				By Real Estate
New York		55	%	(a)		45	%
Pennsylvania		69	%	(b)		31	%
New Hampshire		86	%	(c)		14	%
Vermont		55	%	(d)		45	%
Massachusetts		80	%	(e)		20	%

(a)  Loans secured by real estate primarily in central and upstate New York

(b)  Loans secured by real estate primarily in northeastern Pennsylvania

(c)  Loans secured by real estate primarily in southern New Hampshire

(d)  Loans secured by real estate primarily in the Burlington, Vermont area

(e)  Loans secured by real estate primarily in western Massachusetts

Like the rest of the nation, the market areas that the Company serves are still experiencing economic challenges.  A variety of factors (e.g., any substantial rise in inflation or rise in unemployment rates, decrease in consumer confidence, international economic conditions, natural disasters, war, or political instability) may affect both the Company’s markets and the national market.  The Company will continue to emphasize managing its funding costs and lending and investment rates to effectively maintain profitability.  In addition, the Company will continue to seek and maintain relationships that can generate fee income that is not directly tied to lending relationships.  We anticipate that this approach should help mitigate profit fluctuations that are caused by movements in interest rates, business and consumer loan cycles, and local economic factors.

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.

On October 7, 2012, the Company 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, a wholly owned subsidiary of Alliance, to be merged with and into the Bank following completion of the merger.  Alliance, with assets of approximately $1.4 billion at December 31, 2012, is headquartered in Syracuse, New York.  Its primary subsidiary, Alliance Bank, National Association, 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 the first quarter of 2013) and other customary closing conditions, the merger is expected to be completed in March 2013.

6

NBT Bank, N.A.

The Bank is a full service commercial bank formed in 1856, which provides a broad range of financial products to individuals, corporations and municipalities throughout the central and upstate New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire and greater Burlington, Vermont market areas.

Through its network of branch locations, the Bank offers a wide range of products and services tailored to individuals, businesses, and municipalities.  Deposit products offered by the Bank include demand deposit accounts, savings accounts, negotiable order of withdrawal (“NOW”) accounts, money market deposit accounts (“MMDA”), and certificate of deposit (“CD”) accounts.  The Bank offers various types of each deposit account to accommodate the needs of its customers with varying rates, terms, and features.  Loan products offered by the Bank include consumer loans, home equity loans, mortgages, small business loans and commercial loans, with varying rates, terms and features to accommodate the needs of its customers.  The Bank also offers various other products and services through its branch network such as trust and investment services and financial planning and life insurance services.  In addition to its branch network, the Bank also offers access to certain products and services online enabling customers to check balances, transfer funds, pay bills, view statements, apply for loans and access various other product and service information.  The Bank provides 24-hour access to an automated telephone line whereby customers can check balances, obtain interest information, transfer funds, request statements, and perform various other activities.

The Bank conducts business through three geographic divisions, NBT Bank, Pennstar Bank, and Hampshire First Bank.  At year end 2012, the NBT Bank division had 95 divisional offices and 115 automated teller machines (ATMs), located primarily in central and upstate New York, the Burlington, Vermont area, and Berkshire County, Massachusetts.  At December 31, 2012, the NBT Bank division had total loans of approximately $3.5 billion, or 81% of total loans, and total deposits of $3.7 billion, or 77% of total deposits.  Revenue for the NBT Bank division totaled $224 million for the year ended December 31, 2012.  At year end 2012, the Pennstar Bank division had 35 divisional offices and 44 ATMs, located primarily in northeastern Pennsylvania.  At December 31, 2012, the Pennstar Bank division had total loans of $587 million, or 14% of total loans, and total deposits of $949 million, or 20% of total deposits. Revenue for the Pennstar Bank division totaled $34 million for the year ended December 31, 2012.  At year end 2012, the Hampshire First Bank division had five divisional offices and four ATMs, located primarily in southern New Hampshire.  At December 31, 2012, the Hampshire First Bank division had total loans of approximately $217 million, or 5% of total loans, and total deposits of $202 million, or 4% of total deposits.  Revenue for the Hampshire First Bank division totaled $7 million for the year ended December 31, 2012.

NBT Financial Services, Inc.

Through NBT Financial Services, the Company operates EPIC Advisors, Inc. (“EPIC”), a retirement plan administrator.  Through EPIC, the Company offers services including retirement plan consulting and recordkeeping services.  EPIC’s headquarters are located in Rochester, New York.

NBT Holdings, Inc.

Through NBT Holdings, the Company operates Mang Insurance Agency, LLC (“Mang”), a full-service insurance agency acquired by the Company on September 1, 2008.  Mang’s headquarters are in Norwich, New York.  Through Mang, the Company offers a full array of insurance products, including personal property and casualty, business liability and commercial insurance, tailored to serve the specific insurance needs of individuals as well as businesses in a range of industries operating in the markets served by the Company.

7

The Trusts

The Trusts were organized to raise additional regulatory capital and to provide funding for certain acquisitions.  CNBF Capital Trust I (“Trust I”) and NBT Statutory Trust I are Delaware statutory business trusts formed in 1999 and 2005, respectively, for the purpose of issuing trust preferred securities and lending the proceeds to the Company. In connection with the acquisition of CNB Bancorp, Inc., the Company formed NBT Statutory Trust II (“Trust II”) in February 2006 to fund the cash portion of the acquisition as well as to provide regulatory capital. The Company raised $51.5 million through Trust II in February 2006. The Company guarantees, on a limited basis, payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities. The Trusts are variable interest entities (VIEs) for which the Company is not the primary beneficiary, as defined by Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”).  In accordance with FASB ASC, the accounts of the Trusts are not included in the Company’s consolidated financial statements.

Operating Subsidiaries of the Bank

The Bank has five operating subsidiaries, NBT Capital Corp., Pennstar Bank Services Company, Broad Street Property Associates, Inc., NBT Services, Inc., and CNB Realty Trust. NBT Capital Corp., formed in 1998, is a venture capital corporation formed to assist young businesses to develop and grow primarily in the markets they serve. Pennstar Bank Services Company, formed in 2002, provides administrative and support services to the Pennstar Bank division of the Bank.  Broad Street Property Associates, Inc., formed in 2004, is a property management company.  NBT Services, Inc., formed in 2004, has a 44% ownership interest in Land Record Services, LLC.  Land Record Services, LLC, a title insurance agency, offers mortgagee and owner’s title insurance coverage to both retail and commercial customers.  CNB Realty Trust, formed in 1998, is a real estate investment trust.

8

Competition

The financial services industry, including commercial banking, is highly competitive, and we encounter strong competition for deposits, loans and other financial products and services in our market area.  The increasingly competitive environment is the result of changes in regulation, changes in technology and product delivery systems, additional financial service providers, and the accelerating pace of consolidation among financial services providers.  The Company competes for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers.  

The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

Some of the Company’s competitors have fewer regulatory constraints and may have lower cost structures.  In addition, some of the Company’s competitors have assets, capital and lending limits greater than that of the Company, have greater access to capital markets and offer a broader range of products and services than the Company.  These institutions may have the ability to finance wide-ranging advertising campaigns and may also be able to offer lower rates on loans and higher rates on deposits than the Company can offer.  Some of these institutions offer services, such as credit cards and international banking, which the Company does not directly offer.

Various in-state market competitors and out-of-state banks continue to enter or have announced plans to enter or expand their presence in the market areas in which the Company currently operates.  With the addition of new banking presences within our market, the Company expects increased competition for loans, deposits, and other financial products and services.

In order to compete with other financial services providers, the Company stresses the community nature of its banking operations and principally relies upon local promotional activities, personal relationships established by officers, directors, and employees with their customers, and specialized services tailored to meet the needs of the communities served.  We also offer certain customer services, such as agricultural lending, that many of our larger competitors do not offer.  While the Company’s position varies by market, the Company’s management believes that it can compete effectively as a result of local market knowledge, local decision making, and awareness of customer needs.

9

The table below summarizes the Bank’s deposits and market share by the twenty-eight counties of New York, Pennsylvania, New Hampshire, Vermont, and Massachusetts in which it had customer facilities as of June 30, 2012.  Market share is based on deposits of all commercial banks, credit unions, savings and loans associations, and savings banks.

County	State	Deposits (in thousands)		Market Share			Market Rank		Number of Branches*		Number of ATMs*
Chenango	NY	$	485,750		81.73	%		1		11		13
Fulton	NY		372,524		57.99	%		1		7		8
Schoharie	NY		188,604		48.54	%		1		4		4
Hamilton	NY		34,091		46.88	%		2		1		1
Delaware	NY		299,970		32.43	%		1		5		5
Montgomery	NY		211,783		32.00	%		2		5		5
Otsego	NY		302,772		30.64	%		2		9		12
Essex	NY		143,527		25.37	%		2		3		6
Susquehanna	PA		144,957		20.75	%		2		6		7
Wayne	PA		153,294		11.81	%		4		3		4
Broome	NY		258,967		11.45	%		3		8		11
Saint Lawrence	NY		125,478		11.19	%		3		5		6
Pike	PA		56,976		9.72	%		5		2		2
Oneida	NY		288,848		9.52	%		6		6		12
Lackawanna	PA		384,710		7.97	%		7		15		18
Tioga	NY		32,002		7.88	%		6		1		1
Clinton	NY		88,913		7.41	%		5		3		2
Herkimer	NY		37,182		6.34	%		6		2		1
Franklin	NY		27,082		5.96	%		5		1		1
Schenectady	NY		104,883		4.40	%		7		2		2
Berkshire	MA		130,493		4.24	%		7		5		5
Greene	NY		41,872		4.19	%		5		3		3
Saratoga	NY		127,962		3.65	%		10		3		4
Monroe	PA		86,385		3.63	%		8		5		7
Warren	NY		51,153		3.59	%		7		3		3
Cheshire	NH		27,177		2.15	%		7		1		0
Luzerne	PA		114,030		1.99	%		15		4		6
Hillsborough	NH		167,887		1.54	%		7		2		2
Albany	NY		141,956		1.12	%		10		4		6
Chittenden	VT		41,032		1.05	%		7		3		3
Rensselaer	NY		12,106		0.62	%		12		1		1
Rockingham	NH		25,864		0.49	%		15		2		2
		$	4,710,230							135		163

Deposit market share data is based on the most recent data available (as of June 30, 2012).  Source: SNL Financial LLC

* Branch and ATM data is as of December 31, 2012.

Supervision and Regulation

As a bank holding company, the Company is subject to extensive regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”) as its primary federal regulator. The Company also has qualified for and elected to be registered with the FRB as a financial holding company. The Bank, as a nationally chartered bank, is subject to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency (“OCC”) as its primary federal regulator and, as to certain matters, by the FRB, the Bureau of Consumer Financial Protection (“CFPB”), and the Federal Deposit Insurance Corporation (“FDIC”).

10

The Company is also under the jurisdiction of the Securities and Exchange Commission (“SEC”) and is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC.  A summary of material information regarding the laws and regulations applicable to the Company are below.  This summary is not complete and the reader should refer to these laws and regulations for more information.  Failure to comply with applicable laws and regulations could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. Applicable laws and regulations may change in the future and any such change could have a material adverse impact on the Company.

Federal Bank Holding Company Regulation

Transactions between the Bank and any of its affiliates, including the Company, are governed by sections 23A and 23B of the Federal Reserve Act (“FRA”) and the FRB’s implementing Regulation W. An “affiliate” of a bank includes any company or entity that controls, is controlled by, or is under common control with the bank. A subsidiary of a bank that is not also a depository institution is not treated as an affiliate of the bank for purposes of sections 23A and 23B, unless the subsidiary is also controlled through a non-bank chain of ownership by affiliates or controlling shareholders of the bank, the subsidiary is a financial subsidiary that operates under the expanded authority granted to national banks under the Financial Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (“GLB Act”), or the subsidiary engages in other activities that are not permissible for a bank to engage in directly (except insurance agency subsidiaries). Generally, sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by placing quantitative and qualitative limitations on covered transactions between a bank and with any one affiliate as well as all affiliates of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.

Under the GLB Act, a financial holding company may engage in certain financial activities that a bank holding company may not otherwise engage in under the Bank Holding Company Act (“BHC Act”). In addition to engaging in banking and activities closely related to banking as determined by the FRB by regulation or order prior to November 11, 1999, a financial holding company may engage in activities that are financial in nature or incidental to financial activities, or activities that are complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

The GLB Act and the rules promulgated thereunder require all financial institutions, including the Company and the Bank, to adopt privacy policies, restrict the sharing of nonpublic customer data with nonaffiliated parties at the customer’s request, and establish procedures and practices to protect customer data from unauthorized access. In addition, the Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), includes many provisions affecting the Company, Bank, and/or their affiliates, including provisions concerning obtaining consumer reports, furnishing information to consumer reporting agencies, maintaining a program to prevent identity theft, sharing of certain information among affiliated companies, and other provisions. The FACT Act requires persons subject to FCRA to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable than those generally available. The CFPB and the Federal Trade Commission (“FTC”) have extensive rulemaking authority under the FACT Act, and the Company and the Bank are subject to the rules that have been promulgated under the FACT Act, including rules regarding limitations on affiliate marketing and implementation of programs to identify, detect and mitigate certain identity theft red flags. The Company has developed policies and procedures for itself and its subsidiaries, including the Bank, and believes it is in compliance with all privacy, information sharing, and notification provisions of the GLB Act and the FACT Act.  The Bank is also subject to data security standards and data breach notice requirements, chiefly those issued by the OCC.

11

Federal Reserve System Regulation

The Company is subject to capital adequacy guidelines of the FRB. The guidelines apply on a consolidated basis and require bank holding companies to maintain a minimum ratio of Tier 1 capital to total average assets (or “leverage ratio”) of 4%. For the most highly rated bank holding companies, the minimum ratio is 3%. The FRB capital adequacy guidelines also require bank holding companies to maintain a minimum ratio of Tier 1 capital to risk-weighted assets of 4% and a minimum ratio of qualifying total capital to risk-weighted assets of 8%. As of December 31, 2012, the Company’s leverage ratio was 8.54%, its ratio of Tier 1 capital to risk-weighted assets was 11.00%, and its ratio of qualifying total capital to risk-weighted assets was 12.25%. The FRB may set higher minimum capital requirements for bank holding companies whose circumstances warrant it, such as companies anticipating significant growth or facing unusual risks. The FRB has not advised the Company of any special capital requirement applicable to it.

Any holding company whose capital does not meet the minimum capital adequacy guidelines is considered to be undercapitalized and is required to submit an acceptable plan to the FRB for achieving capital adequacy. Such a company’s ability to pay dividends to its shareholders and expand its lines of business through the acquisition of new banking or nonbanking subsidiaries also could be restricted.

Pursuant to Federal Reserve Board regulations and supervisory policies that were largely codified in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), bank holding companies also are expected to serve as a source of financial and managerial strength to their subsidiary depository institutions.  Therefore, to the extent the Bank is in need of capital, the Company could be expected to provide additional capital to the Bank, including, potentially, raising new capital for that purpose.

Office of Comptroller of the Currency Regulation

The Bank is supervised and regularly examined by the OCC.  The various laws and regulations administered by the OCC affect corporate practices such as payment of dividends, incurring debt, and acquisition of financial institutions and other companies.  It also affects business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices.  The OCC generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be undercapitalized.  Undercapitalized institutions are subject to growth limitations and are required to submit a capital restoration plan to the OCC.  If a depository institution fails to submit an acceptable capital restoration plan, it is treated as if it is “significantly undercapitalized.” Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.

The Bank is subject to leverage and risk-based capital requirements and minimum capital guidelines of the OCC that are similar to those applicable to the Company.  As of December 31, 2012, the Bank was in compliance with all minimum capital requirements and met the requirements to be considered well-capitalized.  As of that date, the Bank’s leverage ratio was 7.62%, its ratio of Tier 1 capital to risk-weighted assets was 9.83%, and its ratio of qualifying total capital to risk-weighted assets was 11.08%.

12

Insurance of Deposit Accounts

The Bank is a member of the Deposit Insurance Fund (“DIF”) and deposit accounts at the Bank are insured by the FDIC, generally up to the maximum amount permitted by law. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor per insured institution, retroactive to January 1, 2008.  Under the Dodd-Frank Act, qualifying non-interest bearing transaction accounts had unlimited deposit insurance through December 31, 2012, but these accounts now return to general deposit insurance limits.

The deposits of the Bank are insured up to regulatory limits by the FDIC. The Federal Deposit Insurance Reform Act of 2005 gave the FDIC increased flexibility in assessing premiums on banks and savings associations, including the Bank, to pay for deposit insurance and in managing its deposit insurance reserves. The FDIC currently maintains a risk-based assessment system under which assessment rates vary based on the level of risk posed by institutions to the DIF.  In February 2011, the FDIC issued new rules that took effect April 1, 2011 to change the way the FDIC differentiates risk and sets appropriate assessment rates.

Those rules also redefined the deposit insurance assessment base, as required by the Dodd-Frank Act, from an institution’s domestic deposits to an institution’s average consolidated total assets minus average tangible equity.  FDIC assessment expenses totaled approximately $3.5 million in 2012 as compared with $3.8 million 2011.

In addition to the FDIC deposit insurance, the Federal Deposit Insurance Act provides for additional assessments to be imposed on insured depository institutions to pay for the cost of Financing Corporation (“FICO”) funding.  The FICO assessments are adjusted quarterly to reflect changes in the assessment base of the DIF and do not vary depending upon a depository institution’s capitalization or supervisory evaluation.  The Company incurred approximately $0.3 million in FICO expenses in 2012 and $0.4 million in 2011.

Under FDIC regulations, no FDIC-insured bank can accept brokered deposits unless it is well capitalized, or is adequately capitalized and receives a waiver from the FDIC. In addition, these regulations prohibit any bank that is not well capitalized from paying an interest rate on brokered deposits in excess of three-quarters of one percentage point over certain prevailing market rates. As of December 31, 2012, the Bank’s total brokered deposits were $68.2 million.

Federal Home Loan Bank

The Bank is also a member of the Federal Home Loan Bank (“FHLB”) of New York, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending. The Bank is subject to the rules and requirements of the FHLB, including the requirement to acquire and hold shares of capital stock in the FHLB in an amount at least equal to the sum of 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year. The Bank was in compliance with the rules and requirements of the FHLB at December 31, 2012.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

On July 21, 2010, President Obama signed into law the Dodd-Frank Act.  This law significantly changed the bank regulatory landscape and impacted and will continue to impact the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress.

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The so-called Collins Amendment to the Dodd-Frank Act requires bank holding companies with assets greater than $500 million to be subject to the same capital requirements as insured depository institutions, meaning, for instance, that such bank holding companies will not be able to count trust preferred securities issued after May 19, 2010 as Tier 1 capital. The Company has not issued any trust preferred securities after May 19, 2010. The Collins Amendment also directs the appropriate federal banking supervisors, subject to recommendations by the Financial Stability Oversight Council, to develop capital requirements for all insured depository institutions, depository institution holding companies and systemically important non-bank financial companies to address systemically risky activities.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments.  The legislation also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using the company’s proxy materials. Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules requiring the reporting of incentive-based compensation and prohibiting excessive incentive-based compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not.  In April 2011, the FRB, along with other federal banking supervisors, issued a joint notice of proposed rulemaking implementing those requirements.

The Dodd-Frank Act created the new CFPB with wide-ranging powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. As the Company is below this threshold, the OCC continues to exercise primary examination authority over the Bank with regard to compliance with federal consumer protection laws and regulations.  The Dodd-Frank Act also weakened the federal preemption rules that have been applicable to national banks and federal savings associations, and gave state attorneys general certain powers to enforce rules issued by the CFPB.  Further, pursuant to Federal Reserve regulations mandated by the Dodd-Frank Act, effective October 1, 2011, interchange fees on debit card are limited to a maximum of 21 cents per transaction plus 5 basis points of the transaction amount. A debit card issuer may recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by the Federal Reserve. Issuers that, together with their affiliates, have less than $10 billion in assets, such as the Company, are exempt from the debit card interchange fee standards.  The FRB also adopted requirements in the final rule that issuers include two unaffiliated networks for routing debit transactions that are applicable to the Company and the Bank.

The scope and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Act on the Company or the Bank at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. Nor can we predict the impact or substance of other future legislation or regulation. However, it is expected that they at a minimum will increase our operating and compliance costs.  As continued rules and regulations are issued, the Company may need to dedicate additional resources to ensure compliance, which may increase its costs of operations and adversely impact its earnings.

Basel III Amendments to Capital Adequacy Requirements

The current U.S. federal bank regulatory agencies' risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the Basel Committee on Banking Supervision (“Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that meet under the auspices of the Bank for International Settlements in Basel, Switzerland to develop broad policy guidelines for use by each country's supervisors in determining the supervisory policies they apply.

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In December 2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as “Basel III.” Basel III, when implemented by the U.S. bank regulatory agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The Basel III final capital framework, among other things, introduces as a new capital measure “Common Equity Tier 1”, or “CET1”, specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expands the scope of the adjustments as compared to existing regulations.

While the Basel Committee initially called for the implementation of the Basel III final framework to commence January 1, 2013, final rules have not yet been implemented in the United States.

In June 2012, the Federal Banking Agencies issued a notice of proposed rulemaking (“NPR”) to implement Basel III in the United States.  The Basel III NPR closely followed the Basel Committee’s Basel III proposal in most respects.  Although the NPR calls for implementation to begin in 2013, the Federal Banking Agencies have not yet finalized the proposal.  The NPR would initially require banks and bank holding companies to meet the following minimum requirements:

● 3.5% CET1 to risk-weighted assets;

● 4.5% Tier 1 capital to risk-weighted assets; and

● 8.0% Total capital to risk-weighted assets.

Under the Basel III NPR, the minimum capital requirements would, in 2019, increase to the following:

● 4.5% CET1 to risk-weighted assets;

● 6.0% Tier 1 capital to risk-weighted assets; and

● 8.0% Total capital to risk-weighted assets.

The Basel III final framework and the NPR provides for a number of new deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

In addition to the Basel III NPR, the Federal Banking Agencies also released an NPR to implement the Basel II Standardized approach in the United States and make it applicable to almost all banking organizations in the United States.  It incorporates aspects of the Basel Committee’s Basel II standardized framework and provides alternatives to credit ratings for the treatment of certain exposures, consistent with the Dodd-Frank Act.  The Standardized Approach NPR would increase the risk sensitivity of the Federal Banking Agencies’ general risk-based capital requirements for determining risk-weighted assets (i.e., the denominator of a banking organization’s risk-based capital ratios) by proposing revised methodologies for determining risk-weighted assets for:

● Residential mortgage exposures by applying a more risk-sensitive treatment that would risk-weight an exposure based on certain loan characteristics, underwriting standards, and its loan-to-value ratio in a range between 35% and 200%, compared to current classification at 50%;

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● Certain commercial real estate credit facilities that finance the acquisition, development, or construction of real property by assigning a higher 150% risk weight;

● Exposures that are more than 90 days past due or on nonaccrual (excluding sovereign and residential mortgage exposures) by assigning a higher 150% risk weight;

● Exposures to foreign sovereigns, foreign banks, and foreign public sector entities by basing the risk weight for each exposure type on the OECD’s country risk classification of the sovereign entity so as to follow Dodd-Frank’s requirement not to use credit ratings; and

● More favorable capital treatment for derivatives and repo-style transactions cleared through central counterparties.

The Standardized Approach NPR would also generally replace the use of credit ratings for securitization exposures with a formula-based approach under the existing gross up approach, or a new simplified supervisory formula approach (SSFA). The Standardized Approach NPR notes that the SSFA would generally result in relatively higher capital requirements for the more risky junior tranches of securitizations and relatively lower capital requirements for the most senior tranches.  The Standardized Approach NPR would also provide greater recognition of credit risk mitigants, such as collateral and guarantees. For assets with newly eligible guarantees and eligible collateral, this will result in lower capital requirements.  The changes in the Standardized Approach NPR are proposed to take effect January 1, 2015. However, banking organizations may choose to comply with the proposed requirements prior to that date.

The Dodd-Frank Act requires the Federal Reserve to adopt regulations imposing a continuing “floor” of the Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital regulations resulting from Basel III otherwise would permit lower requirements. In June 2011, the Federal Reserve finalized regulations implementing this requirement.

Given that the Basel III rules are subject to implementation and change and the scope and content of capital regulations that U.S. federal banking agencies may adopt under the Dodd-Frank Act is uncertain, we cannot be certain of the impact new capital regulations will have on our capital ratios.

Consumer Protection Laws

Effective July 1, 2010, a new federal banking rule under the Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.  Overdrafts on the payment of checks and regular electronic bill payments are not covered by this new rule.  The adoption of this regulation by the Bank had a negative impact on the Company’s service charge income of approximately $1.9 million in 2011.

Home mortgage lenders, including banks, are required under the Home Mortgage Disclosure Act to make available to the public expanded information regarding the pricing of home mortgage loans, including the “rate spread” between the annual percentage rate and the average prime offer rate for mortgage loans of a comparable type. The availability of this information has led to increased scrutiny of higher-priced loans at all financial institutions to detect illegal discriminatory practices and to the initiation of a limited number of investigations by federal banking agencies and the U.S. Department of Justice. The Company has no information that it or its affiliates is the subject of any HMDA investigation.

In addition, the Company is also subject to federal consumer protection statutes and regulations promulgated under these laws, including, but not limited to:

· Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

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· Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; and

· Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies.

On January 10, 2013, the CFPB issued a final rule implementing the ability-to-repay and qualified mortgage (QM) provisions of the Truth in Lending Act, as amended by the Dodd-Frank Act (the “QM Rule”).  The ability-to-repay provision requires creditors to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Under the Dodd-Frank Act and the QM Rule, loans meeting the definition of “qualified mortgage” are entitled to a presumption that the lender satisfied the ability-to-repay requirements.  The presumption is a conclusive presumption/safe harbor for prime loans meeting the QM requirements, and a rebuttable presumption for higher-priced/subprime loans meeting the QM requirements.  The definition of a “qualified mortgage” incorporates the statutory requirements, such as not allowing negative amortization or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers if the loan is to meet the QM definition, though some mortgages that meet GSE, FHA and VA underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits.  The QM Rule will become effective January 10, 2014.

USA PATRIOT Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”) imposes obligations on U.S. financial institutions, including banks and broker-dealer subsidiaries, to implement policies, procedures and controls which are reasonably designed to detect and report instances of money laundering and the financing of terrorism.  Under Title III of the USA PATRIOT Act all financial institutions, including the Company and the Bank, are required in general to identify their customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning their customers and their transactions. The USA PATRIOT Act also encourages information-sharing among financial institutions, regulators, and law enforcement authorities by providing an exemption from the privacy provisions of the GLB Act for financial institutions that comply with this provision. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act, which applies to the Bank, or the BHC Act, which applies to the Company. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, financial and reputational consequences for the institution. As of December 31, 2012, the Company and the Bank believe they are in compliance with the USA PATRIOT Act and regulations thereunder.

Community Reinvestment Act of 1977

The Bank has a responsibility under the Community Reinvestment Act of 1977 (“CRA”) to help meet the credit needs of its communities, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. Regulators assess the Bank’s record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. The Bank’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities and the activities of the Company. The Bank’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against it by its regulators as well as other federal regulatory agencies and the Department of Justice. The Bank’s latest CRA rating was “Satisfactory”.

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Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (“SOX”) implemented a broad range of measures to increase corporate responsibility, enhance penalties for accounting and auditing improprieties at publicly traded companies, and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to federal securities laws. SOX applies generally to companies that have securities registered under the Exchange Act, including publicly held bank holding companies such as the Company.  SOX and/or its implementing regulations have, among other things, established new membership requirements and additional responsibilities for our audit committee, imposed restrictions on the relationship between us and our outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for our external financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for our corporate insiders, required our management to evaluate our disclosure controls and procedures and our internal control over financial reporting, and required our auditors to issue a report on our internal control over financial reporting.  In addition, the federal banking regulators have adopted generally similar requirements concerning the certification of financial statements by bank officials.

Employees

At December 31, 2012, the Company had 1,581 full-time equivalent employees. The Company’s employees are not presently represented by any collective bargaining group.  The Company considers its employee relations to be good.

Available Information

The Company’s website is http://www.nbtbancorp.com. The Company makes available free of charge through its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed or furnished with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act. We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act, as well as our Code of Business Conduct and Ethics and other codes/committee charters. The references to our website do not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document.

Any materials we file with the SEC may be read and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC, 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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ITEM 1A. Risk Factors

There are risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. Any of the following risks could affect the Company’s financial condition and results of operations and could be material and/or adverse in nature.

Deterioration in local economic conditions may negatively impact our financial performance.

The Company’s success depends primarily on the general economic conditions of central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts and Burlington, Vermont and the specific local markets in which the Company operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers primarily in the upstate New York areas of Norwich, Oneonta, Amsterdam-Gloversville, Albany, Binghamton, Utica-Rome, Plattsburg, Glens Falls. and Ogdensburg-Massena, the northeastern Pennsylvania areas of Scranton, Wilkes-Barre and East Stroudsburg, Berkshire County, Massachusetts, southern New Hampshire and the greater Burlington, Vermont area.  The local economic conditions in these areas have a significant impact on the demand for the Company’s products and services as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources.

As a lender with the majority of our loans secured by real estate or made to businesses in New York, Pennsylvania, Massachusetts, New Hampshire and Vermont, a downturn in these local economies could cause significant increases in nonperforming loans, which could negatively impact our earnings. Declines in real estate values in our market areas could cause any of our loans to become inadequately collateralized, which would expose us to greater risk of loss. Additionally, a decline in real estate values could adversely impact our portfolio of residential and commercial real estate loans and could result in the decline of originations of such loans, as most of our loans, and the collateral securing our loans, are located in those areas.

Following completion of the Alliance merger, the Company will have more significant operations in central New York and be further subjected to such risks with respect to economic conditions in that area.

Variations in interest rates may negatively affect our financial performance.

The Company’s earnings and financial condition are largely dependent upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads could adversely affect the Company’s earnings and financial condition. The Company cannot predict with certainty or control changes in interest rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the FRB, affect interest income and interest expense.  High interest rates could also affect the amount of loans that the Company can originate because higher rates could cause customers to apply for fewer mortgages or cause depositors to shift funds from accounts that have a comparatively lower cost to accounts with a higher cost.  The Company may also experience customer attrition due to competitor pricing. With short-term interest rates at historic lows and the current Federal Funds target rate at 25 bp, the Company’s interest-bearing deposit accounts, particularly core deposits, are repricing at historic lows as well.  With the current outlook of the FRB to maintain the Fed Funds target rate at 25 bp for another 24 to 28 months, the Company’s challenge will be managing the magnitude and scope of the repricing.  If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the asset and liability mix may also affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates. If the Company is not able to reduce its funding costs sufficiently, due to either competitive factors or the maturity schedule of existing liabilities, then the Company’s net interest margin will decline.

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Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial or unexpected change in, or prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations.See the section captioned “Net Interest Income” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosure About Market Risk located elsewhere in this report for further discussion related to the Company’s management of interest rate risk.

Changes in the equity markets could materially affect the level of assets under management and the demand for other fee-based services.

Economic downturns could affect the volume of income from and demand for fee-based services.  Revenues from the trust and benefit plan administration businesses depend in large part on the level of assets under management and administration.  Market volatility that leads customers to liquidate investments, as well as lower asset values, can reduce our level of assets under management and administration and thereby decrease our investment management and administration revenues.

Our lending, and particularly our emphasis on commercial lending, exposes us to the risk of losses upon borrower default.

There are inherent risks associated with the Company’s lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates as well as those across the States of New York, Pennsylvania, Massachusetts, New Hampshire and Vermont, and the entire United States. Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. The Company is also subject to various laws and regulations that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Company to regulatory enforcement action that could result in the assessment of significant civil money penalties against the Company.

As of December 31, 2012, approximately 47% of the Company’s loan portfolio consisted of commercial and industrial, agricultural, commercial construction and commercial real estate loans. These types of loans generally expose a lender to greater risk of non-payment and loss than residential real estate loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. Because the Company’s loan portfolio contains a significant number of commercial and industrial, agricultural, construction and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and/or an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Loans” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to commercial and industrial, agricultural, construction and commercial real estate loans.

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If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will decrease.

The Company maintains an allowance for loan losses, which is an allowance established through a provision for loan losses charged to expense, that represents management’s best estimate of probable losses that could be incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political, environmental, and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for loan losses, the Company will need additional provisions to increase the allowance for loan losses. These potential increases in the allowance for loan losses would result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Risk Management – Credit Risk” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate level of the allowance for loan losses.

Strong competition within our industry and market area could hurt our performance and slow our growth.

The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national, regional, and community banks within the various markets in which the Company operates. Additionally, various banks continue to enter or have announced plans to enter the market areas in which the Company currently operates. The Company also faces competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.  Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can.

The Company’s ability to compete successfully depends on a number of factors, including, among other things:

· the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets;

· the ability to expand the Company’s market position;

· the scope, relevance and pricing of products and services offered to meet customer needs and demands;

· the rate at which the Company introduces new products and services relative to its competitors;

· customer satisfaction with the Company’s level of service;

· industry and general economic trends; and

· the ability to attract and retain talented employees.

Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.

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We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

The Company, primarily through the Bank and certain non-bank subsidiaries, is subject to extensive federal regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” which is located in Item 1. Business in the Company’s Annual Report on Form 10-K.

Compliance with the Dodd-Frank Act and other regulatory reforms may increase our costs of operations and adversely impact our earnings and capital ratios

On July 21, 2010, President Obama signed the Dodd-Frank Act into law.  The Dodd-Frank Act represented a significant overhaul of many aspects of the regulation of the financial services industry, and has significantly changed the bank regulatory landscape and impacted and will continue to impact the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.  Among other things, the Dodd-Frank Act creates a new federal financial consumer protection agency, tightens capital standards, imposes clearing and margining requirements on many derivatives activities, and generally increases oversight and regulation of financial institutions and financial activities.  It requires bank holding companies with assets greater than $500 million to be subject to minimum leverage and risk-based capital requirements and phases out the ability for bank holding companies to count trust preferred securities issued after May 19, 2010 as Tier 1 capital.  The Company has not issued any trust preferred securities after May 19, 2010.

In addition, the Dodd-Frank Act significantly rolls back the federal preemption of state consumer protection laws that is currently enjoyed by federal savings associations and national banks by requiring that a state consumer financial law prevent or significantly interfere with the exercise of a federal savings association’s or national bank’s powers before it can be preempted, mandating that any preemption decision be made on a case by case basis rather than a blanket rule, and ending the applicability of preemption to subsidiaries and affiliates of national banks and federal savings associations.  As a result, we may now be subject to state consumer protection laws in each state where we do business, and those laws may be interpreted and enforced differently in different states.

The scope and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Dodd-Frank Act on us at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. However, it is expected that at a minimum they will increase our operating and compliance costs.  The financial reform legislation and any rules that are ultimately issued could have adverse implications on the financial industry, the competitive environment, and our business. We will apply resources to ensure that we are in compliance with all applicable provisions of the Dodd-Frank Act and any implementing rules, which may increase our costs of operations and adversely impact our earnings.

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The Company is subject to liquidity risk which could adversely affect net interest income and earnings

The purpose of the Company’s liquidity management is to meet the cash flow obligations of its customers for both deposits and loans.  The primary liquidity measurement the Company utilizes is called Basic Surplus which captures the adequacy of the Company’s access to reliable sources of cash relative to the stability of its funding mix of average liabilities.  This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources which can be accessed when necessary.   However, competitive pressure on deposit pricing could result in a decrease in the Company’s deposit base or an increase in funding costs.  In addition, liquidity will come under additional pressure if loan growth exceeds deposit growth.  These scenarios could lead to a decrease in the Company’s basic surplus measure below the minimum policy level of 5%.  To manage this risk, the Company has the ability to purchase brokered time deposits, borrow against established borrowing facilities with other banks (Federal funds), and enter into repurchase agreements with investment companies.  Depending on the level of interest rates, the Company’s net interest income, and therefore earnings, could be adversely affected.  See the section captioned “Liquidity Risk” in Item 7.

Our ability to service our debt, pay dividends and otherwise pay our obligations as they come due is substantially dependent on capital distributions from our subsidiaries.

The Company is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company. Also, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to the Company, the Company may not be able to service debt, pay obligations or pay dividends on the Company’s common stock. The inability to receive dividends from the Bank could have a material adverse effect on the Company’s business, financial condition and results of operations.

A breach of information security, including as a result of cyber attacks, could disrupt our business and impact our earnings.

We depend upon data processing, communication and information exchange on a variety of computing platforms and networks, and over the internet.  In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs.  Despite existing safeguards, we cannot be certain that all of our systems are free from vulnerability to attack or other technological difficulties or failures.  If information security is breached or difficulties or failures occur, despite the controls we and our third party vendors have instituted, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others. Such costs or losses could exceed the amount of insurance coverage, if any, which would adversely affect our earnings.

We continually encounter technological change and the failure to understand and adapt to these changes could hurt our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.

23

Provisions of our certificate of incorporation, bylaws and stockholder rights plan, as well as Delaware law and certain banking laws, could delay or prevent a takeover of us by a third party.

Provisions of the Company’s certificate of incorporation and bylaws, the Company’s stock purchase rights plan, the corporate law of the State of Delaware and state and federal banking laws, including regulatory approval requirements, could delay, defer or prevent a third party from acquiring the Company, despite the possible benefit to the Company’s stockholders, or otherwise adversely affect the market price of the Company’s common stock. These provisions include: supermajority voting requirements for certain business combinations; the election of directors to staggered terms of three years; and advance notice requirements for nominations for election to the Company’s board of directors and for proposing matters that stockholders may act on at stockholder meetings. In addition, the Company is subject to Delaware law, which among other things prohibits the Company from engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met. These provisions may discourage potential takeover attempts, discouraging bids for the Company’s common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of the Company’s common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors other than candidates nominated by the Board.

Negative developments in the housing market, financial industry and the domestic and international credit markets may adversely affect our operations and results.

Dramatic declines in the housing market over the past few years, with falling home prices and increasing foreclosures, continued high unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions.

The economic pressure experienced by consumers during the recent fiscal recession and lack of confidence in the financial markets has adversely affected our business, financial condition and results of operations. In particular, we have seen increases in foreclosures in our markets, increases in expenses such as loan collection and OREO expenses, and a low reinvestment rate environment.  While believe the financial crisis is slowly recovering, but we have not yet hit the bottom in many northeast markets.  Therefore, we do not expect that the challenging conditions in the financial and housing markets are likely to improve in the near future.A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions. In particular, we may be affected in one or more of the following ways:

· We currently face increased regulation of our industry and compliance with such regulation may increase our costs and limit our ability to pursue business opportunities;

· Our ability to borrow from other financial institutions or to access the debt or equity capital markets on favorable terms or at all could be adversely affected by further disruptions in the capital markets; or

· Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

24

We are subject to other-than-temporary impairment risk which could negatively impact our financial performance.

The Company recognizes an impairment charge when the decline in the fair value of equity, debt securities and cost-method investments below their cost basis are judged to be other-than-temporary. Significant judgment is used to identify events or circumstances that would likely have a significant adverse effect on the future use of the investment. The Company considers various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and whether the Company has the intent to sell and whether it is more likely than not it will be forced to sell the security in question. Information about unrealized gains and losses is subject to changing conditions. The values of securities with unrealized gains and losses will fluctuate, as will the values of securities that we identify as potentially distressed. Our current evaluation of other-than-temporary impairments reflects our intent to hold securities for a reasonable period of time sufficient for a forecasted recovery of fair value. However, our intent to hold certain of these securities may change in future periods as a result of facts and circumstances impacting a specific security. If our intent to hold a security with an unrealized loss changes, and we do not expect the security to fully recover prior to the expected time of disposition, we will write down the security to its fair value in the period that our intent to hold the security changes.

The process of evaluating the potential impairment of goodwill and other intangibles is highly subjective and requires significant judgment. The Company estimates the expected future cash flows of its various businesses and determines the carrying value of these businesses.  The Company exercises judgment in assigning and allocating certain assets and liabilities to these businesses. The Company then compares the carrying value, including goodwill and other intangibles, to the discounted future cash flows. If the total of future cash flows is less than the carrying amount of the assets, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the assets. Estimates of the future cash flows associated with the assets are critical to these assessments. Changes in these estimates based on changed economic conditions or business strategies could result in material impairment charges and therefore have a material adverse impact on the Company’s financial condition and performance.

The risks presented by acquisitions could adversely affect our financial condition and result of operations.

The business strategy of the Company has included and may continue to include growth through acquisition from time to time.  Any future acquisitions, including our pending acquisition of Alliance Bank, will be accompanied by the risks commonly encountered in acquisitions.  These risks may include, among other things: our ability to realize anticipated cost savings, the difficulty of integrating operations and personnel, the loss of key employees, the potential disruption of our or the acquired company’s ongoing business in sucha a way that could result in decreased revenues, the inability of our management to maximize our financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management.

Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

25

We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.

A portion of our loan portfolio at December 31, 2012 was secured by real estate. In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a government entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation and remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations and prospects.

We may be adversely affected by the soundness of other financial institutions including the FHLB of New York.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our business, financial condition or results of operations.

The Company owns common stock of FHLB of New York in order to qualify for membership in the FHLB system, which enables it to borrow funds under the FHLB of New York’s advance program.  The carrying value and fair market value of our FHLB of New York common stock was $21.9 million as of December 31, 2012.

There are 12 branches of the FHLB, including New York.  The 12 FHLB branches are jointly liable for the consolidated obligations of the FHLB system.  To the extent that one FHLB branch cannot meet its obligations to pay its share of the system’s debt, other FHLB branches can be called upon to make the payment.  Any such adverse effects on the FHLB of New York could adversely affect the value of our investment in its common stock and negatively impact our results of operations.

Trading activity in the Company’s common stock could result in material price fluctuations.

The market price of the Company’s common stock may fluctuate significantly in response to a number of factors including, but not limited to:

· Changes in securities analysts’ expectations of financial performance;

· Volatility of stock market prices and volumes;

· Incorrect information or speculation;

· Changes in industry valuations;

· Variations in operating results from general expectations;

26

· Actions taken against the Company by various regulatory agencies;

· Changes in authoritative accounting guidance by the Financial Accounting Standards Board or other regulatory agencies;

· Changes in general domestic economic conditions such as inflation rates, tax rates, unemployment rates, labor and healthcare cost trend rates, recessions, and changing government policies, laws and regulations; and

· Severe weather, natural disasters, acts of war or terrorism and other external events.

ITEM 1B. Unresolved Staff Comments

None.

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ITEM 2. Properties

The Company’s headquarters are located at 52 South Broad Street, Norwich, New York 13815.  The Company operated the following community banking branches and ATMs as of December 31, 2012:

County	Branches	ATMs	County	Branches	ATMs
NBT Bank Division			Pennstar Bank Division
New York			Pennsylvania
Albany County	4	6	Lackawanna County	15	18
Broome County	8	11	Luzerne County	4	6
Chenango County	11	13	Monroe County	5	7
Clinton County	3	2	Pike County	2	2
Delaware County	5	5	Susquehanna County	6	7
Essex County	3	6	Wayne County	3	4
Franklin County	1	1
Fulton County	7	8
Greene County	3	3
Hamilton County	1	1
Herkimer County	2	1
Montgomery County	5	5
Oneida County	6	12
Otsego County	9	12
Rensselaer County	1	1
Saratoga County	3	4
Schenectady County	2	2
Schoharie County	4	4
St. Lawrence County	5	6
Tioga County	1	1
Warren County	3	3
Vermont
Chittenden County	3	3
Massachusetts
Berkshire County	5	5
New Hampshire
Cheshire	1	0
Hillsborough	2	2
Rockingham	2	2

The Company leases 53 of the above listed branches from third parties.  The Company owns all other banking premises. The Company believes that its offices are sufficient for its present operations.  All of the above ATMs are owned by the Company.

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ITEM 3. Legal Proceedings

The Bank has been named as a defendant in a purported class action lawsuit arising from its assessment and collection of overdraft fees on its checking account customers. The complaint was filed in the Supreme Court of the State of New York, County of Delaware, on September 12, 2011 and alleges that the Bank engaged in certain unfair practices and failed to make adequate disclosure to customers concerning its overdraft fee assessment practices.  The complaint seeks certification of a class of national checking account holders who have incurred overdraft fees and a subclass of such customers who reside in New York.  In addition, the complaint seeks actual and punitive damages, disgorgement, interest and costs including attorneys' fees.  On May 15, 2012, Acting Supreme Court Judge for Delaware County, New York, John F. Lambert, dismissed in its entirety the plaintiff`s case.  On June 20, 2012, the plaintiffs filed an appeal to the Appellate Division, Third Department.  The Company believes the claims to be without merit and intends to defend the action vigorously.

There are no other material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.

ITEM 4. Mine Safety Disclosures

None.

PART  II

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

Market Information

The common stock of the Company, par value $0.01 per share (the “Common Stock”), is quoted on the Nasdaq Global Select Market under the symbol “NBTB.” The following table sets forth the high and low sales prices and dividends declared for the Common Stock for the periods indicated:

	High		Low		Dividend
2012
1st quarter	$	24.10	$	20.75	$	0.20
2nd quarter		22.50		19.19		0.20
3rd quarter		22.89		19.91		0.20
4th quarter		22.45		18.92		0.20
2011
1st quarter	$	24.98	$	21.55	$	0.20
2nd quarter		23.32		20.62		0.20
3rd quarter		23.25		17.05		0.20
4th quarter		22.63		17.47		0.20

The closing price of the Common Stock on February 15, 2013 was $20.92.

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As of February 15, 2013, there were 6,582 shareholders of record of Common Stock.  No unregistered securities were sold by the Company during the year ended December 31, 2012.

Stock Performance Graph

The following stock performance graph compares the cumulative total stockholder return (i.e., price change, reinvestment of cash dividends and stock dividends received) on our Common Stock against the cumulative total return of the NASDAQ Stock Market (U.S. Companies) Index and the Index for NASDAQ Financial Stocks.  The stock performance graph assumes that $100 was invested on December 31, 2007.  The graph further assumes the reinvestment of dividends into additional shares of the same class of equity securities at the frequency with which dividends are paid on such securities during the relevant fiscal year.  The yearly points marked on the horizontal axis correspond to December 31 of that year.  We calculate each of the referenced indices in the same manner.  All are market-capitalization-weighted indices, so companies judged by the market to be more important (i.e., more valuable) count for more in all indices.

	Period Ending
Index	12/31/07		12/31/08		12/31/09		12/31/10		12/31/11		12/31/12
NBT Bancorp	$	100.00	$	126.56	$	95.68	$	117.56	$	111.83	$	106.30
NASDAQ Financial Stocks	$	100.00	$	70.88	$	73.31	$	83.70	$	74.82	$	88.10
NASDAQ Composite Index	$	100.00	$	60.04	$	87.23	$	103.04	$	102.25	$	120.35

Source:  Bloomberg, L.P.

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Dividends

We depend primarily upon dividends from our subsidiaries for a substantial part of our revenue.  Accordingly, our ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from our subsidiaries.  Payment of dividends to the Company from the Bank is subject to certain regulatory and other restrictions.  Under OCC regulations, the Bank may pay dividends to the Company without prior regulatory approval so long as it meets its applicable regulatory capital requirements before and after payment of such dividends and its total dividends do not exceed its net income to date over the calendar year plus retained net income over the preceding two years.  At December 31, 2012, the Bank was in compliance with all applicable minimum capital requirements and had the ability to pay dividends of $21.3 million to the Company without the prior approval of the OCC.

If the capital of the Company is diminished by depreciation in the value of its property or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, no dividends may be paid out of net profits until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets has been repaired.  See the section captioned “Supervision and Regulation” in Item 1. Business and Note 16 – Stockholders’ Equity in the notes to consolidated financial statements in included in Item 8. Financial Statements and Supplementary Data, which are located elsewhere in this report.

Stock Repurchase

Under previously disclosed stock repurchase plans, the Company purchased 769,568 shares of its common stock during the year ended December 31, 2012, for a total of $15.5 million at an average price of $20.13 per share.  At December 31, 2012, there were 748,013 shares available for repurchase under a previously disclosed repurchase plan, which expires on December 31, 2013.  There were no purchases during the fourth quarter of 2012.

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ITEM  6. Selected Financial Data

The following summary of financial and other information about the Company is derived from the Company’s audited consolidated financial statements for each of the last five fiscal years ended December 31 and should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s consolidated financial statements and accompanying notes, included elsewhere in this report:

	Year ended December 31,
(In thousands, except per share data)	2012			2011			2010			2009			2008
Interest, fee and dividend income	$	239,397		$	239,997		$	255,738		$	273,393		$	294,414
Interest expense		35,194			39,721			53,210			76,924			108,368
Net interest income		204,203			200,276			202,528			196,469			186,046
Provision for loan losses		20,269			20,737			29,809			33,392			27,181
Noninterest income excluding  securities gains		86,728			80,161			80,614			79,987			70,171
Securities gains, net		599			150			3,274			144			1,535
Noninterest expense		193,887			180,676			178,291			170,566			146,813
Income before income taxes		77,374			79,174			78,316			72,642			83,758
Net income		54,558			57,901			57,404			52,011			58,353
Per common share
Basic earnings	$	1.63		$	1.72		$	1.67		$	1.54		$	1.81
Diluted earnings		1.62			1.71			1.66			1.53			1.80
Cash dividends paid		0.80			0.80			0.80			0.80			0.80
Book value at year-end		17.24			16.23			15.51			14.69			13.24
Tangible book value at year-end		12.23			11.70			11.67			10.75			9.01
Average diluted common shares outstanding		33,719			33,924			34,509			33,903			32,427
Securities available for sale, at fair value	$	1,147,999		$	1,244,619		$	1,129,368		$	1,116,758		$	1,119,665
Securities held to maturity, at amortized cost		60,563			70,811			97,310			159,946			140,209
Loans		4,277,616			3,800,203			3,610,006			3,645,398			3,651,911
Allowance for loan losses		69,334			71,334			71,234			66,550			58,564
Assets		6,042,259			5,598,406			5,338,856			5,464,026			5,336,088
Deposits		4,784,349			4,367,149			4,134,352			4,093,046			3,923,258
Borrowings		605,855			627,358			604,730			786,097			914,123
Stockholders’ equity		582,273			538,110			533,572			505,123			431,845
Key ratios
Return on average assets		0.93	%		1.06	%		1.05	%		0.96	%		1.11	%
Return on average equity		9.72			10.73			10.92			10.90			14.16
Average equity to average assets		9.55			9.90			9.63			8.79			7.83
Net interest margin		3.86			4.09			4.15			4.04			3.95
Dividend payout ratio		49.38			46.78			48.19			52.29			44.44
Tier 1 leverage		8.54			8.74			9.16			8.35			7.17
Tier 1 risk-based capital		11.00			11.56			12.44			11.34			9.75
Total risk-based capital		12.25			12.81			13.70			12.59			11.00

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Selected Quarterly Financial Data
	2012												2011
(Dollars in thousands, except share and per share data)	Fourth			Third			Second			First			Fourth			Third			Second			First
Interest, fee and dividend income	$	60,857		$	61,287		$	58,647		$	58,606		$	59,898		$	59,784		$	60,258		$	60,057
Interest expense		8,404			8,680			8,896			9,214			9,399			9,423			10,094			10,805
Net interest income		52,453			52,607			49,751			49,392			50,499			50,361			50,164			49,252
Provision for loan losses		6,940			4,755			4,103			4,471			5,576			5,175			6,021			3,965
Noninterest income excluding net securities gains		21,941			21,601			20,585			22,601			20,078			20,182			19,802			20,099
Net securities gains		21			26			97			455			52			12			59			27
Noninterest expense		48,592			49,431			47,390			48,474			47,412			45,046			43,157			45,061
Net income		13,116			14,535			13,257			13,650			13,722			15,217			14,655			14,307
Basic earnings per share	$	0.39		$	0.43		$	0.40		$	0.41		$	0.42		$	0.46		$	0.43		$	0.42
Diluted earnings per share	$	0.39		$	0.43		$	0.40		$	0.41		$	0.41		$	0.45		$	0.43		$	0.41
Annualized net interest margin		3.83	%		3.90	%		3.82	%		3.90	%		3.98	%		4.14	%		4.13	%		4.11	%
Annualized return on average assets		0.86	%		0.97	%		0.92	%		0.97	%		0.97	%		1.12	%		1.09	%		1.08	%
Annualized return on average equity		9.01	%		10.13	%		9.66	%		10.12	%		10.09	%		11.21	%		10.86	%		10.78	%
Average diluted common shares outstanding		33,987			33,961			33,493			33,442			33,239			33,567			34,320			34,650

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

Forward Looking Statements

Certain statements in this filing and future filings by the Company with the SEC, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,”  “projects,”  “will,”  “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control that could cause actual results to differ materially from those contemplated by the forward looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact; (2) changes in the level of non-performing assets and charge-offs; (3) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (4) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; (5) inflation, interest rate, securities market and monetary fluctuations; (6) political instability; (7) acts of war or terrorism; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (9) changes in consumer spending, borrowings and savings habits; (10) changes in the financial performance and/or condition of the Company’s borrowers; (11) technological changes; (12) acquisitions and integration of acquired businesses; (13) the ability to increase market share and control expenses; (14) changes in the competitive environment among financial holding companies; (15) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply including those under the Dodd-Frank Act; (16) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (17) changes in the Company’s organization, compensation and benefit plans; (18) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; (19) greater than expected costs or difficulties related to the integration of new products and lines of business; and (20) the Company’s success at managing the risks involved in the foregoing items.

The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers that various factors including, but not limited to, those described above, could affect the Company’s financial performance and could cause the Company’s actual results or circumstances for future periods to differ materially from those anticipated or projected.

Except as required by law, the Company does not undertake, and specifically disclaims any obligations to, publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

General

The financial review which follows focuses on the factors affecting the consolidated financial condition and results of operations of the Company and its wholly owned subsidiaries, the Bank, NBT Financial Services and NBT Holdings during 2012 and, in summary form, the preceding two years. Collectively, the Registrant and its subsidiaries are referred to herein as “the Company.” Net interest margin is presented in this discussion on a fully taxable equivalent (FTE) basis. Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2012 and 2011 and for each of the years in the three-year period ended December 31, 2012 should be read in conjunction with this review. Amounts in prior period consolidated financial statements are reclassified whenever necessary to conform to the 2012 presentation.

34

Critical Accounting Policies

The Company has identified policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loan losses, pension accounting, other-than-temporary impairment, provision for income taxes and intangible assets.

Management  of  the  Company  considers  the  accounting  policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty  in  evaluating  the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations. While management’s current evaluation of the allowance for loan losses indicates that the allowance is adequate, under adversely different conditions or assumptions, the allowance may need to be increased. For example, if historical loan loss experience significantly worsened or if current economic conditions significantly deteriorated, additional provision for loan losses would be required to increase the allowance. In addition, the assumptions and estimates used in the internal reviews of the Company’s nonperforming loans and potential problem loans have a significant impact on the overall analysis of the adequacy of the allowance for loan losses. While management has concluded that the current evaluation of collateral values is reasonable under the circumstances, if collateral values were significantly lower, the Company’s allowance for loan policy would also require additional provision for loan losses.

Management is required to make various assumptions in valuing its pension assets and liabilities. These assumptions include the expected rate of return on plan assets, the discount rate, and the rate of increase in future compensation levels. Changes to these assumptions could impact earnings in future periods. The Company takes into account the plan asset mix, funding obligations, and expert opinions in determining the various rates used to estimate pension expense. The Company also considers the Citigroup Pension Liability Index, market interest rates and discounted cash flows in setting the appropriate discount rate. In addition, the Company reviews expected inflationary and merit increases to compensation in determining the rate of increase in future compensation levels.

Management of the Company considers the accounting policy relating to other-than-temporary impairment to be a critical accounting policy.  Management systematically evaluates certain assets for other-than-temporary declines in fair value, primarily investment securities.  Management considers historical values and current market conditions as a part of the assessment.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings and the amount of the total other-than-temporary impairment related to other factors is generally recognized in other comprehensive income, net of applicable taxes.

The Company is subject to examinations from various taxing authorities.  Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions.  Management believes that the assumptions and judgments used to record tax-related assets or liabilities have been appropriate.  Should tax laws change or the taxing authorities determine that management’s assumptions were inappropriate, an adjustment may be required which could have a material effect on the Company’s results of operations.

As a result of acquisitions, the Company has acquired goodwill and identifiable intangible assets.  Goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date.  Goodwill is evaluated at least annually or when business conditions suggest that an impairment may have occurred.  Goodwill will be reduced to its carrying value through a charge to earnings if impairment exists.  Core deposits and other identifiable intangible assets are amortized to expense over their estimated useful lives.  The determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.  It also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums and Company-specific risk indicators, all of which are susceptible to change based on changes in economic conditions and other factors.  Future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on the Company’s results of operations.

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The Company’s policies on the allowance for loan losses, pension accounting, provision for income taxes and intangible assets are disclosed in Note 1 to the consolidated financial statements. A more detailed description of the allowance for loan losses is included in the “Risk Management” section of this Form 10-K.  All significant pension accounting assumptions, income tax assumptions, and intangible asset assumptions and detail are disclosed in Notes 18, 15 and 10, respectively, to the consolidated financial statements. All accounting policies are important, and as such, the Company encourages the reader to review each of the policies included in Note 1 to obtain a better understanding of how the Company’s financial performance is reported.

Overview

Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to:  net income and earnings per share, return on assets and equity, net interest margin, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and peer comparisons.  The following information should be considered in connection with the Company's results for the fiscal year ended December 31, 2012:

· Significant strategic expansion during 2012:

§ Announced the planned acquisition of Alliance Financial Corporation, a $1.4 billion financial holding company headquartered in Syracuse, N.Y., expected to close in early 2013;

§ Acquired and successfully integrated Hampshire First Bank during the second quarter of 2012; now operating 5 branches in southern New Hampshire; and

§ Acquired three branches in Greene County, New York in January 2012.

· Net interest margin for 2012 declined 23 basis points as a result of the continued low rate environment on loans and investments.

· 2012 organic loan growth of 6.8%, offsetting aforementioned margin compression, driven by:

§ Consumer loan growth of 10.7%; and

§ Commercial loan growth of 8.7%.

· Asset quality indicators showed improvement from last year:

§ Nonperforming loans to total loans was 0.98%, down from 1.09% for last year;

§ Past due accruing loans to total loans was 0.71%, down from 0.89% for last year; and

§ Net charge-off ratio was 0.55%, down from 0.56% for last year.

· Service charges on deposit accounts continued to decrease due primarily to a decrease in overdraft activity.

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The Company continued to experience pressure on net interest income in 2012 as low rates continued to have the effect of causing many assets to prepay or to be redeemed. As a result, reinvestment of cash flows in lower yielding assets has been the primary contributor to a decline in interest income in 2012.  The yield on interest earning assets decreased from 4.88% in 2011 to 4.51% in 2012, with drops in the yields on loans and securities available for sale being the primary drivers.  Rates paid on interest bearing liabilities also decreased in the low rate environment, which partially offset the decrease in earning asset yields.  In particular, the decrease in rates paid on money market deposit accounts and time deposits contributed approximately $5.1 million to the decrease in interest expense in 2012 as compared with 2011.  Average interest bearing liabilities increased approximately $237.9 million from 2011 to 2012, with the primary driver being the increase in interest bearing deposits from acquisition activity and organic deposit growth.  The Company also took the following steps in 2012 in an effort to help offset the margin pressure created by the low interest rate environment:

· Continued the sale of conforming residential real estate mortgages in 2012, taking advantage of favorable interest rate conditions;

· Increased efforts to grow noninterest income with focus on organic growth of our trust, financial services and insurance businesses; and

· Continued strategic expansion into New Hampshire with the completed acquisition of Hampshire First Bank and into central New York with the planned acquisition of Alliance.

The Company reported net income of $54.6 million or $1.62 per diluted share for 2012, down 5.8% from net income of $57.9 million or $1.71 per diluted share for 2011.  The provision for loan losses totaled $20.3 million for the year ended December 31, 2012, down $0.5 million, or 2.3%, from $20.7 million for the year ended December 31, 2011.  The decrease in provision is attributable to the ongoing modeling of the required levels of reserves which considers historical charge-offs, loan growth and economic trends. Noninterest income increased $7.0 million, or 8.7%, from 2011 primarily due to an increase in other noninterest income of approximately $6.1 million.  This increase was due in part to a $1.1 million payoff gain on a purchased commercial real estate loan.  In addition, the Company recognized nonrecurring items totaling approximately $1.4 million during 2012 including a prepayment penalty fee related to a loss of a retirement plan client and flood related recoveries.  Further, mortgage banking revenue increased approximately $2.6 million for the year ended December 31, 2012 as compared to the same period in 2011 as the Company sold certain residential mortgages as market conditions warranted.  Noninterest expense for the year ended December 31, 2012 was $193.9 million, up from $180.7 million, or 7.3% for the year ended December 31, 2011.

2013 Outlook

The Company’s 2012 earnings reflected the Company’s continued ability to manage through the existing and near future economic conditions and challenges in the financial services industry, while investing in the Company’s future.  The Company believes effects of the economic crisis still exist and, as a result, there will be certain challenges faced in 2013.  Significant items that may have an impact on 2013 results include:

· The Company expects that it will experience additional margin compression from the 2012 fourth quarter net interest margin of 3.83%. We expect that payments representing interest and principal on currently outstanding loans and investments will continue to be reinvested at rates that are lower than the rates currently outstanding on those loans and investments.  In addition, deposit and borrowing rates are historically low and there are minimal opportunities for them to be lowered.  Furthermore, the industry as a whole must focus on asset growth to increase interest income, thereby creating general pricing pressure in the entire industry.

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· The Company experienced benefits from expiration of the statute of limitations of prior years’ tax filings and state tax audit settlements in past years.  The Company expects the tax rate to be more normalized in 2013 without those benefits.

· If asset quality trends continue to show improvement, the Company would eventually expect the level of provisioning to decrease.  However, the economy may have an adverse affect on asset quality indicators, particularly indicators related to loans secured by real estate, which could adversely affect charge-offs, the allowance for loan losses, and the provision for loan losses.

· The cost of compliance as a result of the Dodd-Frank Act could continue to negatively impact certain fee generating products, which could negatively impact noninterest income and earnings.

· Competitive pressure on non-maturing deposits could result in an increase in interest expense if interest rates begin to rise.

· Our ability to integrate the operations and personnel and realize anticipated cost savings of the pending acquisition of Alliance may affect our results of operations in 2013.

The Company’s 2013 outlook is subject to factors in addition to those identified above and those risks and uncertainties that could impact the Company’s future results are explained in ITEM 1A. RISK FACTORS.

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Asset/Liability Management

The Company attempts to maximize net interest income and net income, while actively managing its liquidity and interest rate sensitivity through the mix of various core deposit products and other sources of funds, which in turn fund an appropriate mix of earning assets. The changes in the Company’s asset mix and sources of funds, and the resulting impact on net interest income, on a fully tax equivalent basis, are discussed below.  The following table includes the condensed consolidated average balance sheet, an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest bearing liabilities on a taxable equivalent basis. Interest income for tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory Federal income tax rate of 35%.

Table 1. Average Balances and Net Interest Income
	2012							2011							2010
	Average				Yield/			Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
ASSETS
Short-term interest bearing accounts	$	66,207	$	179		0.27	%	$	101,224	$	269		0.27	%	$	137,818	$	354		0.26	%
Securities available for sale (1)		1,177,969		28,904		2.45	%		1,123,215		33,319		2.97	%		1,088,376		38,759		3.56	%
Securities held to maturity (1)		65,582		3,583		5.46	%		81,558		4,350		5.33	%		128,727		6,104		4.74	%
Investment in FRB and FHLB Banks		28,358		1,378		4.86	%		27,089		1,389		5.13	%		31,850		1,821		5.72	%
Loans  (2)		4,053,420		209,370		5.17	%		3,677,931		205,318		5.58	%		3,629,047		214,258		5.90	%
Total interest earning assets	$	5,391,536	$	243,414		4.51	%	$	5,011,017	$	244,645		4.88	%	$	5,015,818	$	261,296		5.21	%
Other assets		483,248							434,924							438,516
Total assets	$	5,874,784						$	5,445,941						$	5,454,334
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts	$	1,116,583	$	2,054		0.18	%	$	1,070,003	$	3,592		0.34	%	$	1,092,789	$	6,273		0.57	%
NOW deposit accounts		709,889		1,854		0.26	%		685,542		2,313		0.34	%		709,920		2,938		0.41	%
Savings deposits		680,092		522		0.08	%		602,918		635		0.11	%		552,660		797		0.14	%
Time deposits		993,117		14,418		1.45	%		913,330		16,480		1.80	%		985,504		20,346		2.06	%
Total interest bearing deposits	$	3,499,681	$	18,848		0.54	%	$	3,271,793	$	23,020		0.70	%	$	3,340,873	$	30,354		0.91	%
Short-term borrowings		165,742		188		0.11	%		153,965		205		0.13	%		158,280		402		0.25	%
Trust preferred debentures		75,422		1,730		2.29	%		75,422		2,092		2.77	%		75,422		4,140		5.49	%
Long-term debt		368,270		14,428		3.92	%		370,035		14,404		3.89	%		469,509		18,314		3.90	%
Total interest bearing liabilities	$	4,109,115	$	35,194		0.86	%	$	3,871,215	$	39,721		1.03	%	$	4,044,084	$	53,210		1.32	%
Demand deposits		1,139,896							966,282							805,594
Other liabilities		64,551							69,063							79,182
Stockholders' equity		561,222							539,381							525,474
Total liabilities and stockholders' equity	$	5,874,784						$	5,445,941						$	5,454,334
Net interest income (FTE)				208,220							204,924							208,086
Interest rate spread						3.65	%						3.85	%						3.89	%
Net interest margin						3.86	%						4.09	%						4.15	%
Taxable equivalent adjustment				4,017							4,648							5,558
Net interest income			$	204,203						$	200,276						$	202,528

1. Securities are shown at average amortized cost.

2. For purposes of these computations, nonaccrual loans are included in the average loan balances outstanding. The interest collected thereon is included in interest income based upon the characteristics of the related loans.

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2012 OPERATING RESULTS AS COMPARED TO 2011 OPERATING RESULTS

Net Interest Income

While the rate paid on interest bearing liabilities decreased 17 basis points, the yield on interest earning assets declined 37 basis points compared to the same period for 2011, resulting in margin compression for the year ended December 31, 2012.  The yield on securities available for sale was 2.45% for the year ended December 31, 2012, compared with 2.97% for the year ended December 31, 2011. This decrease was due primarily to the reinvestment of cash flows from maturing securities and cash received from branch acquisitions in 2011 and the first quarter of 2012 into lower yielding securities in the current rate environment. The average balance of securities available for sale for the year ended December 31, 2012 was $1.2 billion, up approximately $54.8 million, or 4.9%, from the year ended December 31, 2011. This increase was due primarily to reinvestment of cash flows from held to maturity securities into available for sale securities, and investment of liquidity from branch acquisition activity and deposit growth. The yield on loans was 5.17% for the year ended December 31, 2012, compared with 5.58% for the year ended December 31, 2011. The average balance of loans for the year ended December 31, 2012 was $4.1 billion, up approximately $375.5 million (including approximately $124.3 million from acquisitions), or 10.2%, from the year ended December 31, 2011.  The reduction in yields on earning assets was partially offset by a reduction in rates paid on interest bearing liabilities.  The rate on time deposits was 1.45% for the year ended December 31, 2012, compared with 1.80% for the year ended December 31, 2011.  The rate on money market deposit accounts was 0.18% for the year ended December 31, 2012, compared with 0.34% for the year ended December 31, 2011.   The following table presents changes in interest income, on a FTE basis, and interest expense attributable to changes in  volume (change in average balance multiplied by prior year rate), changes in rate (change in rate multiplied by prior year volume), and the net change in net interest  income.  The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change.

Table 2. Analysis of Changes in Taxable Equivalent Net Interest Income
	Increase (Decrease)									Increase (Decrease)
	2012 over 2011									2011 over 2010
(In thousands)	Volume			Rate			Total			Volume			Rate			Total
Short-term interest-bearing accounts	$	(95	)	$	5		$	(90	)	$	(97	)	$	12		$	(85	)
Securities available for sale		1,562			(5,977	)		(4,415	)		1,207			(6,647	)		(5,440	)
Securities held to maturity		(871	)		104			(767	)		(2,445	)		691			(1,754	)
Investment in FRB and FHLB Banks		63			(74	)		(11	)		(256	)		(176	)		(432	)
Loans		20,057			(16,005	)		4,052			2,855			(11,795	)		(8,940	)
Total interest income		20,716			(21,947	)		(1,231	)		1,264			(17,915	)		(16,651	)
Money market deposit accounts		150			(1,688	)		(1,538	)		(128	)		(2,553	)		(2,681	)
NOW deposit accounts		80			(539	)		(459	)		(98	)		(527	)		(625	)
Savings deposits		74			(187	)		(113	)		68			(230	)		(162	)
Time deposits		1,353			(3,415	)		(2,062	)		(1,421	)		(2,445	)		(3,866	)
Short-term borrowings		15			(32	)		(17	)		(11	)		(186	)		(197	)
Trust preferred debentures		-			(362	)		(362	)		-			(2,048	)		(2,048	)
Long-term debt		(69	)		93			24			(3,872	)		(38	)		(3,910	)
Total interest expense		1,603			(6,130	)		(4,527	)		(5,462	)		(8,027	)		(13,489	)
Change in FTE net interest income	$	19,113		$	(15,817	)	$	3,296		$	6,726		$	(9,888	)	$	(3,162	)

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Loans and Corresponding Interest and Fees on Loans

The average balance of loans increased by approximately $375.5 million, or 10.2%, from 2011 to 2012.  The yield on average loans decreased from 5.58% in 2011 to 5.17% in 2012, as loan rates declined due to the historically low rate environment in 2012.  Interest income from loans on a FTE basis increased 1.97%, from $205.3 million in 2011 to $209.4 million in 2012.  This increase was due to the increase in average loan balances noted above, and was partially offset by the decrease in yields.

Total loans increased $477.4 million, or 12.6% (6.8% organic growth) from December 31, 2011 to December 31, 2012.  In June 2012, the Company acquired Hampshire First Bank in New Hampshire, including approximately $219 million in loans, which contributed to this loan growth.  Commercial loans increased $83.5 million, or 13.7%, from $611.3 million at December 31, 2011 to $694.8 million at December 31, 2012, due to strong originations in 2012, particularly in our upstate New York markets and Vermont, as well as approximately $29.9 million acquired from the aforementioned acquisition.  Commercial real estate loans increased $183.9 million, or 20.7%, from $888.9 million at December 31, 2011 to $1.1 billion at December 31, 2012, in large part due to strong originations in our upstate New York markets as well as originations from new markets, particularly Vermont.  The Company also acquired approximately $149.8 million in commercial real estate loans from the aforementioned acquisition.  Real estate construction and development loans increased $29.1 million from $94.0 million at December 31, 2011 to $123.1 million at December 31, 2012 due to the addition of a few large, commercial development loans during 2012 primarily from existing customers within our footprint.  Residential real estate loans increased $69.6 million (including approximately $32.7 million from the aforementioned acquisition), from $581.5 million at December 31, 2011 to $651.1 million at December 31, 2012.  The Company sold more fixed rate mortgages during 2012 than 2011 as market conditions in 2011 were not as favorable for such sales.  Consumer loans increased $101.4 million from $946.5 million at December 31, 2011 to $1.0 billion at December 31, 2012 in large part due to strong originations in our upstate New York markets as well as originations from new markets.  Home equity loans increased modestly in 2012.

The  following  table  reflects  the  loan  portfolio  by major categories  as  of  December  31  for  the  years  indicated:

Table 3. Composition of Loan Portfolio
	December 31,
(In thousands)	2012		2011		2010		2009		2008
Residential real estate mortgages	$	651,107	$	581,511	$	548,394	$	618,334	$	722,723
Commercial		694,799		611,298		577,731		571,107		572,059
Commercial  real estate		1,072,807		888,879		844,458		739,395		669,720
Real estate construction and development		123,078		93,977		45,444		67,168		67,859
Agricultural and agricultural real estate		112,687		108,423		112,738		122,466		113,566
Consumer		1,047,856		946,470		905,563		923,343		878,381
Home equity		575,282		569,645		575,678		603,585		627,603
Total loans	$	4,277,616	$	3,800,203	$	3,610,006	$	3,645,398	$	3,651,911

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Residential real estate mortgages consist primarily of loans secured by first or second deeds of trust on primary residences. Loans in the commercial and agricultural categories, including commercial and agricultural real estate mortgages, consist primarily of short-term and/or floating rate loans made to small and medium-sized entities.  Consumer loans consist primarily of indirect installment credit to individuals, of which approximately 73% is secured by automobiles and other personal property including marine, recreational vehicles and manufactured housing.  Consumer loans also consist of direct installment loans to individuals secured by similar collateral.  Indirect installment loans represent $939.2 million of total consumer loans at December 31, 2012, or 89.6%.  Installment credit for automobiles accounts for approximately 70% of total consumer loans.  Although automobile loans have generally been originated through dealers, all applications submitted through dealers are subject to the Company’s normal underwriting and loan approval procedures.  Real estate construction and development loans include commercial construction and development and residential construction loans. Commercial construction loans are for small and medium sized office buildings and other commercial properties and residential construction loans are primarily for projects located in upstate New York and northeastern Pennsylvania.

Risks associated with the commercial real estate portfolio include the ability of borrowers to pay interest and principal during the loan’s term, as well as the ability of the borrowers to refinance at the end of the loan term.

The following table, Maturities and Sensitivities of Certain Loans to Changes in Interest Rates, summarizes the maturities of the commercial and agricultural and real estate construction and development loan portfolios and the sensitivity of those loans to interest rate fluctuations at December 31, 2012.  Scheduled repayments are reported in the maturity category in which the contractual payment is due.

Table 4. Maturities and Sensitivities of Certain Loans to Changes in Interest Rates
	Remaining maturity at December 31, 2012
(In thousands)	Within One Year		After One Year But Within Five Years		After Five Years		Total
Floating/adjustable rate
Commercial, commercial real estate, agricultural, and agricultural real estate	$	399,415	$	256,599	$	613,602	$	1,269,616
Real estate construction and development		37,146		29,632		14,155		80,933
Total floating rate loans		436,561		286,231		627,757		1,350,549
Fixed rate
Commercial, commercial real estate, agricultural, and agricultural real estate		59,547		303,369		247,761		610,677
Real estate construction and development		15,581		12,345		14,219		42,145
Total fixed rate loans		75,128		315,714		261,980		652,822
Total	$	511,689	$	601,945	$	889,737	$	2,003,371

Securities and Corresponding Interest and Dividend Income

The average balance of the amortized cost for securities available for sale increased $54.8 million, or 4.9%, from 2011 to 2012.  The yield on average securities available for sale was 2.45% for 2012 compared to 2.97% in 2011.

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The average balance of securities held to maturity decreased from $81.6 million in 2011 to $65.6 million in 2012. At December 31, 2012, securities held to maturity were comprised primarily of tax-exempt municipal securities. The yield on securities held to maturity increased from 5.33% in 2011 to 5.46% in 2012.

The average balance of FRB and FHLB stock increased to $28.4 million in 2012 from $27.1 million in 2011 due in large part to the aforementioned acquisition of Hampshire First.  The yield from investments in FRB and FHLB banks decreased from 5.13% in 2011 to 4.86% in 2012.

Table 5. Securities Portfolio
	As of December 31,
	2012				2011				2010
	Amortized		Fair		Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value		Cost		Value
Securities available for sale
U.S. Treasury	$	63,668	$	64,425	$	81,006	$	82,234	$	91,338	$	91,280
Federal Agency		281,398		282,814		254,983		255,846		350,641		349,750
State & Municipal		82,675		86,802		99,176		104,789		113,821		114,937
Mortgage-backed		237,461		250,281		310,767		325,396		233,861		244,808
Collateralized mortgage obligations		443,972		449,723		459,067		465,474		293,565		297,888
Corporate		-		-		-		-		20,005		20,489
Other securities		11,210		13,954		8,935		10,880		8,059		10,216
Total securities available for sale	$	1,120,384	$	1,147,999	$	1,213,934	$	1,244,619	$	1,111,290	$	1,129,368
Securities held to maturity
Mortgage-backed	$	1,168	$	1,352	$	1,447	$	1,660	$	1,719	$	1,919
State & Municipal		59,395		60,183		69,364		70,538		95,591		96,840
Total securities held to maturity	$	60,563	$	61,535	$	70,811	$	72,198	$	97,310	$	98,759

In the available for sale category at December 31, 2012, federal agency securities were comprised of Government-Sponsored Enterprise (“GSE”) securities; mortgaged-backed securities were comprised of GSEs with an amortized cost of $221.1 million and a fair value of $232.3 million and U.S. Government Agency securities with an amortized cost of $16.4 million and a fair value of $18.0 million; collateralized mortgage obligations (“CMOs”) were comprised of GSEs with an amortized cost of $399.2 million and a fair value of $403.6 million and US Government Agency securities with an amortized cost of $44.8 million and a fair value of $46.2 million. At December 31, 2012, all of the mortgaged-backed securities held to maturity were comprised of U.S. Government Agency securities.

Our mortgage backed securities, U.S. agency notes, and CMOs are all “prime/conforming” and are guaranteed by Fannie Mae, Freddie Mac, the FHLB, the Federal Farm Credit Banks, or Ginnie Mae (“GNMA”).  GNMA securities are considered equivalent to U.S. Treasury securities, as they are backed by the full faith and credit of the U.S. government.  Currently, there are no securities backed by subprime mortgages in our investment portfolio.

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The following tables set forth information with regard to contractual maturities of debt securities at December 31, 2012:

(In thousands)	Amortized cost		Estimated fair value		Weighted Average Yield
Debt securities classified as available for sale
Within one year	$	26,678	$	26,788		1.83	%
From one to five years		193,142		195,953		1.69	%
From five to ten years		311,575		319,229		2.53	%
After ten years		577,779		592,075		2.33	%
Total	$	1,109,174	$	1,134,045
Debt securities classified as held to maturity
Within one year	$	25,184	$	25,258		2.76	%
From one to five years		27,413		28,118		3.79	%
From five to ten years		5,425		5,434		4.54	%
After ten years		2,541		2,725		5.05	%
Total	$	60,563	$	61,535

Funding Sources and Corresponding Interest Expense

The Company utilizes traditional deposit products such as time, savings, NOW, money market, and demand deposits as its primary source for funding. Other sources, such as short-term FHLB advances, federal funds purchased, securities sold under agreements to repurchase, brokered time deposits, and long-term FHLB borrowings are utilized as necessary to support the Company’s growth in assets and to achieve interest rate sensitivity objectives.  The average balance of interest-bearing liabilities increased $237.9 million from 2011, totaling $4.1 billion in 2012.  The rate paid on interest-bearing liabilities decreased from 1.03% in 2011 to 0.86% in 2012.  This decrease in rates, offset by an increase in average balances, caused a decrease in interest expense of $4.5 million, or 11.4%, from $39.7 million in 2011 to $35.2 million in 2012.

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Deposits

Average interest bearing deposits increased $227.9 million, or 7.0%, from 2011 to 2012, due primarily to the acquisition of Hampshire First in June 2012. Average time deposits increased $79.8 million, or 8.7%, during 2012 as compared to 2011. Average money market deposits increased $46.6 million or 4.4% during 2012 when compared to 2011. Average NOW accounts increased $24.3 million or 3.6% during 2012 as compared to 2011. The average balance of savings accounts increased $77.2 million or 12.8% during 2012 when compared to 2011. The average balance of demand deposits increased $173.6 million, or 18.0%, from $966.3 million in 2011 to $1.1 billion in 2012. This growth in demand deposits was driven principally by increases in accounts from retail, municipal, and commercial customers spurred by strategic expansion into new markets.

The rate paid on average interest-bearing deposits decreased from 0.70% during 2011 to 0.54% in 2012. The decrease in the rate on interest-bearing deposits was driven primarily by pricing decreases from money market accounts and time deposits, which are sensitive to interest rate changes. The pricing decreases for these products resulted from the FRB maintaining a historic low Fed Funds target rate as well as an overall decrease in all interest rates. The rate paid for money market deposit accounts decreased from 0.34% during 2011 to 0.18% during 2012. The rate paid for NOW accounts decreased from 0.34% during 2011 to 0.26% during 2012. The rate paid for savings deposits decreased from 0.11% in 2011 to 0.08% in 2012 and the rate paid on time deposits decreased from 1.80% during 2011 to 1.45% during 2012.

The following table presents the maturity distribution of time deposits of $100,000 or more at December 31:

Table 6. Maturity Distribution of Time Deposits of $100,000 or More
	December 31,
(In thousands)	2012		2011
Within three months	$	69,205	$	45,242
After three but within twelve months		96,644		85,465
After one but within three years		153,453		148,653
Over three years		33,027		26,338
Total	$	352,329	$	305,698

Borrowings

Average short-term borrowings increased slightly to $165.7 million in 2012 from $154.0 million in 2011.  The average rate paid on short-term borrowings decreased from 0.13% in 2011 to 0.11% in 2012, which was primarily driven by the FRB maintaining a historic low Fed Funds target rate of 0.25% (which directly impacts short-term borrowing rates).  Average long-term debt decreased from $370.0 million in 2011 to $368.3 million in 2012.

The average balance of trust preferred debentures remained at $75.4 million in 2012 compared to 2011.  The average rate paid for trust preferred debentures in 2012 was 2.29%, down from 2.77% in 2011. The decrease in rate on the trust preferred debentures is due primarily to the reset of interest rate terms in two trust preferred debentures to variable rate from fixed rate.  The third trust preferred debenture reset to a variable rate in a prior year and therefore, all associated interest expense on trust preferred debentures is now at a variable rate.

Short-term borrowings consist of Federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions, and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less. The Company has unused lines of credit and  access  to  brokered  deposits  available  for  short-term  financing  of approximately $1.3 billion and  $1.1 billion  at December 31, 2012 and 2011, respectively.  Securities collateralizing repurchase agreements are held in safekeeping by non-affiliated financial institutions and are under the Company’s control.  Long-term  debt,  which  is  comprised primarily of FHLB advances, are collateralized  by  the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket  lien  on  its  residential  real  estate  mortgage  loans.

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Noninterest Income

Noninterest income is a significant source of revenue for the Company and an important factor in the Company’s results of operations. The following table sets forth information by category of noninterest income for the years indicated:

	Years ended December 31,
(In thousands)	2012		2011		2010
Insurance and other financial services revenue	$	22,387	$	20,843	$	18,867
Service charges on deposit accounts		18,225		21,464		24,041
ATM and debit card fees		12,358		11,642		10,035
Retirement plan administration fees		10,097		8,918		10,356
Trust		9,172		8,864		7,722
Bank owned life insurance income		3,077		3,085		3,316
Net securities gains		599		150		3,274
Other		11,412		5,345		6,277
Total noninterest income	$	87,327	$	80,311	$	83,888

Noninterest income for the year ended December 31, 2012 was $87.3 million, up 8.7% or $7.0 million, compared with $80.3 million for the same period in 2011, primarily due to an increase in other noninterest income.  Insurance and other financial services revenue increased approximately $1.5 million for the year ended December 31, 2012, compared to the year ended December 31, 2011.  This increase was due primarily to the acquisition of an insurance agency in 2011 as well as organic growth in commercial product lines.  Retirement plan administration fees increased approximately $1.2 million for the year ended December 31, 2012, compared to the year ended December 31, 2011, due primarily to an increase in customer base.  ATM and debit card fees increased approximately $0.7 million for the year ended December 31, 2012, compared to the year ended December 31, 2011, due primarily to an increase in card usage and customer base.  Other noninterest income increased approximately $6.1 million for the year ended December 31, 2012 as compared to December 31, 2011. This increase was due in part to a $1.1 million payoff gain on a purchased commercial real estate loan.  In addition, the Company recognized nonrecurring items totaling approximately $1.4 million during 2012 including a prepayment penalty fee related to a previously disclosed loss of a retirement plan client and flood related recoveries.  Further, mortgage banking revenue increased approximately $2.6 million for the year ended December 31, 2012 as compared to the same period in 2011, as the Company sold certain residential mortgages as market conditions warranted.  The Company sold approximately $65.2 million residential mortgages during 2012, as compared to sales of approximately $13.5 million during 2011, while also experiencing more favorable gains during 2012.  The Company also realized net securities gains of approximately $0.6 million during the year ended December 31, 2012, as compared to $0.2 million for the same period in 2011.  These increases were partially offset by a decrease in service charges on deposit accounts of approximately $3.2 million, or 15.1%, for the year ended December 31, 2012, compared with the same period in 2011 primarily due to a decrease in overdraft fee income.

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Noninterest Expense

Noninterest expenses are also an important factor in the Company’s results of operations.  The following table sets forth the major components of noninterest expense for the years indicated:

	Years ended December 31,
(In thousands)	2012		2011		2010
Salaries and employee benefits	$	104,815	$	99,212	$	93,718
Occupancy		17,415		16,363		15,350
Data processing and communications		13,437		12,271		12,347
Professional fees and outside services		10,463		8,921		9,032
Equipment		9,627		8,864		8,317
Office supplies and postage		6,489		6,073		6,102
FDIC expenses		3,832		4,267		6,081
Advertising		2,889		3,460		3,487
Amortization of intangible assets		3,394		3,046		3,072
Loan collection and other real estate owned		2,560		2,631		3,036
Merger expenses		2,608		804		-
Prepayment penalty on long-term debt		-		-		4,526
Other		16,358		14,764		13,223
Total noninterest expense	$	193,887	$	180,676	$	178,291

Noninterest expense for the year ended December 31, 2012 was $193.9 million, up $13.2 million or 7.3%, for the same period in 2011, primarily due to an increase in employee salaries and benefits, professional fees, and acquisition expenses. Salaries and employee benefits increased $5.6 million, or 5.6%, for the year ended December 31, 2012, compared with the same period in 2011. This increase was due primarily to increases in full-time-equivalent employees from acquisitions, merit increases, and increased pension expense.  Professional fees and outside services increased $1.5 million, or 17.3%, for the year ended December 31, 2012 as compared to 2011.  Data processing and communications, occupancy, and equipment expenses increased approximately $3.0 million collectively, or 7.9%, for the year ended December 31, 2012 as compared to 2011, due primarily to increased activity from recent expansion into new markets.  The Company incurred approximately $2.6 million in merger related expenses for the year ended December 31, 2012, as compared to $0.8 million for the same period in 2011.  These increases were partially offset by a decrease in Federal Deposit Insurance Corporation (“FDIC”) expenses of approximately $0.4 million for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This decrease was due to the FDIC redefining the deposit insurance assessment base effective the second quarter of 2011.  In addition, advertising expenses were down approximately $0.6 million in 2012 as compared with 2011 due in large part to expense reduction initiatives.

Income Taxes

Income tax expense for the year ended December 31, 2012 was $22.8 million, up from $21.3 million for the same period in 2011.  The effective tax rate was 29.5% for the year ended December 31, 2012, compared to 26.9% for the same period in 2011.  The relatively low effective tax rate in 2011 was driven primarily by a reduction in tax expense as a result of the settlement of a New York State tax audit during the fourth quarter of 2011.

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The income tax expense on the Company’s income was different than the income tax expense at the Federal statutory rate of 35% due primarily to tax exempt income and, to a lesser extent, the effect of state income taxes and Federal low income housing tax credits.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions.

The amount of income taxes the Company pays is subject at times to ongoing audits by federal and state tax authorities, which often result in proposed assessments. The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental. The Company believes that it has adequately provided for any reasonably foreseeable outcome related to these matters. However, future results may include favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are proposed or resolved or when statutes of limitation on potential assessments expire. As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly or annual basis.

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Risk Management – Credit Risk

Credit  risk  is  managed through a network of loan officers, credit committees, loan  policies,  and  oversight  from  the  senior  credit officers and Board of Directors.  Management follows a policy of continually identifying, analyzing, and grading credit risk inherent in each loan portfolio. An ongoing independent review,  subsequent  to  management’s  review,  of  individual  credits  in  the commercial  loan portfolio is performed by the independent loan review function.  These components of the Company’s underwriting and monitoring functions are critical to the timely identification, classification, and resolution of problem credits.

Table 7. Nonperforming Assets
	As of December 31,
(Dollars in thousands)	2012			%			2011			%			2010			%			2009			%			2008			%
Nonaccrual loans
Commercial and agricultural loans and real estate	$	20,923			53	%	$	17,506			46	%	$	24,402			57	%	$	25,521			66	%	$	15,891			66	%
Real estate mortgages		8,083			20	%		8,090			21	%		8,338			20	%		6,140			16	%		3,803			16	%
Consumer		8,440			21	%		8,724			23	%		8,765			21	%		6,249			16	%		3,468			14	%
Troubled debt restructured loans		2,230			6	%		3,970			10	%		962			2	%		836			2	%		1,029			4	%
Total nonaccrual loans		39,676			100	%		38,290			100	%		42,467			100	%		38,746			100	%		24,191			100	%
Loans 90 days or more past due and still accruing
Commercial and agricultural loans and  real estate		148			6	%		50			2	%		94			4	%		59			2	%		12			1	%
Real estate mortgages		330			13	%		763			24	%		919			40	%		602			24	%		770			33	%
Consumer		1,970			81	%		2,377			74	%		1,312			56	%		1,865			74	%		1,523			66	%
Total loans 90 days or more past due and still accruing		2,448			100	%		3,190			100	%		2,325			100	%		2,526			100	%		2,305			100	%
Total nonperforming loans		42,124						41,480						44,792						41,272						26,496
Other real estate owned		2,276						2,160						901						2,358						665
Total nonperforming assets	$	44,400					$	43,640					$	45,693					$	43,630					$	27,161
Total nonperforming loans to loans		0.98	%					1.09	%					1.24	%					1.13	%					0.73	%
Total nonperforming assets to total assets		0.73	%					0.78	%					0.86	%					0.80	%					0.51	%
Total allowance for loan losses to nonperforming loans		164.60	%					171.97	%					159.03	%					161.25	%					221.03	%

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Total nonperforming assets were $44.4 million at December 31, 2012, compared to $43.6 million at December 31, 2011. Nonperforming loans at December 31, 2012 were $42.1 million or 0.98% of total loans compared with $41.5 million or 1.09% at December 31, 2011. The Company recorded a provision for loan losses of $20.3 million for the year ended December 31, 2012 compared with $20.7 million for the year ended December 31, 2011. Net charge-offs to average loans for the year ended December 31, 2012 were 0.55%, compared with 0.56% for the year ended December 31, 2011. The allowance for loan losses was 164.60% of non-performing loans at December 31, 2012 as compared to 171.97% at December 31, 2011.

Impaired loans, which primarily consist of nonaccruing commercial, commercial real estate, agricultural, agricultural real estate loans and business banking loans, as well as certain consumer and residential real estate mortgage loans that have been modified in a troubled debt restructuring (“TDR”), increased to $26.0 million at December 31, 2012 as compared to $22.4 million at December 31, 2011. At December 31, 2012, $8.4 million of the total impaired loans had a specific reserve allocation of $2.8 million compared to $0.5 million of impaired loans at December 31, 2011 which had a specific reserve allocation of $0.2 million.

Nonaccruing TDRs decreased from approximately $4.0 million at December 31, 2011 to approximately $2.2 million at December 31, 2012, due primarily several large commercial and agricultural credits returning to accrual status during 2012.

The  allowance  for  loan losses is maintained at a level estimated by management  to  provide  adequately for risk of probable losses inherent in the current  loan  portfolio. The adequacy of the allowance for loan losses is continuously monitored.  It is assessed for adequacy using a methodology designed to ensure the level of the allowance reasonably reflects the loan portfolio’s risk profile. It is evaluated to ensure that it is sufficient to absorb all reasonably estimable credit losses inherent in the current loan portfolio.

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the consolidated results of operations.

For purposes of evaluating the adequacy of the allowance, the Company considers a number of significant factors that affect the collectibility of the portfolio.  For individually analyzed loans, these include estimates of loss exposure, which reflect the facts and circumstances that affect the likelihood of repayment of such loans as of the evaluation date. For homogeneous pools of loans, estimates of the Company’s exposure to credit loss reflect a current assessment of a number of factors, which could affect collectibility.  These factors include:  past loss experience;  size, trend, composition, and nature of loans;  changes in lending policies and procedures, including underwriting standards and collection,  charge-offs  and  recoveries; trends experienced in nonperforming and delinquent loans; current economic conditions in the Company’s market;  portfolio concentrations that may affect loss experienced across one or more components of the portfolio; the effect of external factors such as competition, legal and regulatory requirements; and the experience, ability, and depth of lending management and staff. In addition, various regulatory agencies, as an integral component of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize additions to the allowance based on their examinations.

After a thorough consideration of the factors discussed above, any required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses. These charges are necessary to maintain the allowance at a level which management believes is reasonably reflective of overall inherent risk of probable loss in the portfolio. While management uses available information to recognize losses on loans, additions to the allowance may fluctuate from one reporting period to another.  These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above.

Total net charge-offs for 2012 were $22.3 million as compared with $20.6 million for 2011.  Net charge-offs to average loans was 0.55% for 2012 as compared with 0.56% for 2011.  Gross charge-offs increased to $26.5 million for 2012 from $24.5 million for 2011.  Recoveries increased from $3.9 million for the year ended December 31, 2011 to $4.2 million for the year ended December 31, 2012.

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Table 8. Allowance for Loan Losses
(Dollars in thousands)	2012			2011			2010			2009			2008
Balance at January 1	$	71,334		$	71,234		$	66,550		$	58,564		$	54,183
Loans charged-off
Commercial and agricultural		8,750			8,971			12,969			11,500			14,464
Residential real estate mortgages		1,906			1,310			1,176			705			543
Consumer*		15,848			14,207			15,692			17,609			11,985
Total loans charged-off		26,504			24,488			29,837			29,814			26,992
Recoveries
Commercial and agricultural		1,641			1,438			1,922			1,508			1,411
Residential real estate mortgages		38			6			43			133			68
Consumer*		2,556			2,407			2,747			2,767			2,713
Total recoveries		4,235			3,851			4,712			4,408			4,192
Net loans charged-off		22,269			20,637			25,125			25,406			22,800
Provision for loan losses		20,269			20,737			29,809			33,392			27,181
Balance at December 31	$	69,334		$	71,334		$	71,234		$	66,550		$	58,564
Allowance for loan losses to loans outstanding at end of year		1.62	%		1.88	%		1.97	%		1.83	%		1.60	%
Net charge-offs to average loans outstanding		0.55	%		0.56	%		0.69	%		0.70	%		0.64	%

* Consumer charge-off and recoveries include consumer and home equity.

In addition to the nonperforming loans discussed above, the Company has also identified approximately $79.6 million in potential problem loans at December 31, 2012 as compared to $96.9 million at December 31, 2011. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected. Such loans may need to be disclosed as nonperforming at some time in the future.  Potential problem loans are classified by the Company’s loan rating system as “substandard.” At December 31, 2012, there were 17 potential problem loans that equaled or exceeded $1.0 million, totaling $41.1 million in aggregate, compared to 24 potential problem loans exceeding $1.0 million, totaling $59.8 million at December 31, 2011. Management cannot predict the extent to which economic conditions may worsen or other factors which may impact borrowers and the potential problem loans.  Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require increased allowance coverage and provision for loan losses.  To mitigate this risk, the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry, and originates loans primarily within its footprint.

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The following table sets forth the allocation of the allowance for loan losses by category, as well as the percentage of loans in each category to total loans, as prepared by the Company. This allocation is based on management’s assessment of the risk characteristics of each of the component parts of the total loan portfolio as of a given point in time and is subject to changes as and when the risk factors of each such component part change. The allocation is not indicative of either the specific amounts of the loan categories in which future charge-offs may be taken, nor should it be taken as an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.

Table 9. Allocation of the Allowance for Loan Losses
	December 31,
	2012					2011					2010					2009					2008
			Category					Category					Category					Category					Category
			Percent of					Percent of					Percent of					Percent of					Percent of
(Dollars in thousands)	Allowance		Loans			Allowance		Loans			Allowance		Loans			Allowance		Loans			Allowance		of Loans
Commercial and agricultural	$	35,624		47	%	$	38,831		45	%	$	40,101		44	%	$	36,599		41	%	$	33,231		39	%
Real estate mortgages		6,252		15	%		6,249		15	%		4,627		15	%		3,002		17	%		3,143		20	%
Consumer		27,162		38	%		26,049		40	%		26,126		41	%		26,664		42	%		21,908		41	%
Unallocated		296		0	%		205		0	%		380		0	%		285		0	%		282		0	%
Total	$	69,334		100	%	$	71,334		100	%	$	71,234		100	%	$	66,550		100	%	$	58,564		100	%

The Company’s accounting policy relating to the allowance for loan losses requires a review of each significant loan type within the loan portfolio, considering asset quality trends for each type, including, but not limited to, delinquencies, nonaccruals, historical charge-off experience, and specific economic factors (e.g. milk prices are considered when reviewing agricultural loans).  Based on this review, management believes the reserve allocations are adequate to address any trends in asset quality indicators.  As a result of the general improvement and stabilization of asset quality indicators in 2012, as well as the aforementioned review of the loan portfolio, the allowance to loan losses decreased and the allowance for loan losses as a percentage of total loans decreased from 1.88% as of December 31, 2011 to 1.62% as of December 31, 2012.  Excluding approximately $219.6 million of acquired loans as of December 31, 2012, the allowance for loan losses as a percentage of total loans was 1.72% at December 31, 2012.  These acquired loans were recorded at fair value on the date of acquisition, with no carryover of the related allowance for loan losses.  Generally, the fair value 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.

At December 31, 2012, approximately 59% of the Company’s loans were secured by real estate located in central and northern New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire and the Burlington, Vermont area.  Accordingly, the ultimate collectibility of a substantial portion of the Company’s portfolio is susceptible to changes in market conditions of those areas. Management is not aware of any material concentrations of credit to any industry or individual borrowers.

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Subprime mortgage lending, which has been the riskiest sector of the residential housing market, is not a market that the Company has ever actively pursued. The market does not apply a uniform definition of what constitutes “subprime” lending. Our reference to subprime lending relies upon the “Statement on Subprime Mortgage Lending” issued by the OTS and the other federal bank regulatory agencies (the “Agencies”), on June 29, 2007, which further referenced the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance, issued by the Agencies by press release dated January 31, 2001. In the Expanded Guidance, the Agencies indicated that subprime lending does not refer to individual subprime loans originated and managed, in the ordinary course of business, as exceptions to prime risk selection standards. The Agencies recognize that many prime loan portfolios will contain such accounts. The Agencies also excluded prime loans that develop credit problems after acquisition and community development loans from the subprime arena. According to the Expanded Guidance, subprime loans are other loans to borrowers which display one or more characteristics of reduced payment capacity. Five specific criteria, which are not intended to be exhaustive and are not meant to define specific parameters for all subprime borrowers and may not match all markets or institutions’ specific subprime definitions, are set forth, including having a FICO score of 660 or below. Based upon the definition and exclusions described above, the Company is a prime lender. Within the loan portfolio, there are loans that, at the time of origination, had FICO scores of 660 or below. However, since the Company is a portfolio lender, it reviews all data contained in borrower credit reports and does not base underwriting decisions solely on FICO scores. We believe the aforementioned loans, when made, were amply collateralized and otherwise conformed to our prime lending standards.

Liquidity Risk

Liquidity involves the ability to meet the cash flow requirements of customers who may be depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. The Asset Liability Committee (ALCO) is responsible for liquidity management and has developed guidelines which cover all assets and liabilities, as well as off balance sheet items that are potential sources or uses of liquidity. Liquidity policies must also provide the flexibility to implement appropriate strategies. Requirements change as loans grow, deposits and securities mature, and payments on borrowings are made. Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions.

The primary liquidity measurement the Company utilizes is called “Basic Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources which can be accessed when necessary. At December 31, 2012, the Company’s Basic Surplus measurement was 9.0% of total assets, or $540 million, which was above the Company’s minimum of 5% (calculated at $302 million of period end total assets at December 31, 2012) set forth in its liquidity policies.

This Basic Surplus approach enables the Company to adequately manage liquidity from both operational and contingency perspectives. By tempering the need for cash flow liquidity with reliable borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio. The makeup and term structure of the securities portfolio is, in part, impacted by the overall interest rate sensitivity of the balance sheet.  Investment decisions and deposit pricing strategies are impacted by the liquidity position.  At December 31, 2012, the Company considered its Basic Surplus position to be strong.  However, certain events may adversely impact the Company’s liquidity position in 2013.  Improvement in the economy may increase demand for equity related products or increase competitive pressure on deposit pricing, which, in turn, could result in a decrease in the Company’s deposit base or increase funding costs. Additionally, liquidity will come under additional pressure if loan growth exceeds deposit growth in 2013.  These scenarios could lead to a decrease in the Company’s Basic Surplus measure below the minimum policy level of 5%.  To manage this risk, the Company has the ability to purchase brokered time deposits, borrow against established borrowing facilities with other banks (Federal funds), and enter into repurchase agreements with investment companies. The additional liquidity that could be provided by these measures was $1.1 billion at December 31, 2012.  In addition, the Bank has enhanced its “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile loans.  At December 31, 2012, the Bank had the capacity to borrow $539 million from this program.

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At December 31, 2012 and 2011, FHLB advances outstanding totaled $339.4 million and $342.8 million, respectively. The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $418 million at December 31, 2012 and $323 million at December 31, 2011. In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $282 million at December 31, 2012 or used to collateralize other borrowings, such as repurchase agreements.

At December 31, 2012, a portion of the Company’s loans and securities were pledged as collateral on borrowings. Therefore, future growth of earning assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management, and may require further use of brokered time deposits, or other higher cost borrowing arrangements.

Net cash flows provided by operating activities totaled $89.1 million in 2012 and $83.8 million in 2011. The critical elements of net operating cash flows include net income, adjusted for non-cash income and expense items such as the provision for loan losses, deferred income tax expense, depreciation and amortization, and cash flows generated through changes in other assets and liabilities.

Net cash flows used by investing activities totaled $127.1 million and $175.5 million in 2012 and 2011, respectively. Critical elements of investing activities are loan and investment securities transactions. The change in cash flows from investing activities was due primarily to the decrease in available for sale securities purchases, which totaled $483.9 million in 2012 as compared with $648.0 million in 2011.  This was partially offset by a net increase in loans of approximately $277.7 million during 2012 as compared with $172.9 million in 2011.

Net cash flows provided by financing activities totaled $72.3 million in 2012 and net cash flows used in financing activities totaled $52.3 million in 2011. The critical elements of financing activities are proceeds from deposits, borrowings, and stock issuances.  In addition, financing activities are impacted by dividends and treasury stock transactions.

In connection with its financing and operating activities, the Company has entered into certain contractual obligations. The Company’s future minimum cash payments, excluding interest, associated with its contractual obligations pursuant to its borrowing agreements, operating leases, and other obligations at December 31, 2012 are as follows:

Contractual Obligations
(In thousands)
	Payments Due by Period
	2013		2014		2015		2016		2017		Thereafter		Total
Long-term debt obligations	$	119,502	$	2,610	$	250	$	70,000	$	100,000	$	75,130	$	367,492
Trust preferred debentures		-		-		-		-		-		75,422		75,422
Operating lease obligations		5,727		5,453		4,714		4,309		4,063		28,314		52,580
Retirement plan obligations		5,462		5,467		5,519		8,009		6,192		30,491		61,140
Lease obligations		161		161		161		105		30		-		618
Data processing commitments		8,436		7,677		7,546		2,907		2,064		-		28,629
Total contractual obligations	$	139,288	$	21,368	$	18,190	$	85,330	$	112,349	$	209,357	$	585,881

54

Commitments to Extend Credit

The Company makes contractual commitments to extend credit, which include unused lines of credit, which are subject to the Company’s credit approval and monitoring procedures. At December 31, 2012 and 2011, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $841.7 million and $764.9 million, respectively. In the opinion of management, there are no material commitments to extend credit, including unused lines of credit that represent unusual risks. All commitments to extend credit in the form of loans, including unused lines of credit, expire within one year.

Standby Letters of Credit

The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its stand-by letters of credit. The Company guarantees the obligations or performance of customers by issuing stand-by letters of credit to third parties. These stand-by letters of credit are frequently issued in support of third party debt, such as corporate debt issuances, industrial revenue bonds, and municipal securities. The risk involved in issuing stand-by letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have terms of five years or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. At December 31, 2012 and 2011, outstanding stand-by letters of credit were approximately $37.5 million and $26.8 million, respectively. The fair value of the Company’s stand-by letters of credit at December 31, 2012 and 2011 was not significant. The following table sets forth the commitment expiration period for stand-by letters of credit at December 31, 2012:

Commitment Expiration of Standby Letters of Credit
Within one year	$	23,250
After one but within three years		12,868
After three but within five years		873
After five years		519
Total	$	37,510

Interest Rate Swaps

Beginning in June 2012 with the acquisition of Hampshire First Bank, the Bank offers interest rate swap agreements to its customers.  These agreements allow the Bank’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement.  Simultaneous with the execution of such an agreement with a customer, the Bank enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Bank to continue to receive the historical variable rate under the loan agreement with the customer.  The agreement with the third party is not a hedge contract therefore changes in fair value are recorded through earnings.  Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet.  Gains and losses are recorded as other noninterest income.  The Bank is not subject to any fee or penalty should the customer elect to terminate the interest rate swap agreement prior to maturity.  The Bank is exposed to credit loss equal to the fair value of the derivatives (not the notional amount of the derivatives) in the event of nonperformance by the counterparty to the interest rate swap agreements.  Additionally, the Bank receives a fee from the customer that is recognized when the Bank has fulfilled its obligations under each agreement, which is generally upon execution of the agreement with the Bank’s customer.  Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Bank is limited to the fees it receives from the customer.  The Bank recognized minimal fee income in 2012.  At December 31, 2012, the Bank maintained a $2.0 million deposit with the counterparty to collateralize the swap agreements.

55

Loans Serviced for Others and Loans Sold with Recourse

The total amount of loans serviced by the Company for unrelated third parties was approximately $308.1 million and $301.9 million at December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, the Company had approximately $1.2 million of mortgage servicing rights. At December 31, 2012 and 2011, the Company serviced $13.7 million and $16.2 million, respectively, of agricultural loans sold with recourse. Due to sufficient collateral on these loans, no reserve is considered necessary at December 31, 2012 and 2011.

Capital Resources

Consistent with its goal to operate a sound and profitable financial institution, the Company actively seeks to maintain a “well-capitalized” institution in accordance with regulatory standards. The principal source of capital to the Company is earnings retention. The Company’s capital measurements are in excess of both regulatory minimum guidelines and meet the requirements to be considered well-capitalized.

The Company’s principal source of funds to pay interest on trust preferred debentures and pay cash dividends to its shareholders are dividends from its subsidiaries.  Various laws and regulations restrict the ability of banks to pay dividends to their shareholders.  Generally, the payment of dividends by the Company in the future as well as the payment of interest on the capital securities will require the generation of sufficient future earnings by its subsidiaries.

The Bank also is subject to substantial regulatory restrictions on its ability to pay dividends to the Company. Under OCC regulations, the Bank may not pay a dividend, without prior OCC approval, if the total amount of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its retained net income to date during the calendar year and its retained net income over the preceding two years. At December 31, 2012, approximately $21.3 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements.

Stock Repurchase Plan

Under previously disclosed stock repurchase plans, the Company purchased 769,568 shares of its common stock during the year ended December 31, 2012, for a total of $15.5 million at an average price of $20.13 per share.  At December 31, 2012, there were 748,013 shares available for repurchase under a previously disclosed repurchase plan, which expires on December 31, 2013.

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2011 OPERATING RESULTS AS COMPARED TO 2010 OPERATING RESULTS

Net Interest Income

On a tax equivalent basis, the Company’s net interest income for 2011 was $204.9 million, down from $208.1 million for 2010.  The Company’s net interest margin decreased to 4.09% for 2011 from 4.15% for 2010.  The decrease in the net interest margin resulted primarily from the decrease in the yields on interest-earning assets as cash flows from maturing assets were redeployed at lower rates in the current interest rate environment.  The yield on earning assets decreased 33 basis points (bp), from 5.21% for 2010 to 4.88% for 2011, driven primarily by a decrease in the yield earned on loans, which declined from 5.90% in 2010 to 5.58% in 2011.  In addition, the yield earned on securities available for sale decreased from 3.56% in 2010 to 2.97% in 2011, which also drove the decrease in the yield on earning assets in 2011.  Average earning assets decreased marginally from 2010 to 2011 and had little impact on the net interest margin.  Meanwhile, the rate paid on interest bearing liabilities decreased 29 bp, from 1.32% for 2010 to 1.03% for 2011, and was the primary driver of the decrease in interest expense.  The rate paid on time deposits decreased from 2.06% in 2010 to 1.80% in 2011.  In addition, the rate paid on money market deposit accounts decreased from 0.57% in 2010 to 0.34% in 2011.  Average interest-bearing liabilities decreased $172.9 million from 2010 to 2011 which also contributed to the decrease in interest expense.  In 2010, the Company paid down certain long term borrowings, which was the primary driver of the decrease in interest-bearing liabilities in 2011.

Loans and Corresponding Interest and Fees on Loans

The average balance of loans increased by approximately $48.9 million, or 1.3%, from 2010 to 2011.  The yield on average loans decreased from 5.90% in 2010 to 5.58% in 2011, as loan rates declined due to the historically low rate environment in 2011.  Interest income from loans on a FTE basis decreased 4.2%, from $214.3 million in 2010 to $205.3 million in 2011.  This decrease was due to the decrease in yield as noted above, and was partially offset by the increase in average loan balances.

Total loans increased $190.2 million, or 5.3% (4.1% organic growth) from December 31, 2010 to December 31, 2011.  In October 2011, the Company acquired four branches in Berkshire County, Massachusetts, including approximately $39.9 million in loans, which contributed to this loan growth.  Commercial loans increased $33.6 million, or 5.8%, from $577.7 million at December 31, 2010 to $611.3 million at December 31, 2011, due to strong originations in 2011, particularly in our upstate New York markets and Vermont, as well as approximately $3.8 million acquired from the aforementioned branch acquisitions.  Commercial real estate loans increased $44.4 million, or 5.3%, from $844.5 million at December 31, 2010 to $888.9 million at December 31, 2011, in large part due to strong originations in our upstate New York markets as well as originations from new markets.  The Company also acquired approximately $14.5 million in commercial real estate loans from the aforementioned branch acquisitions.  Real estate construction and development loans increased $48.6 million from $45.4 million at December 31, 2010 to $94.0 million at December 31, 2011 due to the addition of a few large, commercial development loans during 2011 primarily from existing customers within our footprint.  Residential real estate loans increased $33.1 million, or 6.0%, from $548.4 million at December 31, 2010 to $581.5 million at December 31, 2011.  The Company sold more fixed rate mortgages during 2010 than 2011 as market conditions in 2011 were not as favorable for such sales.  Consumer loans increased $40.9 million or 4.5% from $905.6 million at December 31, 2010 to $946.5 million at December 31, 2011 in large part due to strong originations in our upstate New York markets as well as originations from new markets.  Despite the acquisition of approximately $20.8 million in home equity loans as part of the aforementioned acquisitions, home equity loans decreased by $6.0 million, or 1.0%, from December 31, 2010 to December 31, 2011.  While originations were up in 2011 over 2010, the low rate environment contributed to consumers paying off or refinancing their home equity loans with lower rate products such as traditional mortgages.

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Securities and Corresponding Interest and Dividend Income

The average balance of the amortized cost for securities available for sale increased $34.8 million, or 3.2%, from 2010 to 2011.  The yield on average securities available for sale was 2.97% for 2011 compared to 3.56% in 2010.

The average balance of securities held to maturity decreased from $128.7 million in 2010 to $81.6 million in 2011. At December 31, 2011, securities held to maturity were comprised primarily of tax-exempt municipal securities. The yield on securities held to maturity increased from 4.74% in 2010 to 5.33% in 2011.

The average balance of FRB and FHLB stock decreased to $27.1 million in 2011 from $31.9 million in 2010 due to a decrease in FHLB borrowings.  The yield from investments in FRB and FHLB Banks decreased from 5.72% in 2010 to 5.13% in 2011.

Deposits

Average interest bearing deposits decreased $69.1 million, or 2.1%, from 2010 to 2011.  Average time deposits decreased $72.2 million or 7.3% during 2011 as compared to 2010.  The decrease in average time deposits resulted primarily from decreases in brokered and retail certificates of deposite due to lower interest rates.  Average money market deposits decreased $22.8 million or 2.1% during 2011 when compared to 2010.  Average NOW accounts decreased $24.4 million or 3.4% during 2011 as compared to 2010.  This decrease was due primarily to a decrease in municipal NOW accounts.  The average balance of savings accounts increased $50.3 million or 9.1% during 2011 when compared to 2010.    The average balance of demand deposits increased $160.7 million, or 19.9%, from $805.6 million in 2010 to $966.3 million in 2011.  This growth in demand deposits was driven principally by increases in accounts from retail, municipal, and commercial customers spurred by strategic expansion into new markets.

The rate paid on average interest-bearing deposits decreased from 0.91% during 2010 to 0.70% in 2011. The decrease in the rate on interest-bearing deposits was driven primarily by pricing decreases from money market accounts and time deposits, which are sensitive to interest rate changes. The pricing decreases for these products resulted from decreases in short-term rates driven by the cuts made to the Federal Funds Target rate by the FRB during 2009 as well as an overall decrease in all interest rates.  The rate paid for money market deposit accounts decreased from 0.57% during 2010 to 0.34% during 2011.  The rate paid for NOW accounts decreased from 0.41% during 2010 to 0.34% during 2011.  The rate paid for savings deposits decreased from 0.14% in 2010 to 0.11% in 2011 and the rate paid on time deposits decreased from 2.06% during 2010 to 1.80% during 2011.

Borrowings

Average short-term borrowings decreased slightly to $154.0 million in 2011 from $158.3 million in 2010.  The average rate paid on short-term borrowings decreased from 0.25% in 2010 to 0.13% in 2011, which was primarily driven by the FRB maintaining a historic low Fed Funds target rate of 0.25% (which directly impacts short-term borrowing rates).  Average long-term debt decreased from $469.5 million in 2010 to $370.0 million in 2011, which resulted from the strategic pay-down of long-term debt in 2010 to lower interest expense in 2011 and future years.

The average balance of trust preferred debentures remained at $75.4 million in 2011 compared to 2010.  The average rate paid for trust preferred debentures in 2011 was 2.77%, down from 5.49% in 2010. The decrease in rate on the trust preferred debentures is due primarily to the reset of interest rate terms in two trust preferred debentures to variable rate from fixed rate.  The third trust preferred debenture reset to a variable rate in a prior year and therefore, all associated interest expense on trust preferred debentures is now at a variable rate.

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Short-term borrowings consist of Federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions, and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less. The Company has unused lines of credit and  access  to  brokered  deposits  available  for  short-term  financing  of approximately $1.1 billion and  $1.0 billion  at December 31, 2011 and 2010, respectively.  Securities collateralizing repurchase agreements are held in safekeeping by non-affiliated financial institutions and are under the Company’s control.  Long-term  debt,  which  is  comprised primarily of FHLB advances, are collateralized  by  the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket  lien  on  its  residential  real  estate  mortgage  loans.

Noninterest Income

Noninterest income for the year ended December 31, 2011 was $80.3 million, down $3.6 million or 4.3% from $83.9 million for the year ended December 31, 2010.  The decrease in noninterest income was due primarily to a decrease in net securities gains of approximately $3.1 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010 due to the sale of two equity positions and certain CMO’s during 2010.  In addition, the Company experienced a decrease in service charges on deposit accounts of approximately $2.6 million as a result of a decrease in overdraft activity due to the effects of a full year of new regulations regarding overdraft fees, as well as decreased activity due to the state of the economy.  Retirement plan administration fees decreased by $1.4 million, or 13.9%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, driven by the loss of one large client in the fourth quarter of 2010.  These decreases were partially offset by an increase in insurance and other financial services revenue of $2.0 million, or 10.5%, for the year ended December 31, 2011 as compared to the same period in 2010.  This increase was due primarily to the acquisition of an insurance agency during the second quarter of 2011 and an increase in brokerage commission revenue from new business.  ATM and debit card fees increased approximately $1.6 million, or 16.0%, for the year ended December 31, 2011 as compared to the same period in 2010 due to an increase in card usage as well as a change in the fee structure on foreign ATM transactions.  In addition, trust revenue increased approximately $1.1 million, or 14.8%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, due primarily to the addition of new business, including from markets where we have recently expanded, as well as an increase in the fair market value of trust assets under administration.

Noninterest Expense

Noninterest expense for the year ended December 31, 2011 was $180.7 million, up from $178.3 million, or 1.3%, for the year ended December 31, 2010.  Salaries and employee benefits increased $5.5 million, or 5.9%, for the year ended December 31, 2011 compared with the year ended December 31, 2010.  This increase was due primarily to increases in full-time-equivalent employees driven primarily by strategic expansion efforts, merit increases, and other employee benefits.  In addition, occupancy expenses increased approximately $1.0 million, or 6.6%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, primarily due to continued expansion and expenses related to the harsh winter in early 2011.  Other operating expenses also increased approximately $2.3 million, or 17.7%, for the year ended December 31, 2011 compared with the year ended December 31, 2010 primarily as a result of flood related expenses totaling approximately $0.4 million and merger related expenses totaling approximately $0.8 million in 2011, with no other significant drivers.   During the year ended December 31, 2010, the Company incurred debt prepayment penalties totaling $4.5 million to pay off long-term debt, which partially offset the aforementioned increases in noninterest expense.  The increases in noninterest expense were also partially offset by a decrease in FDIC premium expenses of approximately $1.8 million during the year ended December 31, 2011, as compared with the year ended December 31, 2010, due to the FDIC redefining the deposit insurance assessment base.

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Recent Accounting Pronouncements

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. In October 2012, the FASB limited the scope to derivatives, repurchase and reverse purchase agreements, and securities borrowing and lending agreements subject to master netting arrangements or similar agreements. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is not expected to have a significant impact on the Company’s financial statements.

ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 gives entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for the Company beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s financial statements.

ITEM 7A.  Quantitative and Qualitative Disclosure About Market Risk

Interest rate risk is the most significant market risk affecting the Company.  Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities or are immaterial to the results of operations.

Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on the Company’s net interest income.  Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than earning assets.  When interest-bearing liabilities mature or reprice more quickly than earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.

In an attempt to manage the Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk. Management’s asset/liability committee (ALCO) meets monthly to review the Company’s interest rate risk position and profitability, and to recommend strategies for consideration by the Board of Directors.  Management also reviews loan and deposit pricing, and the Company’s securities portfolio, formulates investment and funding strategies, and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner.  Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

In adjusting the Company’s asset/liability position, the Board and management attempt to manage the Company’s interest rate risk while minimizing the net interest margin compression. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order to increase its net interest margin. The Company’s results of operations and net portfolio values remain vulnerable to changes in interest rates and fluctuations in the difference between long and short-term interest rates

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The primary tool utilized by ALCO to manage interest rate risk is a balance sheet/income statement simulation model (interest rate sensitivity analysis). Information such as principal balance, interest rate, maturity date, cash flows, next repricing date (if needed), and current rates is uploaded into the model to create  an  ending  balance  sheet.  In addition, ALCO makes certain assumptions regarding prepayment speeds for loans and mortgage related investment securities along with any optionality within the deposits and borrowings. The model is first run under an assumption of a flat rate scenario (i.e. no change in current interest rates) with a static balance sheet over a 12-month period. Two additional models are run in which a gradual increase of 200 bp and a gradual decrease of 100 bp takes place over a 12 month period with a static balance sheet.  Under these scenarios, assets subject to prepayments are adjusted to account for faster or slower prepayment assumptions. Any investment securities or borrowings that have callable options embedded into them are handled accordingly based on the interest rate scenario. The resultant changes in net interest income are then measured against the flat rate scenario.

In the declining rate scenario, net interest income is projected to decrease slightly when compared to the forecasted net interest income in the flat rate scenario through the simulation period. The decrease in net interest income is a result of earning assets repricing downward, given potential higher prepayments and lower reinvestment rates, slightly faster than the interest bearing liabilities that are at or near their floors.  In the rising rate scenarios, net interest income is projected to experience a decline from the flat rate scenario; however, the potential impact on earnings is dependent on the ability to lag deposit repricing on NOW, savings, MMDA, and CD accounts. Net interest income for the next twelve months in the +200/-100 bp scenarios, as described above, is within the internal policy risk limits of not more than a 7.5% change in net interest income. The following table summarizes  the  percentage  change  in  net  interest  income in the rising and declining rate scenarios over a 12-month period from the forecasted net interest income  in  the  flat  rate  scenario  using the December 31, 2012 balance sheet position:

Table 10. Interest Rate Sensitivity Analysis
Change in interest rates	Percent change
(In basis points)	in net interest income
+200	(1.85%)
-100	(1.29%)

The Company anticipates that under the current low rate environment, on a monthly basis, interest income is expected to decrease at a faster rate than interest expense given the potential higher prepayments and reinvestment into lower rates as deposit rates are at or near their respective floors.  In order to protect net interest income from anticipated net interest margin compression in 2013, the Company will continue to focus on increasing earning assets through loan growth, asset mix of loans and investments, and leverage opportunities.

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ITEM  8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

NBT Bancorp Inc.:

We have audited the accompanying consolidated balance sheets of NBT Bancorp Inc. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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 NBT Bancorp Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/S/ KPMG LLP

Albany, New York

March 1, 2013

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Consolidated Balance Sheets
	As of December 31,
(In thousands, except share and per share data)	2012			2011
Assets
Cash and due from banks	$	157,094		$	128,517
Short-term interest bearing accounts		6,574			864
Securities available for sale, at fair value		1,147,999			1,244,619
Securities held to maturity (fair value $61,535 and $72,198)		60,563			70,811
Trading securities		3,918			3,062
Federal Reserve and Federal Home Loan Bank stock		29,920			27,020
Loans		4,277,616			3,800,203
Less allowance for loan losses		69,334			71,334
Net loans		4,208,282			3,728,869
Premises and equipment, net		77,875			74,541
Goodwill		152,373			132,029
Intangible assets, net		16,962			18,194
Bank owned life insurance		80,702			77,626
Other assets		99,997			92,254
Total assets	$	6,042,259		$	5,598,406
Liabilities
Demand (noninterest bearing)	$	1,242,712		$	1,052,906
Savings, NOW, and money market		2,558,376			2,381,116
Time		983,261			933,127
Total deposits		4,784,349			4,367,149
Short-term borrowings		162,941			181,592
Long-term debt		367,492			370,344
Trust preferred debentures		75,422			75,422
Other liabilities		69,782			65,789
Total liabilities		5,459,986			5,060,296
Stockholders’ equity
Preferred stock, $0.01 par value; authorized 2,500,000 shares at December 31, 2012 and 2011		-			-
Common stock, $0.01 par value. Authorized 100,000,000 shares at December 31, 2012 and 50,000,000 at December 31, 2011; issued 39,305,131 at December 31, 2012 and 38,035,539 at December 31, 2011		393			380
Additional paid-in-capital		346,692			317,329
Retained earnings		357,558			329,981
Accumulated other comprehensive loss		(5,880	)		(6,104	)
Common stock in treasury, at cost, 5,529,781 and 4,878,829 shares at December 31, 2012 and 2011, respectively		(116,490	)		(103,476	)
Total stockholders’ equity		582,273			538,110
Total liabilities and stockholders’ equity	$	6,042,259		$	5,598,406

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Income
	Years ended December 31,
(In thousands, except per share data)	2012		2011		2010
Interest, fee, and dividend income
Interest and fees on loans	$	208,458	$	204,370	$	213,429
Securities available for sale		27,005		31,083		36,167
Securities held to maturity		2,378		2,886		3,968
Other		1,556		1,658		2,174
Total interest, fee, and dividend income		239,397		239,997		255,738
Interest expense
Deposits		18,848		23,020		30,354
Short-term borrowings		188		205		402
Long-term debt		14,428		14,404		18,314
Trust preferred debentures		1,730		2,092		4,140
Total interest expense		35,194		39,721		53,210
Net interest income		204,203		200,276		202,528
Provision for loan losses		20,269		20,737		29,809
Net interest income after provision for loan losses		183,934		179,539		172,719
Noninterest income
Insurance and other financial services revenue		22,387		20,843		18,867
Service charges on deposit accounts		18,225		21,464		24,041
ATM and debit card fees		12,358		11,642		10,035
Retirement plan administration fees		10,097		8,918		10,356
Trust		9,172		8,864		7,722
Bank owned life insurance income		3,077		3,085		3,316
Net securities gains		599		150		3,274
Other		11,412		5,345		6,277
Total noninterest income		87,327		80,311		83,888
Noninterest expense
Salaries and employee benefits		104,815		99,212		93,718
Occupancy		17,415		16,363		15,350
Data processing and communications		13,437		12,271		12,347
Professional fees and outside services		10,463		8,921		9,032
Equipment		9,627		8,864		8,317
Office supplies and postage		6,489		6,073		6,102
FDIC expenses		3,832		4,267		6,081
Advertising		2,889		3,460		3,487
Amortization of intangible assets		3,394		3,046		3,072
Loan collection and other real estate owned		2,560		2,631		3,036
Merger expenses		2,608		804		-
Prepayment penalty on long-term debt		-		-		4,526
Other		16,358		14,764		13,223
Total noninterest expense		193,887		180,676		178,291
Income before income tax expense		77,374		79,174		78,316
Income tax expense		22,816		21,273		20,912
Net income	$	54,558	$	57,901	$	57,404
Earnings per share
Basic	$	1.63	$	1.72	$	1.67
Diluted		1.62		1.71		1.66

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Comprehensive Income
	Years ended December 31,
(In thousands)	2012			2011			2010
Net income	$	54,558		$	57,901		$	57,404
Other comprehensive (loss) income, net of tax
Unrealized net holding (losses) gains arising during the year (pre-tax amounts of $(2,471), $12,757, and $(6,660))		(1,492	)		7,703			(4,021	)
Reclassification adjustment for net gains related to securities available for sale included in net income (pre-tax amounts of $599, $150, and $3,274)		(362	)		(90	)		(1,977	)
Amortization of prior service cost and actuarial gains (pre-tax amounts of $3,593, $1,665, and $1,768)		2,092			999			1,060
Increase in unrecognized actuarial loss and prior service cost (pre-tax amounts of $(24), $(15,546), and $(2,596))		(14	)		(9,381	)		(1,560	)
Total other comprehensive income (loss)		224			(769	)		(6,498	)
Comprehensive income	$	54,782		$	57,132		$	50,906

See accompanying notes to consolidated financial statements

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Consolidated Statements of Changes in Stockholders’ Equity
									Accumulated
Years ended December 31,			Additional						other			Common
2012, 2011, and 2010	Common		paid-in-			Retained			comprehensive			stock in
(In thousands except share and per share data)	stock		capital			earnings			(loss) income			treasury			Total
Balance at December 31, 2009	$	380	$	311,164		$	270,232		$	1,163		$	(77,816	)	$	505,123
Net income		-		-			57,404			-			-			57,404
Cash dividends - $0.80 per share		-		-			(27,577	)		-			-			(27,577	)
Net issuance of 23,810 common shares		-		-			-			-			(477	)		(477	)
Net issuance of 141,146 shares to employee stock plans, including tax benefit		-		(923	)		(262	)		-			3,000			1,815
Stock-based compensation		-		3,782			-			-			-			3,782
Other comprehensive loss		-		-			-			(6,498	)		-			(6,498	)
Balance at December 31, 2010	$	380	$	314,023		$	299,797		$	(5,335	)	$	(75,293	)	$	533,572
Net income		-		-			57,901			-			-			57,901
Cash dividends - $0.80 per share		-		-			(27,063	)		-			-			(27,063	)
Purchase of 1,458,609 treasury shares		-		-			-			-			(30,502	)		(30,502	)
Net issuance of 112,512 shares to employee stock plans, including tax benefit		-		62			(654	)		-			2,319			1,727
Stock-based compensation		-		3,244			-			-			-			3,244
Other comprehensive loss		-		-			-			(769	)		-			(769	)
Balance at December 31, 2011	$	380	$	317,329		$	329,981		$	(6,104	)	$	(103,476	)	$	538,110
Net income		-		-			54,558			-			-			54,558
Cash dividends - $0.80 per share		-		-			(26,712	)		-			-			(26,712	)
Purchase of 769,568 treasury shares		-		-			-			-			(15,490	)		(15,490	)
Net issuance of 1,269,592 shares for acquisition		13		25,811			-			-			-			25,824
Net issuance of 118,616 shares to employee stock plans, including tax benefit		-		(812	)		(269	)		-			2,476			1,395
Stock-based compensation		-		4,364			-			-			-			4,364
Other comprehensive income		-		-			-			224			-			224
Balance at December 31, 2012	$	393	$	346,692		$	357,558		$	(5,880	)	$	(116,490	)	$	582,273

See accompanying notes to consolidated financial statements

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Consolidated Statements of Cash Flows
	Years ended December 31,
(In thousands)	2012			2011			2010
Operating activities
Net income	$	54,558		$	57,901		$	57,404
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		20,269			20,737			29,809
Depreciation and amortization of premises and equipment		6,276			5,463			5,327
Net accretion on securities		2,408			1,597			1,468
Amortization of intangible assets		3,394			3,046			3,072
Stock based compensation		4,364			3,244			3,782
Bank owned life insurance income		(3,077	)		(3,085	)		(3,316	)
Trading security purchases		(753	)		(447	)		(184	)
Unrealized (gains) losses in trading securities		(103	)		193			(214	)
Deferred income tax benefit		(10	)		(9,478	)		(14,955	)
Proceeds from sale of loans held for sale		65,160			13,545			83,143
Originations of loans held for sale		(66,252	)		(14,167	)		(80,469	)
Net gains on sales of loans held for sale		(2,469	)		(329	)		(911	)
Net security gains		(599	)		(151	)		(3,274	)
Net gains on sales of other real estate owned		(988	)		(2,531	)		(517	)
Net decrease (increase) in other assets		6,804			(3,579	)		6,627
Net increase in other liabilities		(128	)		11,806			2,645
Net cash provided by operating activities		88,854			83,765			89,437
Investing activities
Net cash provided by acquisitions		52,871			81,467			-
Securities available for sale:
Proceeds from maturities, calls, and principal paydowns		573,828			541,555			511,394
Proceeds from sales		1,790			2,437			103,253
Purchases		(483,858	)		(648,048	)		(635,319	)
Securities held to maturity:
Proceeds from maturities, calls, and principal paydowns		31,506			47,186			112,399
Purchases		(20,193	)		(20,736	)		(48,701	)
Net (increase) decrease in loans		(277,530	)		(172,920	)		7,292
Net (increase) decrease in Federal Reserve and FHLB stock		(1,886	)		226			8,733
Proceeds from bank owned life insurance		-			758			2,767
Purchases of premises and equipment, net		(6,994	)		(9,954	)		(6,510	)
Proceeds from sales of other real estate owned		3,616			2,531			3,186
Net cash (used in) provided by investing activities		(126,850	)		(175,498	)		58,494
Financing activities
Net increase in deposits		135,095			87,992			41,306
Net (decrease) increase in short-term borrowings		(18,651	)		22,158			3,457
Proceeds from issuance of long-term debt		-			156			-
Repayments of long-term debt		(3,354	)		(2,146	)		(184,824	)
Excess tax benefit from exercise of stock options		8			341			140
Proceeds from the issuance of shares to employee benefit plans and other stock plans		1,387			1,386			1,675
Purchase of treasury stock		(15,490	)		(30,502	)		(477	)
Cash dividends and payments for fractional shares		(26,712	)		(27,063	)		(27,577	)
Net cash provided by (used in) financing activities		72,283			52,322			(166,300	)
Net increase (decrease) in cash and cash equivalents		34,287			(39,411	)		(18,369	)
Cash and cash equivalents at beginning of year		129,381			168,792			187,161
Cash and cash equivalents at end of year	$	163,668		$	129,381		$	168,792

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Supplemental disclosure of cash flow information	Years ended December 31,
Cash paid during the year for:	2012		2011		2010
Interest	$	35,344	$	40,135	$	54,668
Income taxes, net of refund		25,512		31,258		37,033
Noncash investing activities:
Loans transferred to other real estate owned	$	2,734	$	2,927	$	1,212
Acquisitions:
Fair value of assets acquired	$	258,467	$	67,020	$	-
Fair value of liabilities assumed		285,012		148,487		-
Fair value of debt issued in purchase combination		502		2,460		-

See accompanying notes to consolidated financial statements.

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NBT BANCORP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(1) Summary of Significant Accounting Policies

The accounting and reporting policies of NBT Bancorp Inc. (“NBT Bancorp”) and its subsidiaries, NBT Bank, National Association (“NBT Bank”), NBT Holdings, Inc., and NBT Financial Services, Inc., conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. Collectively, NBT Bancorp and its subsidiaries are referred to herein as “the Company.”

The preparation of financial statements in conformity with GAAP 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 these estimates.

Estimates associated with the allowance for loan losses, other real estate owned (OREO), income taxes, pension expense, fair values of financial instruments and status of contingencies and other-than-temporary impairment on investments are particularly susceptible to material change in the near term.

The following is a description of significant policies and practices:

Consolidation

The accompanying consolidated financial statements include the accounts of NBT Bancorp and its wholly owned subsidiaries mentioned above.  All material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to the current year’s presentation. In the “Parent Company Financial Information,” the investment in subsidiaries is recorded using the equity method of accounting.

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The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, variable interest entities (“VIEs”) are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in an entity is present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. The Company’s wholly owned subsidiaries CNBF Capital Trust I, NBT Statutory Trust I and NBT Statutory Trust II are VIEs for which the Company is not the primary beneficiary. Accordingly, the accounts of these entities are not included in the Company’s consolidated financial statements.

Segment Report

The Company’s operations are primarily in the community banking industry and include the provision of traditional banking services. The Company also provides other services through its subsidiaries such as insurance, retirement plan administration, and trust administration. The Company operates solely in the geographical regions of central and upstate New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire and Burlington, Vermont. The Company has no reportable operating segments.

Cash Equivalents

The Company considers amounts due from correspondent banks, cash items in process of collection, and institutional money market mutual funds to be cash equivalents for purposes of the consolidated statements of cash flows.

Securities

The Company classifies its securities at date of purchase as either available for sale, held to maturity or trading.  Held to maturity debt securities are those that the Company has the ability and intent to hold until maturity.  Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported in stockholders’ equity and the statement of comprehensive income as a component of accumulated other comprehensive income or loss. Held to maturity securities are recorded at amortized cost. Trading securities are recorded at fair value, with net unrealized gains and losses recognized in income.  Transfers of securities between categories are recorded at fair value at the date of transfer. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses or in other comprehensive income, depending on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.  If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.  If the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be separated into (a) the amount representing the credit loss and (b) the amount related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss shall be recognized in earnings. The amount of the total other-than-temporary impairment related to other factors shall be recognized in other comprehensive income, net of applicable taxes.

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In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the historical and implied volatility of the fair value of the security.

Non-marketable equity securities are carried at cost.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividend and interest income are recognized when earned. Realized gains and losses on securities sold are derived using the specific identification method for determining the cost of securities sold.

Investments in Federal Reserve and Federal Home Loan Bank (“FHLB”) stock are required for membership in those organizations and are carried at cost since there is no market value available.

Loans

Loans are recorded at their current unpaid principal balance, net of unearned income and unamortized loan fees and expenses, which are amortized under the effective interest method over the estimated lives of the loans. Interest income on loans is accrued based on the principal amount outstanding.

Lease receivables primarily represent automobile financing to customers through direct financing leases and are carried at the aggregate of the lease payments receivable and the estimated residual values, net of unearned income and net deferred lease origination fees and costs.  Net deferred lease origination fees and costs are amortized under the effective interest method over the estimated lives of the leases. The estimated residual value related to the total lease portfolio is reviewed and if there has been a decline in the estimated fair value of the total residual value that is judged by management to be other-than-temporary a loss is recognized. Adjustments related to such other-than-temporary declines in estimated fair value are recorded in noninterest expense in the consolidated statements of income.

For all loan classes within the Company’s loan portfolio, loans are placed on nonaccrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. Loans are transferred to nonaccrual status generally when principal or interest payments become ninety days delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes circumstances indicate that borrowers may be unable to meet contractual principal or interest payments.  When a loan is transferred to a nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for loan losses.

If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected.  For all loan classes within the Company’s loan portfolio, nonaccrual loans are returned to accrual status when they become current as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest.  For loans in all portfolios, the principal amount is charged off in full or in part as soon as management determines, based on available facts, that the collection of principal in full is improbable.  For commercial loans, management considers specific facts and circumstances relative to individual credits in making such a determination.  For consumer and residential loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy.

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Commercial type loans are considered impaired when it is probable that the borrower will not repay the loan according to the original contractual terms of the loan agreement, and all loan types are considered impaired if the loan is restructured in a troubled debt restructuring (“TDR”). In determining that we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, we consider factors such as payment history and changes in the financial condition of individual borrowers, local economic conditions, historical loss experience and the conditions of the various markets in which the collateral may be liquidated.

A loan is considered to be a TDR when the Company grants a concession to the borrower because of the borrower’s financial condition that the Company would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of all or a portion of principal or interest, or other modifications at interest rates that are less than the current market rate for new obligations with similar risk. TDR loans are nonaccrual loans; however, they can be returned to accrual status after a period of performance, generally evidenced by six months of compliance with their modified terms.

Allowance for Loan Losses

The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb probable losses inherent in the loan portfolio. The allowance is determined based upon numerous considerations, including local and regional conditions, the growth and composition of the loan portfolio with respect to the mix between the various types of loans and their related risk characteristics, a review of the value of collateral supporting the loans, comprehensive reviews of the loan portfolio by the independent loan review staff and management, as well as consideration of volume and trends of delinquencies, nonperforming loans, and loan charge-offs. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. As a result of tests of adequacy, required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses.

The allowance for loan losses related to impaired loans is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral (collateral dependent loans). The Company’s impaired loans are generally collateral dependent. The Company considers the estimated cost to sell, on a discounted basis, when determining the fair value of collateral in the measurement of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loans.

Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions or changes in the values of properties securing loans in the process of foreclosure. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination which may not be currently available to management.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation.  Depreciation of premises and equipment is determined using the straight-line method over the estimated useful lives of the respective assets. Expenditures for maintenance, repairs, and minor replacements are charged to expense as incurred.

Other Real Estate Owned

OREO consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or “cost” (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense.  In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties.  Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of OREO are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP.  The balance of OREO at December 31, 2012 and 2011 was approximately $2.3 million and $2.2 million, respectively.

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Acquired Loans

Acquired loans are initially measured at fair value as of the acquisition date without carryover of historical allowance for loan losses.

For loans that meet the criteria stipulated in ASC 310-30, the Company shall recognize the accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan's contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference shall not be recognized as an adjustment of yield, a loss accrual, or a valuation allowance. Decreases in the expected cash flows in subsequent periods require the establishment of an allowance for loan losses. Improvements in expected cash flows in future periods result in a reduction of the nonaccretable discount, with such amount reclassified as part of the accretable yield and subsequently recognized in interest income over the remaining lives of the acquired loans on a level-yield basis if the amount and timing of future cash flows is reasonably estimable.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan losses recognized subsequent to acquisition.

For loans that meet the criteria stipulated in ASC 310-20, the Company shall amortize/accrete into interest income the premium/discount determined at the date of purchase on a level-yield basis over the life of the loan. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses are similar to originated loans.  Loans accounted for under ASC 310-20 are placed on nonaccrual status when past due in accordance with the Company's nonaccrual policy.

Subsequent to acquisition the estimate of cash flows expected to be collected on loans accounted for in accordance with ASC 310-20 is periodically re-assessed. These re-assessments involve the use of key assumptions and estimates, similar to those used in the initial estimate of fair value. A decrease in expected cash flows in subsequent periods may indicate that the loan pool is impaired, which would require the establishment of an allowance for loan losses by a charge to the provision for credit losses.

An acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale is recognized and reported within noninterest income based on the difference between the sales proceeds and the carrying amount of the loan. In other cases, individual loans are removed from the pool based on comparing the amount received from its resolution (fair value of the underlying collateral less costs to sell in the case of a foreclosure) with its outstanding balance. Any difference between these amounts is recorded as a charge-off through the allowance for loan losses.  Acquired loans subject to modification are not removed from the pool even if those loans would otherwise be deemed troubled debt restructurings as the pool, and not the individual loan, represents the unit of account.

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Goodwill and Other Intangible Assets

Goodwill and intangible assets that have indefinite useful lives are not amortized, but are tested at least annually for impairment. Intangible assets that have finite useful lives are amortized over their useful lives. Core deposit intangibles at the Company are amortized using the sum-of-the-years’-digits method. Covenants not to compete are amortized on a straight-line basis. Customer lists are amortized using an accelerated method.

When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the asset carrying value, using estimates of undiscounted future cash flows over the remaining asset life. Any impairment loss is measured by the excess of carrying value over fair value. Goodwill impairment tests are performed on an annual basis or when events or circumstances dictate. In these tests, the fair values of each reporting unit, or segment, is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated. If so, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value.

Treasury Stock

Treasury stock acquisitions are recorded at cost. Subsequent sales of treasury stock are recorded on an average cost basis. Gains on the sale of treasury stock are credited to additional paid-in-capital. Losses on the sale of treasury stock are charged to additional paid-in-capital to the extent of previous gains, otherwise charged to retained earnings.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.  The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

We maintain various long-term incentive stock benefit plans under which we grant stock options, restricted stock awards, and restricted stock units to certain directors and key employees.  We recognize compensation expense in our income statement over the requisite service period, based on the grant-date fair value of the award.  The fair values of options are estimated using the Black-Scholes option pricing model.  For restricted stock awards and units, we recognize compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date.

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The Company’s stock-based employee compensation plan is described in Note 18 “Employee Benefit Plans,” of this Report.

Interest Rate Swaps

Beginning in June 2012 with the acquisition of Hampshire First Bank, the Bank offers interest rate swap agreements to its customers. These agreements allow the Bank’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement. Simultaneous with the execution of such an agreement with a customer, the Bank enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Bank to continue to receive the historical variable rate under the loan agreement with the customer. The agreement with the third party is not a hedge contract therefore changes in fair value are recorded through earnings. Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet. Gains and losses are recorded as other noninterest income. The Bank is not subject to any fee or penalty should the customer elect to terminate the interest rate swap agreement prior to maturity. The Bank is exposed to credit loss equal to the fair value of the derivatives (not the notional amount of the derivatives) in the event of nonperformance by the counterparty to the interest rate swap agreements. Additionally, the Bank receives a fee from the customer that is recognized when the Bank has fulfilled its obligations under each agreement, which is generally upon execution of the agreement with the Bank’s customer. Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Bank is limited to the fees it receives from the customer.

Other Financial Instuments

The Company is a party to certain other financial instruments with off-balance-sheet risk such as commitments to extend credit, unused lines of credit, as well as certain mortgage loans sold to investors with recourse. The Company’s policy is to record such instruments when funded.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  Under the standby letters of credit, the Company is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer's failure to perform under the terms of the underlying contract with the beneficiary.  Standby letters of credit typically have one year expirations with an option to renew upon annual review.  The Company typically receives a fee for these transactions.  The fair value of stand-by letters of credit is recorded upon inception.

Loan Sales and Loan Servicing

The Company originates and services residential mortgage loans for consumers and sells 15-year, 20-year and 30-year residential real estate mortgages in the secondary market when the interest rate environment is determined to be favorable by management, while retaining servicing rights on the sold loans.  Loan sales are recorded when the sales are funded.  Mortgage servicing rights are recorded at fair value upon sale of the loan.  Loans held for sale are recorded at the lower of cost or market.

Repurchase Agreements

Repurchase agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets the other criteria for such accounting.  Obligations to repurchase securities sold are reflected as a liability in the Consolidated Balance Sheets.  The securities underlying the agreements are delivered to a custodial account for the benefit of the dealer or bank with whom each transaction is executed.  The dealers or banks, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agree to resell to the Company the same securities at the maturities of the agreements.

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Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company’s dilutive stock options and restricted stock).

Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.

Comprehensive Income

At the Company, comprehensive income represents net income plus other comprehensive income (loss), which consists primarily of the net change in unrealized gains or losses on securities available for sale for the period and changes in the funded status of employee benefit plans. Accumulated other comprehensive (loss) income represents the net unrealized gains or losses on securities available for sale and the previously unrecognized portion of the funded status of employee benefit plans, net of income taxes, as of the consolidated balance sheet dates.

Pension Costs

The Company maintains a noncontributory, defined benefit pension plan covering substantially all employees, as well as supplemental employee retirement plans covering certain executives and a defined benefit postretirement healthcare plan that covers certain employees.  Costs associated with these plans, based on actuarial computations of current and future benefits for employees, are charged to current operating expenses.

Trust Operations

Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Company.  Trust income is recognized on the accrual method based on contractual rates applied to the balances of trust accounts.

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs.  A fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

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Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within level 1 or level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations, and certain physical commodities. Such instruments are generally classified within level 2 of the fair value hierarchy.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

(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.

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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.

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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.

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(3) Earnings Per Share

The following is a reconciliation of basic and diluted earnings per share for the years presented in the consolidated statements of income:

	Years ended December 31,
	2012						2011						2010
	Net		Weighted average		Per share		Net		Weighted average		Per share		Net		Weighted average		Per share
(In thousands, except per share data)	income		shares		amount		income		shares		amount		income		shares		amount
Basic earnings per share	$	54,558		33,379	$	1.63	$	57,901		33,662	$	1.72	$	57,404		34,275	$	1.67
Effect of dilutive securities
Stock based compensation				340						262						234
Diluted earnings per share	$	54,558		33,719	$	1.62	$	57,901		33,924	$	1.71	$	57,404		34,509	$	1.66

There were approximately 1,193,000, 1,258,000, and 1,309,000 weighted average stock options for the years ended December 31, 2012, 2011, and 2010, respectively, that were not considered in the calculation of diluted earnings per share since the stock options’ exercise prices were greater than the average market price during  these  periods.

(4)  Federal Reserve Bank Requirement

The Company is required to maintain reserve balances with the Federal Reserve Bank of New York. The required average total reserve for NBT Bank for the 14-day maintenance period ending December 26, 2012 was $35.2 million.

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(5) Securities

The amortized cost, estimated fair value, and unrealized gains and losses of securities available for sale are as follows:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses		Estimated fair value
December 31, 2012
U.S. Treasury	$	63,668	$	757	$	-	$	64,425
Federal Agency		281,398		1,507		91		282,814
State & municipal		82,675		4,127		-		86,802
Mortgage-backed		237,461		12,820		-		250,281
Collateralized mortgage obligations		443,972		5,751		-		449,723
Corporate		-		-		-		-
Other securities		11,210		2,832		88		13,954
Total securities available for sale	$	1,120,384	$	27,794	$	179	$	1,147,999
December 31, 2011
U.S. Treasury	$	81,006	$	1,228	$	-	$	82,234
Federal Agency		254,983		879		16		255,846
State & municipal		99,176		5,624		11		104,789
Mortgage-backed		310,767		14,629		-		325,396
Collateralized mortgage obligations		459,067		6,458		51		465,474
Corporate		-		-		-		-
Other securities		8,935		2,021		76		10,880
Total securities available for sale	$	1,213,934	$	30,839	$	154	$	1,244,619

In the available for sale category at December 31, 2012, federal agency securities were comprised of Government-Sponsored Enterprise (“GSE”) securities; mortgaged-backed securities were comprised of GSEs with an amortized cost of $221.1 million and a fair value of $232.3 million and US Government Agency securities with an amortized cost of $16.4 million and a fair value of $18.0 million; Collateral Mortgage Obligations (“CMOs”) were comprised of GSEs with an amortized cost of $399.2 million and a fair value of $403.6 million and U.S. Government Agency securities with an amortized cost of $44.8 million and a fair value of $46.2 million. At December 31, 2012, all of the mortgaged-backed securities held to maturity were comprised of U.S. Government Agency securities.

In the available for sale category at December 31, 2011, federal agency securities were comprised of GSE securities; mortgaged-backed securities were comprised of GSEs with an amortized cost of $290.2 million and a fair value of $303.0 million and U.S. Government Agency securities with an amortized cost of $20.5 million and a fair value of $22.4 million; CMOs were comprised of GSEs with an amortized cost of $398.3 million and a fair value of $402.4 million and U.S. Government Agency securities with an amortized cost of $60.8 million and a fair value of $63.1 million.

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The following table sets forth information with regard to sales transactions of securities available for sale:

	Years ended December 31
(In thousands)	2012		2011			2010
Proceeds from sales	$	1,790	$	2,437		$	103,253
Gross realized gains	$	442	$	7		$	3,170
Gross realized losses		-		(165	)		(25	)
Net securities gains (losses)	$	442	$	(158	)	$	3,145

In addition to gains (losses) from sales transactions, the Company also recorded gains from calls on securities available for sale of approximately $0.2 million for the year ended December 31, 2012, $0.3 million for the year ended December 31, 2011, and $0.1 million for the year ended December 31, 2010.

At December 31, 2012 and 2011, securities available for sale with amortized costs totaling $1.2 billion, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.  Additionally, at December 31, 2012, securities available for sale with an amortized cost of $209.0 million were pledged as collateral for securities sold under the repurchase agreements.

The amortized cost, estimated fair value, and unrealized gains and losses of securities held to maturity are as follows:

	Amortized		Unrealized		Unrealized		Estimated
(In thousands)	cost		gains		losses		fair value
December 31, 2012
Mortgage-backed	$	1,168	$	184	$	-	$	1,352
State & municipal		59,395		788		-		60,183
Total securities held to maturity	$	60,563	$	972	$	-	$	61,535
December 31, 2011
Mortgage-backed	$	1,447	$	213	$	-	$	1,660
State & municipal		69,364		1,174		-		70,538
Total securities held to maturity	$	70,811	$	1,387	$	-	$	72,198

At December 31, 2012 and 2011, all of the mortgaged-backed securities held to maturity were comprised of U.S. Government Agency securities.

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The following table sets forth information with regard to investment securities with unrealized losses at December 31, 2012 and 2011, segregated according to the length of time the securities had been in a continuous unrealized loss position:

	Less than 12 months							12 months or longer							Total
Security Type:	Fair Value		Unrealized losses			Number of Positions		Fair Value		Unrealized losses			Number of Positions		Fair Value		Unrealized losses			Number of Positions
December 31, 2012
U.S. Treasury	$	-	$	-			-	$	-	$	-			-	$	-	$	-			-
Federal agency		39,906		(91	)		4		-		-			-		39,906		(91	)		4
State & municipal		-		-			-		-		-			-		-		-			-
Mortgage-backed		-		-			-		-		-			-		-		-			-
Collateralized mortgage obligations		23		-			2		-		-			-		23		-			2
Other securities		468		(6	)		1		167		(82	)		1		635		(88	)		2
Total securities with unrealized losses	$	40,397	$	(97	)		7	$	167	$	(82	)		1	$	40,564	$	(179	)		8
December 31, 2011
U.S. Treasury	$	-	$	-			-	$	-	$	-			-	$	-	$	-			-
Federal agency		34,996		(16	)		3		-		-			-		34,996		(16	)		3
State & municipal		957		(10	)		3		377		(1	)		2		1,334		(11	)		5
Mortgage-backed		-		-			-		-		-			-		-		-			-
Collateralized mortgage obligations		27,368		(51	)		3		-		-			-		27,368		(51	)		3
Other securities		645		(76	)		2		-		-			-		645		(76	)		2
Total securities with unrealized losses	$	63,966	$	(153	)		11	$	377	$	(1	)		2	$	64,343	$	(154	)		13

Management has the intent to hold the securities classified as held to maturity until they mature, at which time it is believed the Company will receive full value for the securities. Furthermore, as of December 31, 2012, management also had intent to hold, and will not be required to sell, the securities classified as available for sale for a period of time sufficient for a recovery of cost, which may be until maturity.  The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. When necessary, the Company has performed a discounted cash flow analysis to determine whether or not it will receive the contractual principal and interest on certain securities.  The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.  As of December 31, 2012, management believes the impairments detailed in the table above are temporary and no other-than-temporary impairment losses have been realized in the Company’s consolidated statements of income.

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The following tables set forth information with regard to contractual maturities of debt securities at December 31, 2012:

(In thousands)	Amortized cost		Estimated fair value
Debt securities classified as available for sale
Within one year	$	26,678	$	26,788
From one to five years		193,142		195,953
From five to ten years		311,575		319,229
After ten years		577,779		592,075
	$	1,109,174	$	1,134,045
Debt securities classified as held to maturity
Within one year	$	25,184	$	25,258
From one to five years		27,413		28,118
From five to ten years		5,425		5,434
After ten years		2,541		2,725
	$	60,563	$	61,535

Maturities of mortgage-backed, CMOs and asset-backed securities are stated based on their estimated average lives.  Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Except for U.S. Government securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at December 31, 2012 and 2011.

(6)  Loans

A summary of loans, net of deferred fees and origination costs, by category is as follows:

	At December 31,
(In thousands)	2012		2011
Residential real estate mortgages	$	651,107	$	581,511
Commercial		694,799		611,298
Commercial real estate		1,072,807		888,879
Real estate construction and development		123,078		93,977
Agricultural and agricultural real estate mortgages		112,687		108,423
Consumer		1,047,856		946,470
Home equity		575,282		569,645
Total loans	$	4,277,616	$	3,800,203

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Included in the above loans are net deferred loan origination costs totaling $0.9 million and $1.6 million at December 31, 2012 and 2011, respectively. The Company had residential loans held for sale totaling $3.8 million as of December 31, 2012 and $2.7 million as of December 31, 2011.

FHLB advances are collateralized by a blanket lien on the Company’s residential real estate mortgages.

(7) Allowance for Loan Losses and Credit Quality of Loans

Allowance for Loan Losses

The allowance for loan losses is maintained at a level estimated by management to provide adequately for risk of probable losses inherent in the current loan portfolio. The adequacy of the allowance for loan losses is continuously monitored.  It is assessed for adequacy using a methodology designed to ensure the level of the allowance reasonably reflects the loan portfolio’s risk profile. It is evaluated to ensure that it is sufficient to absorb all reasonably estimable credit losses inherent in the current loan portfolio.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk.  Each portfolio segment is broken down into class segments where appropriate.  Class segments contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses.  Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class segment.  The following table illustrates the portfolio and class segments for the Company’s loan portfolio:

Portfolio	Class
Commercial Loans	Commercial
	Commercial Real Estate
	Agricultural
	Agricultural Real Estate
	Business Banking
Consumer Loans	Indirect
	Home Equity
	Direct
Residential Real Estate Mortgages

COMMERCIAL LOANS

Commercial – The Company offers a variety of loan options to meet the specific needs of our commercial customers including term loans, time notes and lines of credit.  Such loans are made available to businesses for working capital such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower.  These loans carry a higher risk than commercial real estate loans by the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and is generally less liquid than real estate. To reduce the risk, management also attempts to secure real estate as collateral and obtain personal guarantees of the borrowers.

Commercial Real Estate – The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties.  Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and other non owner-occupied facilities.  These loans are typically less risky than commercial loans, since they are secured by real estate and buildings. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and a detailed analysis of the borrower’s underlying cash flows. These loans are typically originated in amounts of no more than 80% of the appraised value of the property.

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Agricultural – The Company offers a variety of agricultural loans to meet the needs of our agricultural customers including term loans, time notes, and lines of credit. These loans are made to purchase livestock, purchase and modernize equipment, and finance seasonal crop expenses. Generally, a collateral lien is placed on the livestock, equipment, produce inventories, and/or receivables owned by the borrower. These loans may carry a higher risk than commercial and agricultural real estate loans due to the industry price volatility and the perishable nature of the underlying collateral. To reduce these risks, management may attempt to secure these loans with additional real estate collateral, obtain personal guarantees of the borrowers, or obtain government loan guarantees to provide further support.

Agricultural Real Estate – The Company offers real estate loans to our agricultural customers to finance farm related real estate purchases, refinancings, expansions, and improvements to agricultural properties.  Agricultural real estate loans are made to finance the purchases and improvements of farm properties that generally consist of barns, production facilities, and land.  The agricultural real estate loans are secured by first liens on the farm real estate.  Because they are secured by land and buildings, these loans may be less risky than agricultural loans.  The Company's underwriting analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and a detailed analysis of the borrower’s underlying cash flows.  These loans are typically originated in amounts of no more than 75% of the appraised value of the property.  Government loan guarantees may be obtained to provide further support.

Business Banking - The Company offers a variety of loan options to meet the specific needs of our small business customers including term loans, small business mortgages and lines of credit.  Such loans are generally less than $500 thousand and are made available to businesses for working capital such as inventory and receivables, business expansion, equipment purchases, and agricultural needs.  Generally, a collateral lien is placed on equipment or other assets owned by the borrower such as inventory and/or receivables.  These loans carry a higher risk than commercial loans due to the smaller size of the borrower and lower levels of capital.  To reduce the risk, the Company obtains personal guarantees of the owners for a majority of the loans.

CONSUMER LOANS

Indirect – The Company maintains relationships with many dealers primarily in the communities that we serve.  Through these relationships, the company finances the purchases of automobiles and recreational vehicles (such as campers, boats, etc.) indirectly through dealer relationships.  Approximately 70% of the indirect relationships represent automobile financing.  Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from three to six years, based upon the nature of the collateral and the size of the loan. The majority of indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed.

Home Equity –The Company offers fixed home equity loans as well as home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses.  Consumers are able to borrower up to 85% of the equity in their homes.  The Company originates home equity lines of credit and second mortgage loans (loans secured by a second lien position on one-to-four-family residential real estate).  These loans carry a higher risk than first mortgage residential loans as they are in a second position with respect to collateral.  Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows.  A security interest, with title insurance when necessary, is taken in the underlying real estate.

Direct – The Company offers a variety of consumer installment loans to finance vehicle purchases, mobile home purchases and personal expenditures.  Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to ten years, based upon the nature of the collateral and the size of the loan. The majority of consumer loans are underwritten on a secured basis using the underlying collateral being financed or a customer's deposit account. In addition to installment loans, the Company also offers personal lines of credit and overdraft protection.  A minimal amount of loans are unsecured, which carry a higher risk of loss.

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RESIDENTIAL REAL ESTATE LOANS

Residential real estate loans consist primarily of loans secured by first or second deeds of trust on primary residences.  We originate adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase or refinancing of a mortgage.  These loans are collateralized by owner-occupied properties located in the Company’s market area. When market conditions are favorable, for longer term, fixed-rate residential mortgages without escrow, the Company retains the servicing, but sells the right to receive principal and interest to Freddie Mac when market conditions are favorable.   This practice allows the Company to manage interest rate risk, liquidity risk, and credit risk.  Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 85% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance.  Mortgage title insurance and hazard insurance are normally required. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period.

Allowance for Loan Loss Calculation

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the consolidated results of operations.

For purposes of evaluating the adequacy of the allowance, the Company considers a number of significant factors that affect the collectibility of the portfolio.  For individually analyzed loans, these include estimates of loss exposure, which reflect the facts and circumstances that affect the likelihood of repayment of such loans as of the evaluation date. For homogeneous pools of loans, estimates of the Company’s exposure to credit loss reflect a current assessment of a number of factors, which could affect collectibility.  These factors include:  past loss experience;  size, trend, composition, and nature of loans;  changes in lending policies and procedures, including underwriting standards and collection,  charge-offs  and  recoveries; trends experienced in nonperforming and delinquent loans; current economic conditions in the Company’s market;  portfolio concentrations that may affect loss experienced across one or more components of the portfolio; the effect of external factors such as competition, legal and regulatory requirements; and the experience, ability, and depth of lending management and staff. In addition, various regulatory agencies, as an integral component of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to make loan grade changes as well as recognize additions to the allowance based on their examinations.

After a thorough consideration of the factors discussed above, any required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses. These charges are necessary to maintain the allowance at a level which management believes is reasonably reflective of overall inherent risk of probable loss in the portfolio. While management uses available information to recognize losses on loans, additions to the allowance may fluctuate from one reporting period to another.  These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above.  The following table illustrates the changes in the allowance for loan losses by portfolio segment for the years ended December 31, 2012 and 2011

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Allowance for Loan Losses
(in thousands)
Years ended December 31							Residential
	Commercial			Consumer			Real Estate
	Loans			Loans			Mortgages			Unallocated			Total
Balance as of December 31, 2011	$	38,831		$	26,049		$	6,249		$	205		$	71,334
Charge-offs		(8,750	)		(15,848	)		(1,906	)		-			(26,504	)
Recoveries		1,641			2,556			38			-			4,235
Provision		3,902			14,405			1,871			91			20,269
Ending Balance as of December 31, 2012	$	35,624		$	27,162		$	6,252		$	296		$	69,334
Balance as of December 31, 2010	$	40,101		$	26,126		$	4,627		$	380		$	71,234
Charge-offs		(8,969	)		(14,209	)		(1,310	)		-			(24,488	)
Recoveries		1,438			2,406			7			-			3,851
Provision		6,261			11,726			2,925			(175	)		20,737
Ending Balance as of December 31, 2011	$	38,831		$	26,049		$	6,249		$	205		$	71,334
Balance as of December 31, 2009	$	36,599		$	26,664		$	3,002		$	285		$	66,550
Charge-offs		(12,969	)		(15,692	)		(1,176	)		-			(29,837	)
Recoveries		1,922			2,747			43			-			4,712
Provision		14,549			12,407			2,758			95			29,809
Ending Balance as of December 31, 2010	$	40,101		$	26,126		$	4,627		$	380		$	71,234

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The following table illustrates the allowance for loan losses and the recorded investment by portfolio segment as of December 31, 2012 and 2011:

Allowance for Loan Losses and Recorded Investment in Loans
(in thousands)
					Residential
	Commercial		Consumer		Real Estate
	Loans		Loans		Mortgages		Unallocated		Total
As of December 31, 2012
Allowance for loan losses	$	35,624	$	27,162	$	6,252	$	296	$	69,334
Allowance for loans individually evaluated for impairment	$	2,848	$	-	$	-			$	2,848
Allowance for loans collectively evaluated for impairment	$	32,776	$	27,162	$	6,252	$	296	$	66,486
Ending balance of loans	$	2,003,371	$	1,623,138	$	651,107			$	4,277,616
Ending balance of loans individually evaluated for impairment	$	11,972	$	-	$	-			$	11,972
Ending balance of loans collectively evaluated for impairment	$	1,991,399	$	1,623,138	$	651,107			$	4,265,644
As of December 31, 2011
Allowance for loan losses	$	38,831	$	26,049	$	6,249	$	205	$	71,334
Allowance for loans individually evaluated for impairment	$	175	$	-	$	-			$	175
Allowance for loans collectively evaluated for impairment	$	38,656	$	26,049	$	6,249	$	205	$	71,159
Ending balance of loans	$	1,702,577	$	1,516,115	$	581,511			$	3,800,203
Ending balance of loans individually evaluated for impairment	$	6,219	$	-	$	-			$	6,219
Ending balance of loans collectively evaluated for impairment	$	1,696,358	$	1,516,115	$	581,511			$	3,793,984

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Credit Quality of Loans

For all loan classes within the Company’s loan portfolio, loans are placed on nonaccrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. Loans are transferred to nonaccrual status generally when principal or interest payments become ninety days delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes or circumstances indicate that borrowers may be unable to meet contractual principal or interest payments.  When a loan is transferred to a nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for loan losses.

If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected.  For all loan classes within the Company’s loan portfolio, nonaccrual loans are returned to accrual status when they become current as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest.  For loans in all portfolios, the principal amount is charged off in full or in part as soon as management determines, based on available facts, that the collection of principal in full is improbable.  For commercial loans, management considers specific facts and circumstances relative to individual credits in making such a determination.  For consumer and residential loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy.

The following table illustrates the Company’s nonaccrual loans by loan class as of December 31, 2012 and 2011:

Loans on Nonaccrual Status
As of December 31, 2012
(In thousands)	December 31, 2012		December 31, 2011
Commercial Loans
Commercial	$	4,985	$	1,699
Commercial Real Estate		7,977		4,868
Agricultural		699		3,307
Agricultural Real Estate		1,038		2,067
Business Banking		6,738		7,446
		21,437		19,387
Consumer Loans
Indirect		1,557		1,550
Home Equity		7,247		7,931
Direct		266		378
		9,070		9,859
Residential Real Estate Mortgages		9,169		9,044
Total Nonaccrual	$	39,676	$	38,290

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The following table sets forth information with regard to past due and nonperforming loans by loan class:

Age Analysis of Past Due Loans

As of December 31, 2012

(in thousands)

					Greater Than								Recorded
	31-60 Days		61-90 Days		90 Days		Total						Total
	Past Due		Past Due		Past Due		Past Due						Loans and
	Accruing		Accruing		Accruing		Accruing		Non-Accrual		Current		Leases
Commercial
Commercial	$	-	$	-	$	-	$	-	$	4,985	$	556,496	$	561,481
Commercial Real Estate		126		-		-		126		7,977		966,692		974,795
Agricultural		22		-		-		22		699		63,037		63,758
Agricultural Real Estate		108		-		103		211		1,038		36,128		37,377
Business Banking		3,019		708		45		3,772		6,738		355,450		365,960
		3,275		708		148		4,131		21,437		1,977,803		2,003,371
Consumer
Indirect		10,956		2,477		1,205		14,638		1,557		964,802		980,997
Home Equity		6,065		1,223		681		7,969		7,247		560,066		575,282
Direct		717		144		84		945		266		65,648		66,859
		17,738		3,844		1,970		23,552		9,070		1,590,516		1,623,138
Residential Real  Estate Mortgages		1,839		725		330		2,894		9,169		639,044		651,107
	$	22,852	$	5,277	$	2,448	$	30,577	$	39,676	$	4,207,363	$	4,277,616

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Age Analysis of Past Due Loans

As of December 31, 2011

(in thousands)

					Greater Than								Recorded
	31-60 Days		61-90 Days		90 Days		Total						Total
	Past Due		Past Due		Past Due		Past Due						Loans and
	Accruing		Accruing		Accruing		Accruing		Non-Accrual		Current		Leases
Commercial Loans
Commercial	$	663	$	50	$	-	$	713	$	1,699	$	508,662	$	511,074
Commercial Real Estate		1,942		-		-		1,942		4,868		828,089		834,899
Agricultural		77		13		-		90		3,307		63,140		66,537
Agricultural Real Estate		-		-		50		50		2,067		31,809		33,926
Business Banking		1,871		1,024		-		2,895		7,446		245,800		256,141
		4,553		1,087		50		5,690		19,387		1,677,500		1,702,577
Consumer Loans
Indirect		12,141		2,584		1,283		16,008		1,550		855,545		873,103
Home Equity		5,823		1,277		954		8,054		7,931		553,660		569,645
Direct		831		191		140		1,162		378		71,827		73,367
		18,795		4,052		2,377		25,224		9,859		1,481,032		1,516,115
Residential Real Estate Mortgages		2,003		139		763		2,905		9,044		569,562		581,511
	$	25,351	$	5,278	$	3,190	$	33,819	$	38,290	$	3,728,094	$	3,800,203

There were no material commitments to extend further credit to borrowers with nonperforming loans. Within nonaccrual loans, there were approximately $2.2 million and $4.0 million of TDR loans at December 31, 2012 and 2011, respectively.

Impaired loans, which primarily consist of nonaccruing commercial, commercial real estate, agricultural, agricultural real estate and business banking loans, as well as certain consumer and residential real estate loans that have been modified in a TDR were $26.0 million at December 31, 2012 and $22.4 million at December 31, 2011.

The methodology used to establish the allowance for loan losses on impaired loans incorporates specific allocations on loans analyzed individually.  Classified loans, including all TDRs and commercial loans that are graded substandard or below, with outstanding balances of $500 thousand or more are evaluated for impairment through the Company’s quarterly status review process.  In determining that we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, we consider factors such as payment history and changes in the financial condition of individual borrowers, local economic conditions, historical loss experience and the conditions of the various markets in which the collateral may be liquidated.  For loans that are evaluated for impairment, impairment is measured by one of three methods: 1) the fair value of collateral less cost to sell, 2) present value of expected future cash flows or 3) the loan’s observable market price.  These impaired loans are reviewed on a quarterly basis for changes in the measurement of impairment.  For impaired loans measured using the present value of expected cash flow method, any change to the previously recognized impairment loss is recognized as a change to the allowance account and recorded in the consolidated statement of income as a component of the provision for credit losses.  At December 31, 2012, $8.4 million of the total impaired loans had a specific reserve allocation of $2.8 million compared to $0.5 million of impaired loans at December 31, 2011 which had a specific reserve allocation of $0.2 million.

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The following provides additional information on impaired loans for the years ended December 31, 2012 and 2011:

Impaired Loans
	December 31, 2012						December 31, 2011
	Recorded		Unpaid				Recorded		Unpaid
	Investment		Principal				Investment		Principal
	Balance		Balance		Related		Balance		Balance		Related
(in thousands)	(Book)		(Legal)		Allowance		(Book)		(Legal)		Allowance
With no related allowance recorded:
Commercial Loans
Commercial	$	650	$	709			$	1,243	$	2,723
Commercial Real Estate		3,909		4,753				4,868		7,165
Agricultural		699		1,019				3,307		4,166
Agricultural Real Estate		1,038		1,225				2,067		2,288
Business Banking		6,738		9,269				7,446		9,976
Total Commercial Loans		13,034		16,975				18,931		26,318
Consumer Loans
Home Equity		2,553		2,657				2,000		2,103
Residential Real Estate Mortgages		2,011		2,308				1,040		1,125
		17,598		21,940				21,971		29,546
With an allowance recorded:
Commercial Loans
Commercial	$	4,335	$	4,340	$	2,241	$	456	$	808	$	175
Commercial Real Estate		4,068		5,689		607		-		-		-
Agricultural		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		-		-		-
		8,403		10,029		2,848		456		808		175
Total:	$	26,001	$	31,969	$	2,848	$	22,427	$	30,354	$	175

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The following table summarizes the average recorded investments on impaired loans and the interest income recognized for the years ended December 31, 2012, 2011 and 2010:

	December 31, 2012						December 31, 2011						December 31, 2010
	Average		Interest Income				Average		Interest Income				Average		Interest Income
	Recorded		Recognized				Recorded		Recognized				Recorded		Recognized
(in thousands)	Investment		Accrual		Cash		Investment		Accrual		Cash		Investment		Accrual		Cash
With no related allowance recorded:
Commercial Loans
Commercial	$	1,421	$	25	$	25	$	2,322	$	94	$	94	$	1,898	$	113	$	113
Commercial Real Estate		6,167		70		70		4,794		163		163		4,219		317		317
Agricultural		2,611		368		368		3,013		133		133		2,990		82		82
Agricultural Real Estate		1,575		86		86		1,719		109		109		1,929		150		150
Business Banking		6,636		227		227		6,121		266		266		4,959		234		234
Consumer Loans
Home Equity		1,877		66		66		1,904		91		91		-		-		-
Residential Real Estate Mortgages		1,143		73		73		926		58		58		132		6		6
	$	21,429	$	915	$	915	$	20,798	$	914	$	914	$	16,127	$	902	$	902
With an allowance recorded:
Commercial Loans
Commercial	$	4,217	$	43	$	43	$	861	$	86	$	86	$	2,366	$	118	$	118
Commercial Real Estate		339		-		-		287		-		-		1,234		-		-
Agricultural		-		-		-		791		68		68		1,386		150		150
Agricultural Real Estate		-		-		-		357		18		18		816		67		67
	$	4,556	$	43	$	43	$	2,295	$	172	$	172	$	5,802	$	335	$	335
Total:	$	25,985	$	958	$	958	$	23,094	$	1,086	$	1,086	$	21,929	$	1,237	$	1,237

There has been significant disruption and volatility in the financial and capital markets since the second half of 2008.  Turmoil in the mortgage market adversely impacted both domestic and global markets and led to a significant credit and liquidity crisis in many domestic markets.  These market conditions were attributable to a variety of factors, in particular the fallout associated with subprime mortgage loans (a type of lending we have never actively pursued).  The disruption was exacerbated by the decline of the real estate and housing market.  However, in the markets in which the Company does business, the disruption has been less significant than in the national market.  For example, our real estate market has not suffered the extreme declines seen nationally and our unemployment rate, while notably higher than in prior periods, is still below the national average.

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While we continue to adhere to prudent underwriting standards, as a lender we may be adversely impacted by general economic weaknesses and, in particular, a sharp downturn in the housing market nationally. Decreases in real estate values could adversely affect the value of property used as collateral for our loans. Adverse changes in the economy may have a negative effect on the ability of our borrowers to make timely loan payments, which would have an adverse impact on our earnings. A further increase in loan delinquencies would decrease our net interest income and adversely impact our loan loss experience, causing increases in our provision and allowance for loan losses.

The Company has developed an internal loan grading system to evaluate and quantify the Bank’s loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of management, primary and secondary sources of repayment, payment history, nature of the business, outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a continuous basis and provide management with an early warning system, enabling recognition and response to problem loans and potential problem loans.

Commercial Grading System

For commercial and agricultural loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available.  This would include comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy, and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment, and management.  The grading system for commercial and agricultural loans is as follows:

· 4 – Doubtful

A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Because of high probability of loss, nonaccrual treatment is required for doubtful assets.

· 3 – Substandard

Substandard loans have a high probability of payment default, or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and should be placed on nonaccrual. Although substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated substandard.

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· 2 – Special Mention

Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Although a Special Mention loan has a higher probability of default than a pass asset, its default is not imminent.

· 1 – Pass

Loans graded as Pass encompass all loans not graded as Doubtful, Substandard, or Special Mention. Pass loans are in compliance with loan covenants, and payments are generally made as agreed. Pass loans range from superior quality to fair quality.

Business Banking Grading System

Business Banking loans are graded as either Classified or Non-classified:

· Classified

Classified loans are inadequately protected by the current worth and paying capacity of the obligor or, if applicable, the collateral pledged.   These loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt, or in some cases make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.   Classified loans have a high probability of payment default, or a high probability of total or substantial loss.  These loans require more intensive supervision by management and are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization.  Repayment may depend on collateral or other credit risk mitigants.  When the likelihood of full collection of interest and principal may be in doubt; classified loans are considered to have a nonaccrual status.   In some cases, classified loans are considered uncollectible and of such little value that their continuance as assets is not warranted.

· Non-classified

Loans graded as Non-classified encompass all loans not graded as Classified.  Non-classified loans are in compliance with loan covenants, and payments are generally made as agreed.

Consumer and Residential Mortgage Grading System

Consumer and Residential Mortgage loans are graded as either Performing or Nonperforming.   Nonperforming loans are loans that are 1) over 90 days past due and interest is still accruing or 2) on nonaccrual status.  All loans not meeting any of these three criteria are considered Performing.

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The following tables illustrates the Company’s credit quality by loan class for the years ended December 31, 2012 and 2011:

Credit Quality Indicators

As of December 31, 2012

Commercial Credit Exposure			Commercial				Agricultural
By Internally Assigned Grade:	Commercial		Real Estate		Agricultural		Real Estate		Total
Pass	$	522,985	$	901,928	$	57,347	$	33,472	$	1,515,732
Special Mention		18,401		32,135		13		3		50,552
Substandard		17,351		40,732		6,362		3,902		68,347
Doubtful		2,744		-		36		-		2,780
Total	$	561,481	$	974,795	$	63,758	$	37,377	$	1,637,411
Business Banking Credit Exposure	Business
By Internally Assigned Grade:	Banking								Total
Non-classified	$	342,528							$	342,528
Classified		23,432								23,432
Total	$	365,960							$	365,960
Consumer Credit Exposure
By Payment Activity:	Indirect		Home Equity		Direct				Total
Performing	$	978,235	$	567,354	$	66,509			$	1,612,098
Nonperforming		2,762		7,928		350				11,040
Total	$	980,997	$	575,282	$	66,859			$	1,623,138
Residential Mortgage Credit Exposure	Residential
By Payment Activity:	Mortgage								Total
Performing	$	641,608							$	641,608
Nonperforming		9,499								9,499
Total	$	651,107							$	651,107

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Credit Quality Indicators

As of December 31, 2011

Commercial Credit Exposure			Commercial				Agricultural
By Internally Assigned Grade:	Commercial		Real Estate		Agricultural		Real Estate		Total
Pass	$	470,332	$	758,673	$	58,481	$	28,927	$	1,316,413
Special Mention		10,346		24,478		42		10		34,876
Substandard		29,940		51,748		7,945		4,989		94,622
Doubtful		456		-		69		-		525
Total	$	511,074	$	834,899	$	66,537	$	33,926	$	1,446,436
Business Banking Credit Exposure	Business
By Internally Assigned Grade:	Banking								Total
Non-classified	$	237,887							$	237,887
Classified		18,254								18,254
Total	$	256,141							$	256,141
Consumer Credit Exposure
By Payment Activity:	Indirect		Home Equity		Direct				Total
Performing	$	870,270	$	560,760	$	72,849			$	1,503,879
Nonperforming		2,833		8,885		518				12,236
Total	$	873,103	$	569,645	$	73,367			$	1,516,115
Residential Mortgage Credit Exposure	Residential
By Payment Activity:	Mortgage								Total
Performing	$	571,704							$	571,704
Nonperforming		9,807								9,807
Total	$	581,511							$	581,511

Modifications

The Company’s loan portfolio includes certain loans that have been modified in a TDR, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties.  These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.  Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of the expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral.  In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows.  If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan as applicable, through an allowance estimate or a charge-off to the allowance.  Segment and class status is determined by the loan’s classification at origination.

98

Modifications made during the year ended December 31, 2012 consisted of four commercial loans totaling $6.6 million, one business banking loan totaling $0.1 million, 18 home equity loans totaling $0.9 million and 12 residential real estate mortgages totaling $1.2 million.  For all such modifications, the pre-and post-outstanding recorded investment amount remained unchanged.  During the year ended December 31, 2012, there were two residential real estate loans classified as TDRs totaling $0.3 million and one home equity loan totaling less than $0.1 million that subsequently defaulted on their renegotiated terms.

Modifications made during the year ended December 31, 2011 consisted of three commercial loans totaling $0.7 million, 25 home equity loans totaling $2.4 million and four residential real estate mortgages totaling $0.8 million.  The pre- and post-outstanding recorded investment amount remained unchanged for this loan.  During the year ended December 31, 2011, there were two commercial loans classified as TDRs totaling $0.7 million, seven home equity loans classified as TDRs totaling $0.6 million and two residential real estate loans classified as TDRs totaling $0.4 million that subsequently defaulted on their renegotiated terms.

(8) Related Party Transactions

In the ordinary course of business, the Company has made loans at prevailing rates and terms to directors, officers, and other related parties. Such loans, in management’s opinion, do not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties and changes during the years are summarized as follows:

(In thousands)	2012			2011
Balance at January 1	$	2,537		$	2,914
New loans		750			25
Adjustment due to change in composition of related parties		(130	)		328
Repayments		(367	)		(730	)
Balance at December 31	$	2,790		$	2,537

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(9) Premises and Equipment, Net

A summary of premises and equipment follows:

	December 31,
(In thousands)	2012		2011
Land, buildings, and improvements	$	109,601	$	103,399
Equipment		51,321		47,646
Construction in progress		-		75
Premises and equipment before accumulated depreciation		160,922		151,120
Accumulated depreciation		83,047		76,579
Total premises and equipment	$	77,875	$	74,541

Land, buildings, and improvements with a carrying value of approximately $2.7 million and $2.9 million at December 31, 2012 and 2011, respectively, are pledged to secure long-term borrowings.  Buildings and improvements are depreciated based on useful lives of 15 to 40 years.  Equipment is depreciated based on useful lives of three to ten years.

Rental expense included in occupancy expense amounted to $6.4 million in 2012, $5.6 million in 2011, and $5.3 million in 2010. The future minimum rental payments related to noncancelable operating leases with original terms of one year or more are as follows at December 31, 2012 (in thousands):

Future Minimum Rental Payments
2013	$	5,727
2014		5,453
2015		4,714
2016		4,309
2017		4,063
Thereafter		28,314
Total	$	52,580

(10) Goodwill and other Intangible Assets

A summary of goodwill is as follows:

(In thousands)
January 1, 2012		132,029
Goodwill Acquired		20,344
December 31, 2012	$	152,373
January 1, 2011		114,841
Goodwill Acquired		17,188
December 31, 2011	$	132,029

100

The Company has intangible assets with definite useful lives capitalized on its consolidated balance sheet in the form of core deposit and other identified intangible assets.  These intangible assets are amortized over their estimated useful lives, which range primarily from one to twelve years.

A summary of core deposit and other intangible assets follows:

	December 31,
(In thousands)	2012		2011
Core deposit intangibles
Gross carrying amount	$	13,240	$	11,966
Less: accumulated amortization		7,794		6,401
Net carrying amount		5,446		5,565
Other Identified intangible assets
Gross carrying amount		21,743		20,919
Less: accumulated amortization		10,227		8,290
Net carrying amount		11,516		12,629
Total intangibles
Gross carrying amount		34,983		32,885
Less: accumulated amortization		18,021		14,691
Net carrying amount	$	16,962	$	18,194

Amortization expense on intangible assets with definite useful lives totaled $3.4 million for 2012, $3.0 million for 2011 and $3.1 million for 2010.  Amortization expense on intangible assets with definite useful lives is expected to total $3.3 million for 2013, $3.1 million for 2014, $2.9 million for 2015, $1.8 million for 2016, $1.4 million for 2017 and $2.4 million thereafter.  Other identified intangible assets include customer lists, non-competes, and trademark intangibles, of which $2.0 million will not amortize.

(11)  Deposits

The following table sets forth the maturity distribution of time deposits at December 31, 2012 (in thousands):

Time deposits
Within one year	$	454,235
After one but within two years		326,502
After two but within three years		109,348
After three but within four years		49,222
After four but within five years		35,972
After five years		7,982
Total	$	983,261

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Time deposits of $100,000 or more aggregated $352.3 million and $305.7 million December 31, 2012 and 2011, respectively.

(12) Short-Term Borrowings

Short-term borrowings totaled $162.9 million and $181.6 million at December 31, 2012 and 2011, respectively, and consist of Federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions, and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less.

The Company had unused lines of credit with the FHLB available for short-term financing of approximately $418 million and $323 million at December 31, 2012 and 2011, respectively.  Borrowings on these lines are secured by FHLB stock, certain securities and one-to-four family first lien mortgage loans.  Securities  collateralizing  repurchase  agreements  are  held in safekeeping by nonaffiliated  financial  institutions  and  are  under  the  Company’s control.

Information related to short-term borrowings is summarized as follows:

(Dollars In thousands)	2012			2011			2010
Federal funds purchased
Balance at year-end	$	10,000		$	27,000			-
Average during the year		12,658			3,017			-
Maximum month end balance		60,000			28,000			-
Weighted average rate during the year		0.27	%		0.11	%		-
Weighted average rate at December 31		0.27	%		0.13	%		-
Securities sold under repurchase agreements
Balance at year-end	$	152,941		$	154,592		$	159,184
Average during the year		153,084			150,663			157,964
Maximum month end balance		165,977			178,414			169,278
Weighted average rate during the year		0.10	%		0.13	%		0.25	%
Weighted average rate at December 31		0.10	%		0.10	%		0.15	%
Other short-term borrowings
Balance at year-end		-			-		$	250
Average during the year		-			249			250
Maximum month end balance		-			250			250
Weighted average rate during the year		-			-			-
Weighted average rate at December 31		-			-			-

See Note 5 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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(13) Long-Term Debt

Long-term debt consists of obligations having an original maturity at issuance of more than one year. A majority of the Company’s long-term debt is comprised of FHLB advances collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans.  A summary as of December 31, 2012 and 2011 is as follows:

	As of December 31, 2012										As of December 31, 2011
Maturity	Amount		Weighted Average Rate			Callable Amount		Weighted Average Rate			Amount		Weighted Average Rate			Callable Amount		Weighted Average Rate
2013		119,502		3.87	%		100,000		3.71	%		119,400		3.87	%		100,000		3.71	%
2014		2,610		1.89	%		-		-			2,604		2.00	%		-		-
2015		250		0.00	%		-		-			-		0.00	%		-		-
2016		70,000		4.21	%		70,000		4.21	%		70,000		4.21	%		70,000		4.21	%
2017		100,000		3.89	%		100,000		3.89	%		100,000		3.89	%		100,000		3.89	%
2018		75,000		3.61	%		75,000		3.61	%		75,000		3.61	%		75,000		3.61	%
2021		130		4.00	%		-		-			-		0.00	%		-		-
2025		-		0.00	%		-		-			3,340		2.75	%		-		-
	$	367,492				$	345,000				$	370,344				$	345,000

(14) Trust Preferred Debentures

The Company has issued a total of $75.4 million of junior subordinated deferrable interest debentures to three wholly owned Delaware statutory business trusts, CNBF Capital Trust I (“CNBF Trust I”), NBT Statutory Trust I (“NBT Trust I”) and NBT Statutory Trust II (“NBT Trust II”, and, together with CNBF Trust I and NBT Trust I, the “Trusts”). The Trusts are considered variable interest entities for which the Company is not the primary beneficiary. Accordingly, the accounts of the Trusts are not included in the Company’s consolidated financial statements. See Note 1 — Summary of Significant Accounting Policies for additional information about the Company’s consolidation policy. Details of the Company’s transactions with these trusts are presented below.

CNBF Trust I

In June 1999, CNBF Trust I issued $18.0 million of floating rate (three-month LIBOR plus 275 basis points) trust preferred securities, which represent beneficial interests in the assets of CNBF Trust I. The trust preferred securities will mature on August 31, 2029 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Company at any time after September 1, 2009 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. CNBF Trust I also issued $0.7 million of common equity securities to the Company. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase $18.7 million of floating rate (three-month LIBOR plus 275 basis points) junior subordinated deferrable interest debentures issued by the Company, which have terms substantially similar to the trust preferred securities.

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NBT Trust I

In November 2005, NBT Trust I issued $5.0 million of fixed rate (at 6.30%) trust preferred securities, which represent beneficial interests in the assets of the trust. The rate converted to a floating rate (three-month LIBOR plus 140 basis points) in November 2010. The trust preferred securities will mature on December 1, 2035 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Corporation at any time after December 1, 2010 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. NBT Trust I also issued $0.2 million of common equity securities to the Company. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase $5.2 million of fixed rate (at 6.30%) junior subordinated deferrable interest debentures issued by the Corporation, which have terms substantially similar to the trust preferred securities.

NBT Trust II

In connection with acquisition of CNB, the Company formed NBT Trust II in February 2006 to fund the cash portion of the acquisition as well as to provide regulatory capital. NBT Trust II issued $50.0 million of fixed rate (at 6.195%) trust preferred securities, which represent beneficial interests in the assets of NBT Trust II.  In February 2011, the rate converted to a floating rate (three-month LIBOR plus 140 basis points).  The trust preferred securities will mature on March 15, 2036 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Company at any time after March 15, 2011 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. NBT Trust II also issued $1.5 million of common equity securities to the Company. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase $51.5 million of fixed rate (at 6.195%) junior subordinated deferrable interest debentures issued by the Corporation, which have terms substantially similar to the trust preferred securities.

With respect to the Trusts, the Company has the right to defer payments of interest on the debentures issued to the Trusts at any time or from time to time for a period of up to ten consecutive semi-annual periods with respect to each deferral period. Under the terms of the debentures, if in certain circumstances there is an event of default under the debentures or the Company elects to defer interest on the debentures, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock.

Payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by the Company on a limited basis. The Company also entered into an agreement as to expenses and liabilities with the Trusts pursuant to which it agreed, on a subordinated basis, to pay any costs, expenses or liabilities of each Trust other than those arising under the trust preferred securities. The obligations of the Company under the junior subordinated debentures, the related indentures, the trust agreements establishing the Trusts, the guarantees and the agreements as to expenses and liabilities, in the aggregate, constitute a full and unconditional guarantee by the Company of each Trust’s obligations under the trust preferred securities.

Despite the fact that the accounts of CNBF Trust I, NBT Trust I, and NBT Trust II are not included in the Company’s consolidated financial statements, $74 million of the $75 million in trust preferred securities issued by these subsidiary trusts is included in the Tier 1 capital of the Company for regulatory capital purposes as allowed by the Federal Reserve Board (NBT Bank owns $1.0 million of CNBF Trust I securities).  The Dodd-Frank Act requires bank holding companies with assets greater than $500 million to be subject to the same capital requirements as insured depository institutions, meaning, for instance, that such bank holding companies will not be able to count trust preferred securities issued after May 19, 2010 as Tier 1 capital.  The aforementioned Trusts are grandfathered with respect to this enactment based on their date of issuance.

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(15) Income Taxes

The significant components of income tax expense attributable to operations are:

	Years ended December 31,
	2012			2011			2010
Current
Federal	$	21,011		$	29,274		$	34,124
State		1,815			1,477			1,743
		22,826			30,751			35,867
Deferred
Federal		(13	)		(8,129	)		(12,121	)
State		3			(1,349	)		(2,834	)
		(10	)		(9,478	)		(14,955	)
Total income tax expense	$	22,816		$	21,273		$	20,912

Not included in the above table are items that were recorded to stockholders’ equity of approximately ($0.1 million), ($0.5 million), and ($4.3 million) for 2012, 2011, and 2010, respectively, relating to deferred taxes on the unrealized (gain) loss on available for sale securities, tax benefits recognized with respect to stock options exercised, and deferred taxes related to pension plans.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(In thousands)	2012		2011
Deferred tax assets
Allowance for loan losses	$	26,687	$	27,487
Deferred compensation		5,362		4,911
Postretirement benefit obligation		1,600		1,036
Fair value adjustments from acquisitions		3,633		2,227
Accrued liabilities		1,524		1,482
Stock-based compensation expense		5,726		4,440
Other		1,933		1,214
Total deferred tax assets		46,465		42,797
Deferred tax liabilities
Pension and executive retirement		7,676		6,916
Unrealized gains on securities available for sale		10,939		12,156
Premises and equipment, primarily due to accelerated depreciation		1,980		2,340
Equipment leasing		582		3,090
Deferred loan costs		873		767
Intangible amortization		13,146		11,081
Other		154		494
Total deferred tax liabilities		35,350		36,844
Net deferred tax asset at year-end		11,115		5,953
Net deferred tax asset (liability) at beginning of year		5,953		(4,023	)
Increase in net deferred tax asset	$	5,162	$	9,976

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the available carryback period.  A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.  Based on available evidence, gross deferred tax assets will ultimately be realized and a valuation allowance was not deemed necessary at December 31, 2012 and 2011.

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A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is as follows:

(In thousands)	2012			2011			2010
Balance at January 1	$	888		$	3,081		$	2,287
Additions for tax positions of prior years		-			-			1,714
Reduction for tax positions of prior years		(888	)		(2,193	)		(920	)
Balance at December 31	$	-		$	888		$	3,081

At December 31, 2012, the Company had no ASC 740-10 unrecognized tax benefits with $.9 million and $3.1 million of unrecognized tax benefits at December 31, 2011 and 2010, respectively.   The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.   During 2012 and 2011 there was a reduction of reserves for Federal tax benefits for expiration of the statute of limitations of prior years’ tax filings and in 2011 the Company reached a settlement with New York State on franchise tax examinations for the years 2003 through 2007.  As a result, unrecognized tax benefits were reduced $0.9 million and $2.2 million for 2012 and 2011, respectively, with a reduction of tax expense of $0.8 million in 2012 and $1.5 million in 2011.

The Company is no longer subject to U.S. Federal and New York State examination by tax authorities for years prior to 2008.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense.  The total amount of accrued interest at December 31, 2011 was approximately $0.1 million.  Net interest impacting the Company’s 2011 and 2010 tax expense was $0.3 million and $0.3 million, respectively.

106

The following is a reconciliation of the provision for income taxes to the amount computed by applying the applicable Federal statutory rate of 35% to income before taxes:

	Years ended December 31
(In thousands)	2012			2011			2010
Federal income tax at statutory rate	$	27,081		$	27,711		$	27,410
Tax exempt income		(2,536	)		(2,925	)		(3,448	)
Net increase in CSV of life insurance		(908	)		(919	)		(939	)
Low income housing tax credits		(629	)		(782	)		(296	)
State taxes, net of federal tax benefit		1,182			764			756
State audit settlements		-			(681	)		(1,465	)
Other, net		(1,374	)		(1,895	)		(1,106	)
Income tax expense	$	22,816		$	21,273		$	20,912

(16)  Stockholders’ Equity

In accordance with accounting standards, unrealized gains on available for sale securities and unrecognized actuarial gains or losses and prior service costs associated with the Company’s pension and postretirement benefit plans are included in accumulated other comprehensive loss.  For the years ended December 31, components of accumulated other comprehensive loss are:

(In thousands)	2012			2011
Unrecognized prior service cost and net actuarial loss on pension plans	$	(22,555	)	$	(24,633	)
Unrealized net holding gains on available for sale securities		16,675			18,529
Accumulated other comprehensive income (loss)	$	(5,880	)	$	(6,104	)

Certain restrictions exist regarding the ability of the subsidiary bank to transfer funds to the Company in the form of cash dividends. The approval of the Office of Comptroller of the Currency (“OCC”) is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations.  At December 31, 2012, approximately $21.3 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements.  The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.

107

In October 2004, the Company adopted a Stockholder Rights Plan (the “Plan”) designed to ensure that any potential acquirer of the Company negotiate with the board of directors and that all Company stockholders are treated equitably in the event of a takeover attempt. At that time, the Company paid a dividend of one Preferred Share Purchase Right (a “Right”) for each outstanding share of common stock of the Company. Similar rights are attached to each share of the Company’s common stock issued after November 16, 2004. Under the Plan, the Rights will not be exercisable until a person or group acquires beneficial ownership of 15% or more of the Company’s outstanding common stock or begins a tender or exchange offer for 15% or more of the Company’s outstanding common stock. Additionally, until the occurrence of such an event, the Rights are not severable from the Company’s common stock and, therefore, the Rights will be transferred upon the transfer of shares of the Company’s common stock. Upon the occurrence of such events, each Right entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company, no par value and $0.01 stated value per share, at a price of $70.

The Plan also provides that upon the occurrence of certain specified events, the holders of Rights will be entitled to acquire additional equity interests in the Company or in the acquiring entity and such interests will have a market value of two times the Right’s exercise price of $70. The Rights, which expire October 24, 2014, are redeemable in whole, but not in part, at the Company’s option prior to the time they are exercisable, for a price of $0.001 per Right.

(17) Regulatory Capital Requirements

The Company and NBT 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, NBT Bank must meet specific capital guidelines that involve quantitative measures of NBT Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and NBT Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 Capital to risk-weighted assets and of Tier 1 capital to average assets. As of December 31, 2012 and 2011, the Company and NBT Bank meet all capital adequacy requirements to which they were subject.

Under their prompt corrective action regulations, regulatory authorities are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution’s financial statements.  The regulations establish a framework for the classification of banks into five categories:  well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under capitalized.  As of December 31, 2012, the most recent notification from NBT Bank’s regulators categorized NBT Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized NBT Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 capital to average asset ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed NBT Bank’s category.

108

The Company and NBT Bank’s actual capital amounts and ratios are presented as follows:

	Actual					Regulatory ratio requirements
(Dollars in thousands)	Amount		Ratio			Minimum capital adequacy			For classification as well capitalized
As of December 31, 2012
Total Capital (to risk weighted assets):
Company	$	560,745		12.25	%		8.00	%		10.00	%
NBT Bank		505,027		11.08	%		8.00	%		10.00	%
Tier I Capital (to risk weighted assets)
Company		503,359		11.00	%		4.00	%		6.00	%
NBT Bank		447,909		9.83	%		4.00	%		6.00	%
Tier I Capital (to average assets)
Company		503,359		8.54	%		4.00	%		5.00	%
NBT Bank		447,909		7.62	%		4.00	%		5.00	%
As of December 31, 2011
Total Capital (to risk weighted assets):
Company	$	528,674		12.81	%		8.00	%		10.00	%
NBT Bank		506,246		12.28	%		8.00	%		10.00	%
Tier I Capital (to risk weighted assets)
Company		476,837		11.56	%		4.00	%		6.00	%
NBT Bank		454,476		11.03	%		4.00	%		6.00	%
Tier I Capital (to average assets)
Company		476,837		8.74	%		4.00	%		5.00	%
NBT Bank		454,476		8.35	%		4.00	%		5.00	%

(18) Employee Benefit Plans

Defined Benefit Postretirement Plans

The Company has a qualified, noncontributory, defined benefit pension plan covering substantially all of its employees at December 31, 2012. Benefits paid from the plan are based on age, years of service, compensation, social security benefits, and are determined in accordance with defined formulas. The Company’s policy is to fund the pension plan in accordance with ERISA standards. Assets of the plan are invested in publicly traded stocks and bonds. Prior to January 1, 2000, the Company’s plan was a traditional defined benefit plan based on final average compensation.  On January 1, 2000, the plan was converted to a cash balance plan with grandfathering provisions for existing participants.

In addition to the pension plan, the Company also provides supplemental employee retirement plans to certain current and former executives.  These supplemental employee retirement plans and the defined benefit pension plan are collectively referred to herein as “Pension Benefits.”

109

Also, the Company provides certain health care benefits for retired employees. Benefits are accrued over the employees’ active service period. Only employees that were employed by NBT Bank on or before January 1, 2000 are eligible to receive postretirement health care benefits. The plan is contributory for participating retirees, requiring participants to absorb certain deductibles and coinsurance amounts with contributions adjusted annually to reflect cost sharing provisions and benefit limitations called for in the plan. Employees become eligible for these benefits if they reach normal retirement age while working for the Company. For eligible employees described above, the Company funds the cost of postretirement health care as benefits are paid. The Company elected to recognize the transition obligation on a delayed basis over twenty years. These postretirement benefits are referred to herein as “Other Benefits.”

Accounting standards require an employer to: (1) recognize the overfunded or underfunded status of defined benefit postretirement plans, which is measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its balance sheet; (2) recognize changes in that funded status in the year in which the changes occur through comprehensive income; and (3) measure the defined benefit plan assets and obligations as of the date of its year-end balance sheet.

The components of accumulated other comprehensive loss, which have not yet been recognized as components of net periodic benefit cost, related to pensions and other postretirement benefits at December 31, 2012 are summarized below. The Company expects that $3.0 million in net actuarial loss and $0.2 million in prior service credit will be recognized as components of net periodic benefit cost in 2013.

	Pension Benefits				Other Benefits
(In thousands)	2012		2011		2012			2011
Net actuarial loss	$	35,478	$	37,914	$	2,277		$	2,323
Prior service cost		141		1,430		(672	)		(874	)
Total amounts recognized in accumulated other comprehensive loss (pre-tax)	$	35,619	$	39,344	$	1,605		$	1,449

A December 31 measurement date is used for the pension, supplemental pension and postretirement benefit plans.  The following table sets forth changes in benefit obligations, changes in plan assets, and the funded status of the pension plans and other postretirement benefits:

	Pension Benefits						Other Benefits
(In thousands)	2012			2011			2012			2011
Change in benefit obligation
Benefit obligation at beginning of year	$	78,024		$	70,229		$	3,985		$	4,554
Service cost		3,122			2,589			20			17
Interest cost		3,145			3,544			155			202
Plan participants' contributions		-			-			233			263
Actuarial loss (gain)		5,941			5,935			136			(562	)
Amendments		(1,006	)		-			-			-
Benefits paid		(4,097	)		(4,273	)		(458	)		(489	)
Projected benefit obligation at end of year		85,129			78,024			4,071			3,985
Change in plan assets
Fair value of plan assets at beginning of year		91,575			97,821			-			-
Actual return (loss) on plan assets		11,733			(2,452	)		-			-
Employer contributions		493			479			225			226
Plan participants' contributions		-			-			233			263
Benefits paid		(4,097	)		(4,273	)		(458	)		(489	)
Fair value of plan assets at end of year		99,704			91,575			-			-
Funded status at year end	$	14,575		$	13,551		$	(4,071	)	$	(3,985	)

110

Effective March 1, 2013, the pension plan was amended. Benefit accruals for participants who, as of January 1, 2000, elected to continue participating in the traditional defined benefit plan design were frozen as of March 1, 2013. This amendment resulted in a reduction to the projected benefit obligation as of December 31, 2012 as noted in the table above.

The funded status of the pension and other postretirement benefit plans has been recognized as follows in the consolidated balance sheets at December 31, 2012 and 2011. An asset is recognized for an overfunded plan and a liability is recognized for an underfunded plan. The accumulated benefit obligation for pension benefits was $84.5 million and $76.5 million at December 31, 2012 and 2011, respectively. The accumulated benefit obligation for other postretirement benefits was $4.1 million and $4.0 million at December 31, 2012 and 2011, respectively.

	Pension Benefits						Other Benefits
(In thousands)	2012			2011			2012			2011
Other assets	$	27,062		$	23,972		$	-		$	-
Other liabilities		(12,487	)		(10,421	)		(4,071	)		(3,985	)
Funded status	$	14,575		$	13,551		$	(4,071	)	$	(3,985	)

The following assumptions were used to determine the benefit obligation and the net periodic pension cost for the years indicated:

	Years ended December 31,
(In thousands)	2012			2011			2010
Weighted average assumptions:
The following assumptions were used to determine benefit obligations:
Discount rate		3.50	%		4.10	%		5.15	%
Expected long-term return on plan assets		7.50	%		7.50	%		8.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%
The following assumptions were used to determine net periodic pension cost:
Discount rate		4.10	%		5.15	%		5.70	%
Expected long-term return on plan assets		7.50	%		8.00	%		8.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%

111

Net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the years ended December 31 included the following components:

	Pension Benefits									Other Benefits
(In thousands)	2012			2011			2010			2012			2011			2010
Components of net periodic benefit cost
Service cost	$	3,122		$	2,589		$	2,254		$	20		$	17		$	17
Interest cost		3,145			3,544			3,613			155			202			228
Expected return on plan assets		(6,686	)		(7,720	)		(7,166	)		-			-			-
Amortization of prior service cost		283			309			322			(202	)		(202	)		(202	)
Amortization of unrecognized net loss		3,330			1,353			1,447			182			205			201
Net periodic pension cost	$	3,194		$	75		$	470		$	155		$	222		$	244
Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax)
Net loss (gain)	$	894		$	16,108		$	1,620		$	136		$	(562	)	$	955
Prior service cost		(1,006	)		-			21			-			-			-
Amortization of prior service cost		(283	)		(309	)		(322	)		202			202			202
Amortization of unrecognized net gain		(3,330	)		(1,353	)		(1,447	)		(182	)		(205	)		(201	)
Total recognized in other comprehensive loss (income)		(3,725	)		14,446			(128	)		156			(565	)		956
Total recognized in net periodic benefit cost and other comprehensive income (loss) - pre-tax	$	(531	)	$	14,521		$	342		$	311		$	(343	)	$	1,200

The following table sets forth estimated future benefit payments for the pension plans and other postretirement benefit plans:

	Pension		Other
	Benefits		Benefits
2013		5,247		215
2014		5,243		224
2015		5,285		234
2016		7,767		242
2017		5,942		250
2018 - 2022		29,180		1,311

112

The Company is not required to make contributions to the defined benefit plan in 2013.

For measurement purposes, the annual rates of increase in the per capita cost of covered medical and prescription drug benefits for fiscal year 2012 were assumed to be 6.0 to 6.5 percent. The rates were assumed to decrease gradually to 5.0 percent for fiscal year 2018 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on amounts reported for health care plans. A one-percentage point change in the health care trend rates would have the following effects as of and for the year ended December 31, 2012:

(In thousands)	One Percentage point increase		One Percentage point decrease
Increase (decrease) on total service and interest cost components	$	24	$	(20	)
Increase (decrease) on postretirement accumulated benefit obligation		503		(426	)

Plan Investment Policy

The Company’s key investment objectives in managing its defined benefit plan assets are to ensure that present and future benefit obligations to all participants and beneficiaries are met as they become due; to provide a total return that, over the long-term, maximizes the ratio of the plan assets to liabilities, while minimizing the present value of required Company contributions, at the appropriate levels of risk; to meet statutory requirements and regulatory agencies’ requirements; and to satisfy applicable accounting standards.  The Company periodically evaluates the asset allocations, funded status, rate of return assumption and contribution strategy for satisfaction of our investment objectives.  The target and actual allocations expressed as a percentage of the defined benefit pension plan’s assets are as follows:

	Target 2013			2012			2011
Cash and cash equivalents		0 - 20	%		5	%		2	%
Fixed income securities		20 - 40	%		29	%		34	%
Equities		40 - 80	%		66	%		64	%
Total					100	%		100	%

113

Only high-quality bonds are to be included in the portfolio.  All issues that are rated lower than A by Standard and Poor’s are to be excluded.  Equity securities at December 31, 2012 and 2011 do not include any Company common stock.  The following table presents the financial instruments recorded at fair value on a recurring basis by the Plan as of December 31, 2012 and 2011:

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2012
Cash and Cash Equivalents	$	5,464	$	-	$	-	$	5,464
Foreign Equity Mutual Funds		9,763		-		-		9,763
Equity Mutual Funds		13,110		-		-		13,110
US Government Bonds		-		12,744		-		12,744
Corporate Bonds		-		13,604		-		13,604
Common Stock		40,430		-		-		40,430
Municipal bonds and Notes		-		1,805		-		1,805
Foreign Bonds and Notes		-		1,137		-		1,137
Foreign Equity		1,647		-		-		1,647
Totals	$	70,414	$	29,290	$	-	$	99,704

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2011
Cash and Cash Equivalents	$	1,503	$	-	$	-	$	1,503
Foreign Equity Mutual Funds		6,577		-		-		6,577
Equity Mutual Funds		9,902		-		-		9,902
US Government Bonds		-		15,683		-		15,683
Corporate Bonds		-		12,954		-		12,954
Common Stock		33,850		-		-		33,850
Municipal bonds and Notes		-		1,799		-		1,799
Foreign Bonds and Notes		-		1,096		-		1,096
Foreign Equity		8,211		-		-		8,211
Totals	$	60,043	$	31,532	$	-	$	91,575

114

The plan had no financial instruments recorded at fair value on a nonrecurring basis as of December 31, 2012.

Determination of Assumed Rate of Return

The expected long-term rate-of-return on assets is 7.5% at December 31, 2012.  This assumption represents the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation.  The assumption has been determined by reflecting expectations regarding future rates of return for the portfolio considering the asset distribution and related historical rates of return.  The appropriateness of the assumption is reviewed annually.

Employee 401(k) and Employee Stock Ownership Plans

The Company maintains a 401(k) and employee stock ownership plan (the “401(k) Plan”).  The Company contributes to the 401(k) Plan based on employees’ contributions out of their annual salaries.  In addition, the Company may also make discretionary contributions to the 401(k) Plan based on profitability.  Participation in the 401(k) Plan is contingent upon certain age and service requirements.  The employer contributions associated with the 401(k) Plan were $1.8 million in 2012, $3.7 million in 2011, and $3.5 million in 2010.

Omnibus Incentive Plan

In April 2008, the Company adopted the NBT Bancorp Inc. 2008 Omnibus Incentive Plan (the “Plan”). Under the terms of the Plan, options and other equity-based awards are granted to directors and employees to increase their direct proprietary interest in the operations and success of the Company.  The Plan assumed all prior equity-based incentive plans and any new equity-based awards are granted under the terms of the Plan.  Under terms of the Plan, stock options are granted to purchase shares of the Company’s common stock at a price equal to the fair market value of the common stock on the date of the grant. Options granted have a vesting period of four years and terminate ten years from the date of the grant.  Shares issued as a result of stock option exercises and vesting of restricted shares and stock unit awards are funded from the Company’s treasury stock.  Restricted shares granted under the Plan vest after five years for employees and three years for non-employee directors.  Restricted stock units granted under the Plan may have different terms and conditions.  Performance shares and units granted under the Plan for executives may have different terms and conditions.

The per share weighted average fair value of stock options granted during 2012, 2011, and 2010 was $4.57, $5.45, and $5.03, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the years ended December 31.  Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued:

	Years ended December 31,
	2012			2011			2010
Dividend yield		3.94	%		3.31%–3.82	%		3.27%–3.96	%
Expected volatility		34.64	%		33.75%–34.36	%		33.00%–33.86	%
Risk-free interest rates		1.24	%		1.48%–2.81	%		1.90%–3.17	%
Expected life		7 years			7 years			7 years

115

The following table summarizes information concerning stock options outstanding at December 31, 2012:

	Number of Shares			Weighted average exercise price		Weighted Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		1,863,590		$	22.41
Granted		150			20.30
Exercised		(108,817	)		17.53
Forfeited		(11,150	)		21.92
Expired		(48,211	)		22.50
Outstanding at December 31, 2012		1,695,562		$	22.72		4.58	$	51,236
Exercisable at December 31, 2012		1,480,737		$	22.83		4.21	$	43,043
Expected to Vest		205,476		$	21.97		7.01	$	7,752

Total stock-based compensation expense for stock option awards totaled $0.5 million for the year ended December 31, 2012, $0.9 million for the year ended December 31, 2011, and $1.8 million for the year ended December 31, 2010.  Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:

	Years ended
(dollars in thousands)	2012		2011		2010
Proceeds from stock options exercised	$	1,908	$	2,255	$	1,778
Tax benefits related to stock options exercised		8		341		140
Intrinsic value of stock options exercised		498		897		574
Fair value of shares vested during the year		1,656		1,597		1,800

116

The Company has outstanding restricted and deferred stock awards granted from various plans at December 31, 2012. The Company recognized $3.7 million in stock-based compensation expense related to these stock awards for the year ended December 31, 2012, $3.2 million for the year ended December 31, 2011, and $2.0 million for the year ended December 31, 2010.  Tax benefits recognized with respect to restricted stock awards and stock units were $1.5 million, $1.2 million and $0.7 million for the years ended December 31, 2012, 2011 and 2010, respectively.  Unrecognized compensation cost related to restricted stock awards and stock units totaled $4.7 million at December 31, 2012 and will be recognized over 2.5 years on a weighted average basis.  Shares issued are funded from the Company’s treasury stock.  The following table summarizes information for unvested restricted stock awards outstanding as of December 31, 2012:

	Number			Weighted-Average
	of			Grant Date Fair
	Shares			Value
Unvested Restricted Stock Awards
Unvested at January 1, 2012		155,376		$	23.92
Forfeited		(3,500	)	$	21.96
Vested		(34,726	)	$	22.61
Unvested at December 31, 2012		117,150		$	24.36

The following table summarizes information for unvested restricted stock units outstanding as of December 31, 2012:

	Number			Weighted-Average
	of			Grant Date Fair
	Shares			Value
Unvested Restricted Stock Units
Unvested at January 1, 2012		241,907		$	23.95
Forfeited		(5,103	)		-
Vested		(37,068	)		-
Granted		206,322			22.38
Unvested at December 31, 2012		406,058		$	25.64

The Company has 4.4 million securities remaining available to be granted as part of the Plan at December 31, 2012.

(19) Commitments and Contingent Liabilities

The Company’s concentrations of credit risk are reflected in the consolidated balance sheets.  The concentrations of credit risk with standby letters of credit, unused lines of credit, commitments to originate new loans and loans sold with recourse generally follow the loan classifications.

At December 31, 2012, approximately 59% of the Company’s loans were secured by real estate located in central and upstate New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire, and the greater Burlington, Vermont area.  Accordingly, the ultimate collectibility of a substantial portion of the Company’s portfolio is susceptible to changes in market conditions of those areas. Management is not aware of any material concentrations of credit to any industry or individual borrowers.

117

The Company is a party to certain financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit, and certain mortgage loans sold to investors with recourse. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit, and loans sold with recourse is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.

	At December 31,
(In thousands)	2012		2011
Unused lines of credit	$	163,626	$	161,551
Commitments to extend credits, primarily variable rate		678,093		603,322
Standby letters of credit		37,510		26,783
Commercial letters of credit		16,607		15,218
Loans sold with recourse		13,690		16,175

Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.  The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.

The Company guarantees the obligations or performance of customers by issuing stand-by letters of credit to third parties. These stand-by letters of credit are frequently issued in support of third party debt, such as corporate debt issuances, industrial revenue bonds, and municipal securities. The risk involved in issuing stand-by letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products.  Typically, these instruments have terms of five years or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  The fair value of the Company’s stand-by letters of credit at December 31, 2012 and 2011 was not significant.

The total amount of loans serviced by the Company for unrelated third parties was approximately $308.4 million and $301.9 million at December 31, 2012 and 2011, respectively.

In the normal course of business there are various outstanding legal proceedings. If legal costs are deemed material by management, the Company accrues for the estimated loss from a loss contingency if the information available indicates that it is probable that a liability had been incurred at the date of the financial statements, and the amount of loss can be reasonably estimated.  In the opinion of management, the aggregate amount involved in such proceedings at December 31, 2012 is not material to the consolidated balance sheets or results of operations of the Company.

118

(20)  Parent Company Financial Information

Condensed Balance Sheets

	December 31,
(In thousands)	2012		2011
Assets
Cash and cash equivalents	$	23,095	$	2,454
Securities available for sale, at estimated fair value		12,866		9,825
Trading securities		3,371		2,550
Investment in subsidiaries, on equity basis		635,851		622,885
Other assets		48,324		48,153
Total assets	$	723,507	$	685,867
Liabilities and Stockholders’ Equity
Total liabilities	$	141,234	$	147,757
Stockholders’ equity		582,273		538,110
Total liabilities and stockholders’ equity	$	723,507	$	685,867

Condensed Income Statements

	Years ended December 31,
(In thousands)	2012			2011			2010
Dividends from subsidiaries	$	79,175		$	54,400		$	12,000
Management fee from subsidiaries		78,665			69,430			68,228
Securities gains (losses)		442			(31	)		1,814
Interest, dividend and other income		720			628			1,136
Total revenue		159,002			124,427			83,178
Operating expense		79,015			75,254			72,436
Income before income tax benefit and equity in undistributed income of subsidiaries		79,987			49,173			10,742
Income tax (expense) benefit		(284	)		1,340			282
Dividends in excess of income (equity in undistributed income) of subsidiaries		(25,145	)		7,388			46,380
Net income	$	54,558		$	57,901		$	57,404

119

Statements of Cash Flow

	Years ended December 31,
(In thousands)	2012			2011			2010
Operating activities
Net income	$	54,558		$	57,901		$	57,404
Adjustments to reconcile net income to net cash provided by operating activities
Stock-based compensation		4,364			3,244			3,782
Gain (Loss) on sales of available-for-sale securities		442			31			(1,814	)
Dividends in excess of income (equity in undistributed income) of subsidiaries		25,145			(7,388	)		(46,380	)
Net change in other liabilities		(3,181	)		15,311			2,155
Net change in other assets		2,030			(11,607	)		(2,605	)
Net cash provided by operating activities		83,358			57,492			12,542
Investing activities
Purchases of available-for-sale securities		(4,163	)		(968	)		(1,745	)
Sales and maturities of available-for-sale securities		1,445			71			7,807
Net cash used in acquisitions		(14,612	)		-			-
Purchases of premises and equipment		(1,240	)		(1,656	)		(321	)
Net cash (used in) provided by investing activities		(18,570	)		(2,553	)		5,741
Financing activities
Proceeds from the issuance of shares to employee benefit plans and other stock plans		1,387			1,386			1,675
Payments on long-term debt		(3,340	)		(140	)		(135	)
Purchases of treasury shares		(15,490	)		(30,502	)		(477	)
Cash dividends and payments for fractional shares		(26,712	)		(27,063	)		(27,577	)
Excess tax benefit from exercise of stock options		8			341			140
Net cash used in financing activities		(44,147	)		(55,978	)		(26,374	)
Net increase (decrease) in cash and cash equivalents		20,641			(1,039	)		(8,091	)
Cash and cash equivalents at beginning of year		2,454			3,493			11,584
Cash and cash equivalents at end of year	$	23,095		$	2,454		$	3,493

A statement of changes in stockholders’ equity has not been presented since it is the same as the consolidated statement of changes in stockholders’ equity previously presented.

120

(21) Fair Values of Financial Instruments

The following table sets forth information with regard to estimated fair values of financial instruments at December 31, 2012 and December 31, 2011.  This table excludes financial instruments for which the carrying amount approximates fair value.  Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, securities available for sale, trading securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable, and interest rate swaps.

			December 31, 2012				December 31, 2011
(In thousands)	Fair Value Hierarchy		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets
Securities held to maturity		2	$	60,563	$	61,535	$	70,811	$	72,198
Net loans		3		4,208,282		4,313,244		3,728,869		3,821,640
Financial liabilities
Time deposits		2	$	983,261	$	994,376	$	933,127	$	942,437
Long-term debt		2		367,492		407,404		370,344		427,107
Trust preferred debentures		2		75,422		74,147		75,422		75,422

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial trust and investment management operation that contributes net fee income annually. The trust and investment management operation is not considered a financial instrument, and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value.

121

Securities Held to Maturity

The fair value of the Company’s investment securities held to maturity is primarily measured using information from a third party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Net Loans

The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities.  Loans were first segregated by type, and then further segmented into fixed and variable rate and loan quality categories.  Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Time Deposits

The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments.  The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Long-Term Debt

The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments.

Trust Preferred Debentures

The fair value of trust preferred debentures has been estimated using a discounted cash flow analysis.

The following table sets forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value as of December 31, 2012 and December 31, 2011.  Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2012
Assets:
Securities Available for Sale:
U.S. Treasury	$	64,425	$	-	$	-	$	64,425
Federal Agency		-		282,814		-		282,814
State & municipal		-		86,802		-		86,802
Mortgage-backed		-		250,281		-		250,281
Collateralized mortgage obligations		-		449,723		-		449,723
Other securities		11,866		2,088		-		13,954
Total Securities Available for Sale	$	76,291	$	1,071,708	$	-	$	1,147,999
Trading Securities		3,918		-		-		3,918
Interest Rate Swaps		-		1,490		-		1,490
Total	$	80,208	$	1,073,198	$	-	$	1,153,407
Liabilities:
Interest Rate Swaps	$	-	$	1,490	$	-	$	1,490
Total	$	-	$	1,490	$	-	$	1,490

122

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2011
Assets:
Securities Available for Sale:
U.S. Treasury	$	82,233	$	-	$	-	$	82,233
Federal Agency		-		255,846		-		255,846
State & municipal		-		104,789		-		104,789
Mortgage-backed		-		325,397		-		325,397
Collateralized mortgage obligations		-		465,475		-		465,475
Other securities		8,825		2,054		-		10,879
Total Securities Available for Sale	$	91,058	$	1,153,561	$	-	$	1,244,619
Trading Securities		3,062		-		-		3,062
Total	$	94,120	$	1,153,561	$	-	$	1,247,681

Fair values for securities are based on quoted market prices or dealer quotes, where available.  Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.  When necessary, the Company utilizes matrix pricing from a third party pricing vendor to determine fair value pricing.  Matrix prices are based on quoted prices for securities with similar coupons, ratings, and maturities, rather than on specific bids and offers for the designated security.

FASB ASC Topic 820 requires disclosure of assets and liabilities measured and recorded at fair value on a nonrecurring basis.  In accordance with the provisions of FASB ASC Topic 310, the Company had collateral dependent impaired loans with a carrying value of approximately $8.4 million which had specific reserves included in the allowance for loan losses of $2.8 million at December 31, 2012.  The Company uses the fair value of underlying collateral to estimate the specific reserves for collateral dependent impaired loans.  The fair value of underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses ranging from 10% to 35%.  Based on the valuation techniques used, the fair value measurements for collateral dependent impaired loans are classified as Level 3.

FASB ASC Topic 825 gives entities the option to measure eligible financial assets, financial liabilities and Company commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards.  The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Company commitment.  Subsequent changes in fair value must be recorded in earnings.  As of December 31, 2012, the Company has not elected the fair value option for any eligible items.

123

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A. Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No changes were made to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management Report on Internal Controls Over Financial Reporting

The management of NBT Bancorp, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

As of December 31, 2012, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on the assessment, management determined that the Company’s internal control over financial reporting as of December 31, 2012 was effective at the reasonable assurance level based on those criteria.

KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued a report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm” on the following page.

124

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

NBT Bancorp Inc.:

We have audited NBT Bancorp, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s 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 generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control — Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NBT Bancorp Inc. and subsidiaries as of December 31, 2012 and 2011 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated March 1, 2013 expressed an unqualified opinion on those financial statements.

/s/  KPMG LLP

Albany, New York

March 1, 2013

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ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

The following table sets forth certain information for the executive officers of NBT Bancorp Inc.

	Age at
Name	December 31, 2012	Positions Held with the Company and NBT Bank
Martin A. Dietrich	57	President and Chief Executive Officer
Michael J. Chewens	51	Senior Executive Vice President and Chief Financial Officer
David E. Raven	50	President of Retail Banking of NBT Bank, President and Chief Executive Officer of the Pennstar Bank Division
Jeffrey M. Levy	51	President of Commercial Banking and Capital Region President of NBT Bank
F. Sheldon Prentice	62	Corporate Senior Vice President, General Counsel and Corporate Secretary

Information concerning the principal occupation of these executive officers of NBT Bancorp Inc. and NBT Bank during at least the last five years is set forth below.

Martin A. Dietrich has served as the President and Chief Executive Officer of the Company and NBT Bank since January 2004.  Prior to that, Mr. Dietrich was President and Chief Operating Officer of NBT Bank from September 1999 to December 2003.  He is currently a director of Preferred Mutual Insurance Company, Independent Bankers Association of New York, and New York Bankers Association.  Mr. Dietrich has been a director of the Bank since 1993, Pennstar Bank since 2004, and NBT since 2005.

Michael J. Chewens has been Senior Executive Vice President and Chief Financial Officer of NBT and NBT Bank since January 2002.  He was EVP and CFO of same from 1999 to 2001.

David E. Raven has been President of Retail Banking of NBT Bank since July 2006 and President and Chief Executive Officer of Pennstar Bank Division since August 2005.  Prior to that, he was President and Chief Operating Officer of Pennstar Bank Division from August 2000 to 2005 and Sales and Administration from September 1999 through August 2000.

Jeffrey M. Levy has been Executive Vice President of NBT and Executive Vice President, Commercial Banking for NBT Bank since December 2006. He joined NBT in August 2005 as Capital Region President. Prior to joining NBT, Mr. Levy was Manager of New York State Government Banking at M&T Bank from January 2004 to August 2005 and President of the Capital District, Commercial Banking at M&T Bank from January 2001 to December 2003.

126

F. Sheldon Prentice has been Corporate Senior Vice President, General Counsel and Corporate Secretary of NBT and NBT Bank since April 2010.  Prior to joining the Company, Mr. Prentice served as Senior Vice President and General Counsel for Merchants Bancshares, Inc. in South Burlington, Vermont from March 2008 until April 2010.  Prior to joining Merchants Bancshares, Inc., Mr. Prentice served as Senior Vice President, General Counsel and Secretary of Chittenden Corporation in Burlington, Vermont from December 1985 until they were purchased in December 2007 by Peoples United Bank of Bridgeport, Connecticut.  Mr. Prentice remained with Peoples United Bank until March 2008 when he joined Merchants Bancshares, Inc.

Additional information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for its Annual Meeting of shareholders to be held on May 7, 2013 (the “Proxy Statement”), which will be filed with the SEC within 120 days after the Company’s 2012 fiscal year end.

ITEM 11. Executive Compensation

The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed with the SEC within 120 days of the Company’s 2012 fiscal year end.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table provides information with respect to shares of Common Stock that may be issued under the Company’s existing equity compensation plans:

Plan Category	A. Number of securities to be issued upon exercise of outstanding options, warrants and rights		B. Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A.)
Equity compensation plans approved by stockholders		1,695,562	$	22.72		4,356,981
Equity compensation plans not approved by stockholders	None		None		None

The other information required by this item is incorporated herein by reference to the Proxy Statement which will be filed with the SEC within 120 days of the Company’s 2012 fiscal year end.

ITEM 13.  Certain Relationships, Related Transactions and Director Independence

The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed with the SEC within 120 days of the Company’s 2012 fiscal year end.

ITEM 14.  Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed with the SEC within 120 days of the Company’s 2012 fiscal year end.

127

PART  IV

ITEM 15. Exhibits and Financial Statement Schedules

(a)(1)  The following Consolidated Financial Statements are included in Part II, Item 8 hereof:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2012 and 2011.

Consolidated Statements of Income for each of the three years ended December 31, 2012, 2011 and 2010.

Consolidated Statements of Changes in Stockholders’ Equity for each of the three years ended December 31, 2012, 2011 and 2010.

Consolidated Statements of Cash Flows for each of the three years ended December 31, 2012, 2011 and 2010.

Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2012, 2011 and 2010.

Notes to the Consolidated Financial Statements.

(a)(2)  There are no financial statement schedules that are required to be filed as part of this form since they are not applicable or the information is included in the consolidated financial statements.

(a)(3)  See below for all exhibits filed herewith and the Exhibit Index.

2.1	Agreement and Plan of Merger, dated as of October 7, 2012, by and between NBT Bancorp, Inc. and Alliance Financial Corporation (filed as Exhibit 2.1 to Registrant’s Form 8-K, File Number 0-14703, filed on October 9, 2012, and incorporated herein by reference).
3.1	Certificate of Incorporation of NBT Bancorp Inc. as amended through July 23, 2001 (filed as Exhibit 3.1 to Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 and incorporated herein by reference).
3.2	Bylaws of NBT Bancorp Inc. as amended and restated through July 23, 2001 (filed as Exhibit 3.2 to Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 and incorporated herein by reference).
3.3	Certificate of Designation of the Series A Junior Participating Preferred Stock (filed as Exhibit A to Exhibit 4.1 of the Registratrant’s Form 8-K, file number 0-14703, filed on November 18, 2004, and incorporated herein by reference).
4.1	Specimen common stock certificate for NBT’s Bancorp Inc. common stock (filed as Exhibit 4.1 to the Registrant’s Amendment No. 1 to Registration Statement on Form S-4 filed on December 27, 2005 and incorporated herein by reference).
4.2	Rights Agreement, dated as of November 15, 2004, between NBT Bancorp Inc. and Registrar and Transfer Company, as Rights Agent (filed as Exhibit 4.1 to Registrant's Form 8-K, file number 0-14703, filed on November 18, 2004, and incorporated by reference herein).
10.1	NBT Bancorp Inc. 1993 Stock Option Plan (filed as Exhibit 99.1 to Registrant's Form S-8 Registration Statement, file number 333-71830 filed on October 18, 2001 and incorporated by reference herein).*
10.2	NBT Bancorp Inc. Non-Employee Director, Divisional Director and Subsidiary Director Stock Option Plan (filed as Exhibit 99.1 to Registrant's Form S-8 Registration Statement, file number 333-73038 filed on November 9, 2001 and incorporated by reference herein).*
10.3	NBT Bancorp Inc. Employee Stock Purchase Plan (filed as Exhibit 10.4 to Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 and incorporated herein by reference).*
10.4	NBT Bancorp Inc. Non-employee Directors Restricted and Deferred Stock Plan (filed as Exhibit 10.5 to Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 and incorporated herein by reference).*
10.5	NBT Bancorp Inc. Performance Share Plan (filed as Exhibit 10.6 to Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 and incorporated herein by reference).*
10.6	NBT Bancorp Inc. 2012 Executive Incentive Compensation Plan.*
10.7	2006 Non-Executive Restricted Stock Plan (filed as Exhibit 99.1 to Registrant’s Form S-8 Registration Statement, file number 333-139956, filed on January 12, 2007, and incorporated herein by reference).*

128

10.8	Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, National Association and Daryl R. Forsythe as amended and restated Effective January 1, 2005  (filed as Exhibit 10.11 to Registrant’s Form 10-K for the year ended December 31, 2005, filed on March 15, 2006 and incorporated herein by reference).*
10.9	Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National Association and Daryl R. Forsythe made August 22, 1995 (filed as Exhibit 10.12 to Registrant’s Form 10-K for the year ended December 31, 2005, filed on March 15, 2006 and incorporated herein by reference).*
10.10	Amendment dated January 28, 2002 to Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National Association and Daryl R. Forsythe made August 22, 1995 (filed as Exhibit 10.12 to Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 and incorporated herein by reference).*
10.11	Employment Agreement between NBT Bancorp Inc. and Martin A. Dietrich as amended and restated November 5, 2009 (filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.12	Supplemental Executive Retirement Agreement between NBT Bancorp Inc. and Martin A. Dietrich as amended and restated January 20, 2010. (filed as Exhibit 10.14 to Registrant’s Form 10-K for the year ended December 31, 2009, filed on March 1, 2010 and incorporated herein by reference).*
10.13	Form of Change in Control Agreement, dated November 5, 2009, by and between NBT Bancorp Inc. and certain executive officers (filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.14	Employment Agreement between NBT Bancorp Inc. and Michael J. Chewens as amended and restated November 5, 2009 (filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.15	Form of Amended and Restated NBT Bancorp Inc. Supplemental Retirement Agreement, dated as of November 5, 2009, between NBT Bancorp Inc. and certain executive officers (filed as Exhibit 10.7 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.16	Employment Agreement between NBT Bancorp Inc. and David E. Raven as amended and restated November 5, 2009 (filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.17	Employment Agreement between NBT Bancorp Inc. and Jeffrey M. Levy made as amended and restated November 5, 2009 (filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.18	Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National Association and Martin A. Dietrich made November 10, 2008 (filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2008, filed on November 10, 2008 and incorporated herein by reference).*
10.19	First amendment dated November 5, 2009 to Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National Association and Martin A. Dietrich made November 10, 2008 (filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009 and incorporated herein by reference).*
10.20	NBT Bancorp Inc. 2008 Omnibus Incentive Plan (filed as Appendix A of Registrant's Definitive Proxy Statement on Form 14A filed on March 31, 2008, and incorporated herein by reference).*
10.21	Description of Arrangement for Directors Fees.*
10.22	Employment Agreement, dated May 7, 2010, by and between F. Sheldon Prentice and NBT Bancorp Inc. (filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarterly period ended March 31, 2010, filed on May 10, 2010 and incorporated herein by reference).*
10.23	Change in Control Agreement, dated May 7, 2010, by and between F. Sheldon Prentice and NBT Bancorp Inc. (filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarterly period ended March 31, 2010, filed on May 10, 2010 and incorporated herein by reference).*
10.24	Long Term Incentive Compensation Plan for Named Executive Officers (filed as Exhibit 10.24 to Registrant’s Form 10-K for the year ended December 31, 2011, filed on February 29, 2011 and incorporated herein by reference).*
10.25	Consulting Agreement, dated October 7, 2012, by and between NBT Bancorp, Inc. and Joseph Nasser (filed as Exhibit 10.1 to the Registrant’s Form 8-K, File Number 0-14703, filed on October 12, 2012, and incorporated herein by reference).*
10.26	Employment Agreement, dated May 4, 2012, by and between Timothy L. Brenner and NBT Bancorp Inc. (filed as Exhibit 10.4 to Registrant’s Form S-4, filed on January 28, 2013 and incorporated herein by reference).*

129

10.27	Change in Control Agreement, dated May 4, 2013, by and between Timothy L. Brenner and NBT Bancorp Inc. (filed as Exhibit 10.5 to Registrant’s Form S-4, filed on January 28, 2013 and incorporated herein by reference).*
10.28	Employment Agreement dated October 7, 2012 between NBT Bancorp, Inc. and Jack H. Webb.*
21	A list of the subsidiaries of the Registrant.
23	Consent of KPMG LLP.
31.1	Certification  by  the  Chief  Executive  Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e) of the Securities and Exchange Act of 1934.
31.2	Certification  by  the  Chief  Financial  Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e) of the Securities and Exchange Act of 1934.
32.1	Certification  by the Chief Executive  Officer pursuant to 18 U.S.C. 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.
32.2	Certification  of the Chief Financial  Officer pursuant to 18 U.S.C. 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.

* Management contract or compensatory plan or arrangement

(b) Exhibits to this Form 10-K are attached or incorporated herein by reference as noted above.

(c) Not applicable

130

SIGNATURES

Pursuant  to the requirements of Section 13 or 15(d) of the Securities Exchange Act  of  1934,  NBT Bancorp Inc. has duly caused this report to be signed on its behalf  by  the  undersigned,  thereunto  duly  authorized.

NBT BANCORP INC. (Registrant)

March 1, 2013

/s/ Martin A. Dietrich

Martin A. Dietrich

Chief 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.

/s/ Daryl R. Forsythe

Daryl R. Forsythe

Chairman and Director

Date: March 1, 2013

/s/ Martin A. Dietrich

Martin A. Dietrich

NBT Bancorp Inc. President, CEO, and Director (Principal Executive Officer)

Date: March 1, 2013

/s/ Michael J. Chewens

Michael J. Chewens

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Date: March 1, 2013

/s/ Richard Chojnowski

Richard Chojnowski, Director

Date: March 1, 2013

/s/ Patricia T. Civil

Patricia T. Civil, Director

Date: March 1, 2013

/s/ Timothy E. Delaney

Timothy E. Delaney, Director

Date: March 1, 2013

131

/s/ James H. Douglas

James H. Douglas, Director

Date: March 1, 2013

/s/ John C. Mitchell

John C. Mitchell, Director

Date: March 1, 2013

/s/ Michael M. Murphy

Michael M. Murphy, Director

Date: March 1, 2013

/s/ Joseph A. Santangelo

Joseph A. Santangelo, Director

Date: March 1, 2013

/s/ Robert A. Wadsworth

Robert A. Wadsworth, Director

Date: March 1, 2013

132

EX-10.6

EXHIBIT 10.6

January 2013

NBT BANCORP INC. AND SUBSIDIARIES

2013 EXECUTIVE INCENTIVE COMPENSATION PLAN

NBT BANCORP INC. AND SUBSIDIARIES

2013 EXECUTIVE INCENTIVE COMPENSATION PLAN

Table of Contents

	Page
Appendix A	3
Introduction	4
Plan Highlights	5
IncentivePlan
Section I - Definitions	6-7
Section II - Participation	7
Section III - Activating the Plan	7-8
Section IV - Calculation of Awards	8
Section V - President's Special Recommendations	8
Section VI - Distribution of Awards	9
Section VII - Plan Administration	9
Section VIII - Amendment, Modification, Suspension or Termination 9
Section IX - Exclusivity Section IX - Effective Date	10
Section X - Employer Relations with Participants	10
Section XI - Governing Law	10

NBT BANCORP INC. AND SUBSIDIARIES

Introduction

It is important to examine the benefits that accrue to the organization through the operation of the Executive Incentive Compensation Plan (EICP). The Plan impacts directly on the success of the organization and its purpose can be summarized as follows:

*      ProvidesMotivation: The opportunity for incentive awards provides Executives with the impetus to "stretch" for challenging, yet attainable, goals.

*      ProvidesRetention: By enhancing the organization's competitive compensation posture.

*      ProvidesManagementTeamBuilding: By making the incentive award dependent on the attainment of organization goals, a "team orientation" is fostered among the participant group.

*      ProvidesIndividualMotivation: By encouraging the participant to make significant personal contribution to the corporate effort.

*       ProvidesCompetitiveCompensationStrategy: The implementation of incentive arrangements is competitive with current practice in the banking industry.

Highlights of the 2013 Executive Incentive Compensation Plan (EICP) are listed below:

1.  The Plan is competitive compared with similar sized banking organizations and the banking industry in general.

2.  The Compensation Committee of the Board of Directors makes all determinations regarding the Plan.

3.  All active Executives are eligible for participation.

4.  The financial criteria necessary for Plan operation consist of achieving certain levels of Earnings Per Share (EPS) for the Company and its Subsidiaries as applicable.  The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occur during a Performance Period: (a) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (b) any reorganization and restructuring programs; and (c) acquisitions or divestitures and related expenses. To the extent such inclusions or exclusions affect Awards to Covered Employees; they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.

5.  Incentive distributions will be made on or before March 15 of the year following the Plan Year and will be based on the matrix in Appendix A.

6.  Maximum incentive awards will be based on attainment of corporate EPS goals. No bonus will be paid unless the Corporation achieves the threshold EPS goal set forth in Appendix A. The actual amount paid out for each Covered Employee cannot exceed the maximum award determined based upon level of the corporate EPS goals that have been achieve. The actual amount awarded would include an assessment of each Covered Employee’s contribution towards the Company’s overall success in accomplishing its corporate goals and may include, but is not limited to, consideration of financial metrics, special projects, leadership and professional development.

NBT BANCORP INC. AND SUBSIDIARIES

The Board of Directors has established this 2013 Executive Incentive Compensation Plan. The 2013 Executive Incentive Compensation Plan is implemented pursuant to the provisions of the 2008 Omnibus Incentive Plan for purposes of paying performance-based compensation within the meaning of Section 162(m) of the Code. The purpose of the Plan is to meet and exceed financial goals and to promote a superior level of performance relative to the competition in our market areas. Through payment of incentive compensation beyond base salaries, the Plan provides reward for meeting and exceeding financial goals.

SECTION I – DEFINITIONS

Various terms used in the Plan are defined as follows:

Award:An award granted under this Plan.

BaseSalary:The base salary at the end of the Plan Year, excluding any bonuses, contributions to Executive benefit programs, or other compensation not designated as salary.

BoardofDirectors:The Board of Directors of NBT Bancorp Inc.

CEO:The CEO of NBT Bancorp Inc.

Code:The Internal Revenue Code of 1986, as now in effect or as hereafter amended.

CorporateGoals:Those pre-established objectives and goals of NBT Bancorp Inc. which are required to activate distribution of awards under the Plan.

CoveredEmployee:A Participant who is a Covered Employee within the meaning of Section 162(m)(3) of the Code.

CompensationCommittee:The Compensation and Benefits Committee of the NBT Bancorp Inc. Board of Directors.

PlanParticipant:An eligible Executive as recommended by the CEO and approved by the Compensation for participation for the Plan Year.

PlanYear:The 2013 calendar year.

SECTION II - ELIGIBILITY TO PARTICIPATE

To be eligible for an award under the Plan, a Plan participant must be an Executive in full-time service at the start and close of the calendar year and at the time of the award unless mutually agreed upon prior to the Executive leaving the company. Newly hired employees may be recommended by the CEO and approved by the Compensation Committee as eligible for an award as determined by their date of hire or any relevant employment agreement. A Plan participant must be in the same or equivalent position, at year-end as they were when named a participant or have been promoted during the course of the year, to be eligible for an award. If a Plan participant voluntarily leaves the company prior to the payment of the award, he/she is not eligible to receive an award unless mutually agreed upon prior to the Executive leaving the company. However, if the active full-time service of a participant in the Plan is terminated by death, disability, retirement, or if the participant is on an approved leave

of absence, an award may be recommended for such a participant based on the proportion of the Plan Year that he/she was in active service.

SECTION III - ACTIVATING THE PLAN

If and to the extent that the Committee determines that a bonus to be granted under the Plan to a Plan participant who is designated by the Compensation Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the bonus as to that Plan participants shall be determined consistently with the terms of the NBT Bancorp Inc. 2008 Omnibus Incentive Plan.

The operation of the Plan is predicated on attaining and exceeding management performance goals. The goals will consist of the attainment of certain Earnings Per Share (EPS) levels as applicable. Non-recurring events, as previously detailed, may be excluded from the financial results at the recommendation of the CEO and upon approval of the Compensation Committee; subject to the terms of the NBT Bancorp Inc. 2008 Omnibus Incentive Plan as applied to any Covered Employee whose bonus is intended to qualify for purposes of Code Section 162(m).

EPS goals shall be established not later than 90 days after the beginning of any performance period applicable to the bonus, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m). In addition, the maximum value of a bonus awarded under the Plan to a single Covered Employee may not exceed $2,000,000 per Plan Year.

Prior to payment of any bonus amount under the Plan to a Covered Employee whose bonus is intended to qualify for purposes of Code Section 162(m), the Compensation Committee shall certify in writing that the EPS goal(s) and all other material terms stated herein have been attained. For this purpose, the approved minutes of a Compensation Committee meeting in which a certification is made shall be treated as a written certification.

The Corporation must achieve a threshold EPS goal set forth in Appendix A to trigger an award pursuant to the terms of this Plan. The bonus awards can range from 0 to135% of the target award for Plan participants.

SECTION IV - CALCULATION OF AWARDS

The Compensation Committee approves the incentive formula as shown in Appendix A. The Compensation Committee will make final determinations with respect to all incentive awards and will have final approval over all incentive awards, including the discretion to lower any such award. If the threshold EPS goal is met but below the baseline budget threshold established by the Company, the CEO may provide the Compensation Committee with a qualitative analysis of the Company’s earnings and its performance which the Compensation Committee shall consider in its exercise of discretion under the plan. Prior to payment of any bonus amount under the Plan to a Covered Employee whose bonus is intended to qualify for purposes of Code Section 162(m), the Compensation Committee shall certify in writing that the EPS goal(s) and all other material terms stated herein have been attained. For this purpose, the approved minutes of a Compensation Committee meeting in which a certification is made shall be treated as a written certification. The individual participant data regarding maximum award and formulas used in calculation has been customized and appears as Appendix A. The actual amount awarded is subject to the NBT Bancorp Inc. Incentive Compensation Clawback Policy.

The actual amount awarded for each Covered Employee cannot exceed the maximum award determined based upon achievement of the corporate EPS goals. The actual amount awarded would include an assessment of each Covered Employee’s contribution towards the Company’s overall success in accomplishing its corporate goals and may include, but is not limited to, consideration of financial metrics, special projects, leadership and professional development.

SECTION V - DISTRIBUTION OF AWARDS

Distribution of the EICP will be made by March 15 of the year following the plan year. Distribution of the award must be approved by the Compensation Committee.

In the event of death, any approved award earned under the provisions of this plan will become payable to the designated beneficiary of the participant as recorded under the Company’s group life insurance program; or in the absence of a valid designation, to the participant's estate.

SECTION VI - PLAN ADMINISTRATION

The Compensation Committee shall, with respect to the Plan have full power and authority to construe, interpret, manage, control and administer this Plan. The Committee shall decide upon cases in conformity with the objectives of the Plan under such rules as the Board of Directors may establish.

Any decision made or action taken by NBT Bancorp Inc., the Board of Directors, or the Compensation Committee arising out of, or in connection with, the administration, interpretation, and effect of the Plan shall be at their absolute discretion and will be conclusive and binding on all parties. No member of the Board of Directors, Compensation Committee, or employee shall be liable for any act or action hereunder, whether of omission or commission, by a Plan participant or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated in accordance with the provision of the Plan.

SECTION VII - AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION

NBT Bancorp Inc. reserves the right, by and through its Board of Directors to amend, modify, suspend, reinstate or terminate all or part of the Plan at any time. The Compensation Committee will give prompt written notice to each participant of any amendment, suspension or termination or any material modification of the Plan. In the event of a merger or acquisition, the Plan and related financial formulas may be reviewed and adjusted to take into account the effect of such activities.

SECTION VIII – NONEXCLUSIVITY

NBT Bancorp Inc. reserves the right, by and through its Board of Directors and Compensation Committee to award bonus and other forms of incentive compensation outside the terms of this Plan.

SECTION IX - EFFECTIVE DATE OF THE PLAN

The effective date of the Plan shall be January 1, 2013.

SECTION X - EMPLOYER RELATION WITH PARTICIPANTS

Neither establishment nor the maintenance of the Plan shall be construed as conferring any legal rights upon any participant or any person for a continuation of employment, nor shall it interfere with the right of an employer to discharge any participant or otherwise deal with him/her without regard to the existence of the Plan.

SECTION XI - GOVERNING LAW

Except to the extent pre-empted under federal law, the provisions of the Plan shall be construed, administered and enforced in accordance with the domestic internal law of the State of New York. In the event of relevant changes in the Internal Revenue Code, related rulings and regulations, changes imposed by other regulatory agencies affecting the continued appropriateness of the Plan and awards made thereunder, the Board may, at its sole discretion, accelerate or change the manner of payments of any unpaid awards or amend the provisions of the Plan.

EX-10.21

EXHIBIT 10.21

Description of Arrangement for Directors Fees

Except as set forth below, the following sets forth the amount of fees payable to outside directors for their services as Directors in fiscal year 2013:

			Restricted
Fees	Cash		Stock Units
Annual Retainer Fee
Company:
Chair	$	50,000	$	54,000
Director	$	12,500	$	13,000
NBT Bank N.A.:
Chair		-	$	11,000
Director	$	12,500	$	8,000
Committee Chair:
Audit and Risk Management	$	10,000		-
All Other Committees	$	5,000		-
Affiliate Board Member	$	1,000		-
Fee per Board Meeting	$	1,000		-
Fee per Committee Meeting	$	800		-

EX-10.28

EXHIBIT 10.28

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) made and entered into as of the 7th day of October 2012, by and between Jack H. Webb (“Executive”) and NBT Bancorp Inc., a Delaware corporation (the “Corporation”).

W I T N E S S E T H  T H A T :

WHEREAS, the Corporation intends to enter into an Agreement and Plan of Merger (the “Merger Agreement”) with Alliance Financial Corporation, a New York corporation (“Seller”), providing for the merger of Seller with and into the Corporation, with the Corporation surviving the merger (the “Merger”);

WHEREAS, Executive is currently employed by Seller pursuant to that certain Employment Agreement by and among Executive, Seller and Alliance Bank, N.A. (the “Seller Bank”), dated as of January 26, 2010 (the “Prior Agreement”); and

WHEREAS, in connection with and conditioned upon consummation of the Merger, the parties desire to terminate the Prior Agreement, and the Corporation desires to employ Executive and Executive desires to be employed by the Corporation beginning at the Effective Time (as defined in the Merger Agreement) (the “Commencement Date”) on the terms contained herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements hereinafter set forth, and intending to be legally bound, the parties agree as follows:

1. Employment; Responsibilities and Duties.

(a) The Corporation hereby agrees to employ Executive, and Executive hereby agrees to serve as Executive Vice President, Strategic Support of the Corporation, and of any successor to the Corporation, during the Term of Employment (as defined in Section 2(b) below). Executive shall have such executive duties, responsibilities, and authority as shall be set forth in the bylaws of the Corporation for such position or as may otherwise be determined by the Corporation. During the Term of Employment, Executive shall report directly to the Chief Executive Officer of the Corporation.

(b) Executive shall devote his full working time and best efforts to the performance of his responsibilities and duties hereunder. During the Term of Employment, Executive shall not, without the prior written consent of the Chief Executive Officer of the Corporation, render services in any capacity, whether as an employee, independent contractor, or otherwise, whether or not compensated, to any person or entity other than the Corporation or its affiliates; provided that Executive may, where involvement in such activities does not individually or in the aggregate significantly interfere with the performance by Executive of his duties or violate the provisions of Section 4 hereof, (i) render services to charitable organizations, (ii) manage his personal investments in compliance with any limits or policies of the Corporation, and (iii) with the prior permission of the Chief Executive Officer of the Corporation, hold such other directorships or part-time academic appointments or have such other business affiliations as would otherwise be prohibited under this Section 1.

(c) As promptly as practicable following the Commencement Date and subject to Executive meeting the qualifications for directors set forth in the Corporation’s bylaws, Executive shall be elected by the Board of Directors of the Corporation to serve as a member of such Board. Executive shall be elected to the eligible class of directors that has the longest remaining term as of the time of such election. Executive shall also be appointed to the Board of Directors of NBT Bank, N.A. in accordance with the bylaws of such bank and effective as promptly as practicable following the Commencement Date. Executive will be compensated for his service on such Boards of Directors in accordance with the applicable director compensation programs in effect from time to time, which Executive acknowledges currently provide that employee directors do not receive any board fees for service.

2. Termination of Prior Agreement; Term of Employment.

(a) As of the Commencement Date, the Prior Agreement shall terminate and be of no further force and effect except for

Sections 2(h), 6 and 10-16 thereof or as otherwise expressly set forth below; provided, however, that this Agreement shall be null and void if the Commencement Date does not occur. Notwithstanding the foregoing, in consideration for Executive’s willingness to enter into this Agreement and subject to the execution of a release of claims in substantially the form attached hereto as Exhibit A, within seven (7) business days following the Commencement Date, the Corporation shall pay to Executive in a lump sum an amount equal to one million nine hundred eleven thousand six hundred thirty-one dollars ($1,911,631.00) representing the aggregate amount which Executive would have been entitled to receive in the event of a “Termination” of Executive’s Employment following a “Change of Control” (as such terms are defined in the Prior Agreement) pursuant to Section 4(a)(i) and (ii) of the Prior Agreement (such payment shall be subject to the provisions of Section 4(b) of the Prior Agreement).

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(b) The term of this Agreement (“Term of Employment”) shall be the period commencing on the Commencement Date and continuing until the Termination Date, which shall mean the earliest to occur of:

(i) the first anniversary of the Commencement Date;

(ii) the death of Executive;

(iii) Executive’s inability to perform his duties hereunder, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months;

(iv) the discharge of Executive by the Corporation “for cause,” which shall mean one or more of the following:

(A) any willful or gross misconduct by Executive with respect to the business and affairs of the Corporation or any subsidiary bank of the Corporation, or with respect to any of its affiliates for which Executive is assigned material responsibilities or duties;

(B) the conviction of Executive of a felony (after the earlier of the expiration of any applicable appeal period without perfection of an appeal by Executive or the denial of any appeal as to which no further appeal or review is available to Executive) whether or not committed in the course of his employment by the Corporation;

(C) Executive’s willful neglect, failure, or refusal to carry out his duties hereunder in a reasonable manner

(other than any such failure resulting from disability or death or from termination by Executive for Good Reason, as hereinafter defined) after a written demand for substantial performance is delivered to Executive that specifically identifies the manner in which the Corporation believes that Executive has not substantially performed his duties and Executive has not resumed substantial performance of his duties on a continuous basis within thirty (30) days of receiving such demand; or

(D) the breach by Executive of any representation or warranty in Section 5(a) hereof or of any agreement contained in Section 1, 4, or 5(b) hereof, which breach is material and adverse to the Corporation or any of its affiliates for which Executive is assigned material responsibilities or duties;

(v) Executive’s resignation from his position as Executive Vice President, Strategic Support of the Corporation other than for “Good Reason,” as hereinafter defined;

(vi) the termination of Executive’s employment by the Corporation “without cause,” which shall be for any reason other than those set forth in subsections (i), (ii), (iii), (iv), or (v) of this Section 2(a), at any time, upon the thirtieth day following notice to Executive; or

(vii) Executive’s resignation for “Good Reason.”

“Good Reason” shall mean, without Executive’s express written consent, a material reduction in Executive’s position or title or the assignment to Executive of duties that are materially inconsistent with those of an Executive Vice President position other than for “Cause,” or a material decrease in the amount or level of Executive’s salary or benefits from the amount or level established in Section 3 hereof. Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Good Reason, the Corporation shall have thirty (30) days from the date on which Executive gives the written notice thereof to cure such event or condition (such notice to be given from Executive within ninety (90) days from the date the event or condition first occurs) and, if the Corporation does so, such event or condition shall not constitute Good Reason hereunder. Further, an event or condition shall cease to constitute Good Reason thirty (30) days after the end of the cure period.

A Termination Date shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and, for purposes of any such provision of this Agreement, any references to a “termination,” “termination of employment” or like terms shall mean a “separation from service.”

(c) In the event that the Term of Employment shall be terminated for any reason other than that set forth in Section 2(a)(vi) or 2(a)(vii) hereof, Executive shall, in consideration for Executive’s covenant not to compete and other post-termination obligations, be entitled to receive, upon the occurrence of any such event:

(i) any salary payable pursuant to Section 3(a)(i) hereof which shall have accrued as of the Termination Date; and

(ii) such rights as Executive shall have accrued as of the Termination Date under the terms of any plans or arrangements in which he participates pursuant to Section 3(b) hereof, any right to reimbursement for expenses accrued as of the Termination Date payable pursuant to Section 3(j) hereof, the right to receive legal title to his automobile under Section 3(g) hereof, and the right to receive the cash equivalent of paid annual leave accrued as of the Termination Date pursuant to Section 3(f) hereof.

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(d) In the event that the Term of Employment shall be terminated for the reason set forth in Section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be entitled to receive the following:

(i) any salary payable pursuant to Section 3(a)(i) hereof which shall have accrued as of the Termination Date, and, promptly after the execution and effective date of a release of claims and separation agreement in substantially the form attached hereto as Exhibit B, for the period commencing on the date immediately following the Termination Date and ending upon and including the first anniversary of the Commencement Date, salary payable at the rate established pursuant to Section 3(a)(i) hereof, on a monthly basis; and

(ii) such rights as Executive may have accrued as of the Termination Date under the terms of any plans or arrangements in which he participates pursuant to Section 3(b) hereof, any right to reimbursement for expenses accrued as of the Termination Date payable pursuant to Section 3(j) hereof, the right to receive legal title to his automobile under Section 3(g) hereof, and the right to receive the cash equivalent of paid annual leave accrued as of the Termination Date pursuant to Section 3(f) hereof.

(e) Notwithstanding any other provision in this Agreement, the Corporation may terminate or suspend the employment of Executive hereunder, as if such termination were for Cause, to the extent required by any applicable federal or state statute related to banking, deposit insurance or bank or savings institution holding companies or by regulations or orders issued by the Office of the Controller of the Currency, the Federal Deposit Insurance Corporation or any other state or federal banking regulatory agency having jurisdiction over the Corporation or any subsidiary bank of the Corporation, and no payment shall be required to be made to or for the benefit of Executive under this Agreement to the extent such payment is prohibited by applicable law, regulation or order issued by a banking agency or a court of competent jurisdiction; provided that it shall be the Corporation’s burden to prove that any such action was so required.

(f) Notwithstanding any other payment schedule provided herein to the contrary for amounts payable and/or benefits owed pursuant to Section 2(d) hereof, if Executive is deemed on the Termination Date a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then each of the following shall apply:

(i) With regard to any payment that is considered deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment shall be made on the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of Executive’s “separation from service”, and (B) the date of Executive’s death (the “Delay Period”) to the extent required under Code Section 409A. Upon the expiration of the Delay Period, all payments delayed pursuant to this Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to Executive in a lump sum, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein; and

(ii) To the extent that any benefits to be provided during the Delay Period is considered deferred compensation under Code Section 409A provided on account of a “separation from service,” and such benefits are not otherwise exempt from Code Section 409A, Executive shall pay the cost of such benefits during the Delay Period, and the Corporation shall reimburse Executive, to the extent that such costs would otherwise have been paid by the Corporation or to the extent that such benefits would otherwise have been provided by the Corporation at no cost to Executive, the Corporation’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be reimbursed or provided by the Corporation in accordance with the procedures specified herein.

(g) If any portion of the amounts payable to, or the value to be received by, Executive under this Agreement constitutes an “excess parachute payment” within the meaning of Code Sections 280G and 4999, then such amounts payable to or to be received by Executive pursuant to this Agreement shall be reduced to the extent necessary to eliminate the application of Code Sections 280G and 4999.

(h) To the extent that severance payments or benefits pursuant to this Agreement are conditioned upon the execution and delivery by Executive of a release of claims, Executive shall forfeit all rights to such payments and benefits unless such release is signed and delivered (and no longer subject to revocation, if applicable) within sixty (60) days following the date of Executive’s Termination Date. If the foregoing release is executed and delivered and no longer subject to revocation as provided in the preceding sentence, payments or benefits shall commence upon the first scheduled payment date immediately after the date the release is executed and no longer subject to revocation (the “Release Effective Date”). The first such cash payment shall include payment of all amounts that otherwise would have been due prior to the Release Effective Date under the terms of this Agreement applied as though such payments commenced immediately upon Executive’s Termination Date, and any payments made thereafter shall continue as provided herein. The delayed benefits shall in any event expire at the time such benefits would have expired had such benefits commenced immediately following Executive’s Termination Date.

(i) For purposes of Code Section 409A, Executive’s right to receive any installment payment pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.

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3. Compensation. For the services to be performed by Executive for the Corporation and its affiliates under this Agreement, Executive shall be compensated in the following manner:

(a) Salary. During the Term of Employment:

(i) The Corporation shall pay Executive a salary, which, on an annualized basis, shall be at the rate of three hundred thousand dollars ($300,000) commencing on the Commencement Date. Salary shall be payable in accordance with the normal payroll practices of the Corporation with respect to executive personnel as presently in effect or as they may be modified by the Corporation from time to time.

(ii) Executive shall be eligible to receive a performance bonus for calendar year 2013, which such bonus shall be based upon the target amount and the performance targets set forth on the attached Schedule I; provided that the minimum amount of such bonus for calendar year 2013 shall be $180,000. The Compensation Committee of the Corporation’s Board of Directors shall determine whether the performance targets have been achieved and the actual amount of such bonus payable to Executive, which determination shall be final and conclusive. To earn the bonus, Executive must be employed by the Corporation on December 31, 2013. Such bonus shall be paid in January 2014 in accordance with the Corporation’s customary practices.

(b) Employee Benefit Plans or Arrangements. During the Term of Employment, Executive shall be entitled to participate in all employee benefit plans of the Corporation, as presently in effect as of the Commencement Date or as they may be modified by the Corporation from time to time, under such terms as may be applicable to officers of Executive’s rank employed by the Corporation or its affiliates and subject to the eligibility requirements set forth therein, including, without limitation, plans providing retirement benefits, medical insurance, disability insurance, and accidental death or dismemberment insurance (but excluding any life insurance or any defined benefit plans); provided that there be no duplication of such benefits as are provided under any other provision of this Agreement or the SERP or the Split Dollar Agreement (each as defined below); and provided further that, in lieu of participating in the plans of the Corporation and at the election of the Corporation, Executive may participate in the health and welfare plans of Seller and/or its subsidiaries in accordance with their terms to the extent such plans continue to be in effect after the Commencement Date. Subject to the terms and conditions of the Corporation’s health and welfare plans, the Corporation shall not treat Executive as a “new” employee for purposes of any exclusions under any such plan of the Corporation for a pre-existing medical condition to the extent that any such exclusion did not apply under a health or similar plan of Seller and its subsidiaries immediately prior to the Commencement Date, and any deductibles, co-payments or out-of-pocket expenses paid by Executive under any of Seller’s or any of its subsidiaries’ health plans shall be credited towards deductibles, co-payments or out-of-pocket expenses under the Corporation’s health plans upon delivery to the Corporation of appropriate documentation.

(c) SERP Benefit. Reference is made to the Amended and Restated Supplemental Retirement Agreement, dated November 28, 2006, by and among Executive, Seller and the Seller Bank, as amended (the “SERP”), which the parties agree will remain in full force and effect following the Commencement Date. In accordance with the terms of the SERP, Executive will continue to accrue a benefit under the SERP during the Term of Employment. The parties agree to amend the SERP to provide that “Final Average Compensation” for purposes of the SERP shall mean the annualized average of Executive’s monthly base salary actually paid by his employer over the thirty-six (36) consecutive month period ending on the Commencement Date.

(d) Split Dollar Agreement. Reference is made to the Split Dollar Agreement, dated January 27, 2009, by and between Executive and the Seller Bank (the “Split Dollar Agreement”), which the parties agree will remain in full force and effect following the Commencement Date. The parties agree to amend the Split Dollar Agreement to provide that Executive’s employment with the Corporation shall constitute continued employment for purposes of the Split Dollar Agreement and shall not trigger a “Termination of Employment” as defined therein.

(e) Equity Awards. Executive will be entitled to receive a restricted stock unit award of 5,000 shares of the Corporation’s common stock under the Corporation’s Omnibus Incentive Plan, with a vesting schedule that takes into account his expected term of employment. Such award shall be made to Executive no later than December 31, 2013 in accordance with the Corporation’s customary practices, but subject to Executive’s continued employment with the Corporation as of the date of grant.

(f) Vacation and Sick Leave. During the Term of Employment, Executive shall be entitled to paid annual vacation periods and sick leave in accordance with the policies of the Corporation applicable to officers of Executive’s rank employed by the Corporation or its affiliates and as in effect as of the Commencement Date or as may be modified by the Corporation from time to time and as may be applicable to officers of Executive’s rank employed by the Corporation or its affiliates.

(g) Automobile. During the Term of Employment, Executive shall be entitled to the use of the automobile owned by Seller and used by Executive immediately prior to the Commencement Date. Executive shall be responsible for all expenses of ownership and use of any such automobile (other than insurance and costs for any major repairs to such automobile, which will be paid by the Corporation through the Termination Date), subject to reimbursement of expenses for business use in accordance with Section 3(j). Upon the Termination Date, the Corporation shall transfer to Executive the legal title to such Seller-owned automobile at no cost (but subject to any applicable withholding taxes).

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(h) Club Dues. During the Term of Employment, Executive shall be reimbursed for dues and assessments incurred in relation to Executive’s memberships at Onondaga Golf and Country Club and the Century Club of Syracuse. Executive shall be responsible for any income taxes associated with the personal use of such club memberships.

(i) Withholding. All compensation to be paid to Executive hereunder shall be subject to applicable federal, state, and local taxes and all and other required withholdings. Executive hereby acknowledges and agrees that he is responsible for all taxes in connection with any benefits, fringe benefits, or perquisites provided under this Agreement and he is not entitled to any tax “gross up” payments.

(j) Expenses. During the Term of Employment, Executive shall be reimbursed for reasonable travel and other expenses incurred or paid by Executive in connection with the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as may from time to time be requested by the Corporation, in accordance with such policies of the Corporation as are in effect as of the Commencement Date and as may be modified by the Corporation from time to time, under such terms as may be applicable to officers of Executive’s rank employed by the Corporation or its affiliates. All expenses or other reimbursements under this Agreement shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive (provided that if any such reimbursements constitute taxable income to Executive, such reimbursements shall be paid no later than March 15th of the calendar year following the calendar year in which the expenses to be reimbursed were incurred), and no such reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year.

4. Confidential Business Information; Non-Competition.

(a) Executive acknowledges that certain business methods, creative techniques, and technical data of the Corporation and its affiliates and the like are deemed by the Corporation to be and are in fact confidential business information of the Corporation, its subsidiary banks or any of their affiliates or are entrusted to third parties. Such confidential information includes but is not limited to procedures, methods, sales relationships developed while in the service of the Corporation or its affiliates, knowledge of customers and their requirements, marketing plans, marketing information, studies, forecasts, and surveys, competitive analyses, mailing and marketing lists, new business proposals, lists of vendors, consultants, and other persons who render service or provide material to the Corporation or its subsidiary banks or their affiliates, and compositions, ideas, plans, and methods belonging to or related to the affairs of the Corporation or its subsidiary banks or their affiliates (collectively, “Confidential Information”). In this regard, the Corporation asserts proprietary rights in all of its Confidential Information and that of its affiliates, except for such information as is clearly in the public domain. Notwithstanding the foregoing, information that would be generally known or available to persons skilled in Executive’s fields shall be considered to be “clearly in the public domain” for the purposes of the preceding sentence. Executive acknowledges that in connection with his employment with the Corporation, Executive has had or may have access to such Confidential Information, and he agrees that he will not disclose or divulge to any third party, except as may be required by his duties hereunder, by law, regulation, or order of a court or government authority, or as directed by the Corporation, nor shall he use to the detriment of the Corporation or its affiliates or use in any business or on behalf of any business competitive with or substantially similar to any business of the Corporation or its subsidiary banks or their affiliates, any Confidential Information obtained during the course of his employment by the Corporation. In the event that disclosure is required by law, regulation, or order of a court or government authority, Executive agrees that as soon as practical and in any event no later than thirty (30) days after receiving notice that Executive is required to make such disclosure, Executive will provide notice to the Corporation of such requirement by law, regulation, order of a court or government authority. This Section 4(a) shall not be construed as restricting Executive from disclosing such information to the employees of the Corporation or its subsidiary banks or their affiliates. On or before the Termination Date, Executive shall promptly deliver to the Corporation any and all Confidential Information in his possession, whether tangible, electronic or intangible in form.

(b) Executive acknowledges that in the course of employment with the Corporation (including Seller and Seller Bank prior to the Merger), Executive has had access to and gained knowledge of the trade secrets and other Confidential Information of the Corporation, its subsidiary banks, or their affiliates; has had substantial relationships with the customers of the Corporation, its subsidiary banks, or their affiliates; and has performed services of special, unique, and extraordinary value to the Corporation, its subsidiary banks, or their affiliates. Therefore, Executive agrees that notwithstanding the termination of his employment pursuant to this Agreement for any reason, from the Commencement Date until the second anniversary of the date of termination of Executive’s service relationship with the Corporation or any of its subsidiaries (whether as an officer, employee, consultant or director) (the “Termination from Service”), Executive shall not, directly or indirectly, on behalf of himself or any other person or entity, without the written consent of the Corporation:

(i) become an officer, employee, consultant, director, or trustee of any savings bank, savings and loan association, savings and loan holding company, bank or bank holding company, where such position entails providing services to such company in any city, town, or county in which the Corporation or its subsidiary banks or their affiliates has an office, determined as of the date of Termination from Service, where Executive’s position or service for such business is competitive with or otherwise similar to any of Executive’s positions or services for the Corporation or its subsidiary banks;

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(ii) induce or solicit any customer, supplier, or agent of the Corporation, its subsidiary banks, or their affiliates about whom Executive has gained Confidential Information or with whom Executive, by virtue of his employment with the Corporation, has established a relationship or had frequent contact, to terminate or curtail an existing business or commercial relationship with the Corporation, its subsidiary banks, or their affiliates;

(iii) induce or solicit any customer or supplier of the Corporation, its subsidiary banks, or their affiliates about whom Executive has gained Confidential Information or with whom Executive, by virtue of his employment with the Corporation, has established a relationship or had frequent contact, to provide or purchase goods or services similar to the goods or services provided by it to or purchased by it from the Corporation, its subsidiary banks, or their affiliates; provided, however, that the provisions of this clause (iii) only apply to those persons or entities who are customers or suppliers of the Corporation, its subsidiary banks, or their affiliates as of the date of Termination from Service or who were customers of the Corporation, its subsidiary banks, or their affiliates during the one-year period prior to the date of Termination from Service; or

(iv) solicit, induce, recruit, offer employment to, hire, or take any other action intended, or that a reasonable person acting in like circumstances would expect, to have the effect of causing any officer or employee of the Corporation, its subsidiary banks, or their affiliates, to terminate his or her employment.

(c) Executive acknowledges and agrees that irreparable injury will result to the Corporation in the event of a breach of any of the provisions of this Section 4 (the “Designated Provisions”) and that the Corporation will have no adequate remedy at law with respect thereto. Accordingly, in the event of a material breach of any Designated Provision, and in addition to any other legal or equitable remedy the Corporation may have, the Corporation shall be entitled to the entry of a preliminary and permanent injunction (including, without limitation, specific performance) by a court of competent jurisdiction in Chenango County, New York, or elsewhere, to restrain the violation or breach thereof by Executive, and Executive submits to the jurisdiction of such court in any such action.

(d) It is the desire and intent of the parties that the provisions of this Section 4 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Section 4 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. In addition, should any court determine that the provisions of this Section 4 shall be unenforceable with respect to scope, duration, or geographic area, such court shall be empowered to substitute, to the extent enforceable, provisions similar hereto or other provisions so as to provide to the Corporation, to the fullest extent permitted by applicable law, the benefits intended by this Section 4.

5. Representations and Warranties.

(a) Executive represents and warrants to the Corporation that his execution, delivery, and performance of this Agreement will not result in or constitute a breach of or conflict with any term, covenant, condition, or provision of any commitment, contract, or other agreement or instrument, including, without limitation, any other employment agreement, to which Executive is or has been a party.

(b) Executive shall indemnify, defend, and hold harmless the Corporation for, from, and against any and all losses, claims, suits, damages, expenses, or liabilities, including court costs and counsel fees, which the Corporation has incurred or to which the Corporation may become subject, insofar as such losses, claims, suits, damages, expenses, liabilities, costs, or fees arise out of or are based upon any failure of any representation or warranty of Executive in Section 5(a) hereof to be true and correct when made.

6. Notices. All notices, consents, waivers, or other communications which are required or permitted hereunder shall be in writing and deemed to have been duly given if delivered personally or by messenger, transmitted by telex or telegram, by express courier, or sent by registered or certified mail, return receipt requested, postage prepaid. All communications shall be addressed to the appropriate address of each party as follows:

If to the Corporation:

NBT Bancorp Inc.

52 South Broad Street

Norwich, New York 13815

Attention: Chief Executive Officer

Facsimile: (607) 336-7538

Attention: Chief Executive Officer

If to Executive:

6

All such notices shall be deemed to have been given on the date delivered, transmitted, or mailed in the manner provided above.

7. Assignment. Neither party may assign this Agreement or any rights or obligations hereunder without the consent of the other party.

8. Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the

State of New York, without giving effect to the principles of conflict of law thereof. The parties hereby designate Chenango County,

New York to be the proper jurisdiction and venue for any suit or action arising out of this Agreement. Each of the parties consents to personal jurisdiction in such venue for such a proceeding and agrees that it may be served with process in any action with respect to this Agreement or the transactions contemplated thereby by certified or registered mail, return receipt requested, or to its registered agent for service of process in the State of New York. Each of the parties irrevocably and unconditionally waives and agrees, to the fullest extent permitted by law, not to plead any objection that it may now or hereafter have to the laying of venue or the convenience of the forum of any action or claim with respect to this Agreement or the transactions contemplated thereby brought in the courts aforesaid.

9. Entire Agreement. This Agreement and any other agreements expressly incorporated by reference herein constitute the entire understanding between the Corporation and Executive relating to the subject matter hereof; provided that the parties agree that the Prior Agreement shall terminate and be of no further force and effect as of the Commencement Date, except for Sections 2(h), 6 and 10-16 thereof and with respect to the Corporation’s payment obligations under Section 2(a) of this Agreement. Any previous agreements or understandings between the parties hereto or between Executive and the Corporation or any of its affiliates regarding the subject matter hereof, including without limitation the terms and conditions of employment, compensation, benefits, retirement, competition following employment, and the like, are merged into and superseded by this Agreement, except for the SERP and the Split Dollar Agreement. Neither this Agreement nor any provisions hereof can be modified, changed, discharged, or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge, or termination is sought.

10. Illegality; Severability.

(a) Anything in this Agreement to the contrary notwithstanding, this Agreement is not intended and shall not be construed to require any payment to Executive which would violate any federal or state statute or regulation, including without limitation the “golden parachute payment regulations” of the Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of Federal Regulations.

(b) If any provision or provisions of this Agreement shall be held to be invalid, illegal, or unenforceable for any reason whatsoever:

(i) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal, or unenforceable) shall not in any way be affected or impaired thereby; and

(ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provisions held to be invalid, illegal, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal, or unenforceable.

11. 409A Compliance. The intent of the parties is that payments and benefits under this Agreement either be exempt from or comply with Code Section 409A and the regulations and guidance promulgated thereunder and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “deferred compensation” for purposes of Code Section 409A be subject to offset, counterclaim or recoupment by any other amount payable to Executive unless otherwise permitted by Code Section 409A.

12. Arbitration. Subject to the right of each party to seek specific performance (which right shall not be subject to arbitration), including without limitation an action pursuant to Section 4(c), if a dispute arises out of or is in any way related to this Agreement, or the asserted breach thereof, such dispute shall be referred to arbitration before the American Arbitration Association (“AAA”) pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures (the “Arbitration Rules”). A dispute subject to the provisions of this section will exist if either party notifies the other party in writing that a dispute subject to arbitration exists and states, with reasonable specificity, the issue subject to arbitration (the “Arbitration Notice”). The parties agree that, after the issuance of the Arbitration Notice, the parties will try in good faith between the date of the issuance of the Arbitration Notice and the date the dispute is set for arbitration to resolve the dispute by mediation in accordance with the Arbitration Rules. If the dispute is not resolved by the date set for arbitration, then any controversy or claim arising out of this Agreement or the asserted breach hereof shall be resolved by binding arbitration and judgment upon any award rendered by arbitrator(s) may be entered in a court having jurisdiction. The arbitrator shall have the same power to compel the attendance of witnesses and to order the production of documents or other materials and to enforce discovery as could be exercised by a United States District Court judge sitting in Chenango County, New York. In the event of any arbitration, each party shall have a reasonable right to conduct discovery to the same extent permitted by the Federal Rules of Civil Procedure, provided that discovery shall be concluded within ninety (90) days after the date the matter is set for arbitration. The arbitrator or arbitrators shall have the power to award reasonable attorneys’ fees to the prevailing party. Any provisions in this Agreement to the contrary notwithstanding, this section shall be governed by the Federal Arbitration Act and the parties have entered into this Agreement pursuant to such Act.

7

13. Costs of Litigation. In the event litigation is commenced to enforce any of the provisions hereof, or to obtain declaratory relief in connection with any of the provisions hereof, the prevailing party shall be entitled to recover reasonable attorney’s fees. In the event this Agreement is asserted in any litigation as a defense to any liability, claim, demand, action, cause of action, or right asserted in such litigation, the party prevailing on the issue of that defense shall be entitled to recovery of reasonable attorney’s fees.

14. Affiliation. A company will be deemed to be “affiliated” with the Corporation or its subsidiary banks according to the definition of “Affiliate” set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

15. Headings. The section and subsection headings herein have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms or provisions hereof.

16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to constitute an original.

[Signature Page Follows]

8

IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to be executed as of the day and year first above written.

NBT BANCORP INC.
By:	/s/ Martin A. Dietrich
	Name: Martin A. Dietrich
	Title: Chief Executive Officer
EXECUTIVE:
/s/ Jack H. Webb
Name: Jack H. Webb

Acknowledged and Agreed for

purposes of Sections 2(a), 3(c), 3(d)

and 9 hereof by Seller Bank:

ALLIANCE BANK, N.A.
By:	/s/ Donald H. Dew
Name: Donald H. Dew
Title: Lead Director

9

Exhibit A

Form of Release

I. In consideration of receipt and acceptance of the payments described in Section 2(a) of the Employment Agreement between the NBT Bancorp Inc. and Jack H. Webb, dated October 7, 2012 (the “Employment Agreement”), into which this Release (“Release”) is incorporated by reference (capitalized terms used herein and not defined have the meanings set forth in the Employment Agreement), Executive, on behalf of himself and his agents, heirs, executors, administrators, successors, and assigns, unconditionally and generally releases the Corporation, Seller and their respective subsidiary banks, their respective current and former owners, officers, directors, parents, affiliates, subsidiaries, related entities, agents and employees, and the heirs, executors, administrators, predecessors, successors and assigns of all of the foregoing (collectively, “Releasee”), from or in connection with, and Executive hereby waives and/or settles, with prejudice, any and all complaints, causes of action, suits, controversies, or any liability, claims, demands, or damages, known or unknown and of any nature whatsoever and which Executive ever had or now has, including, without limitation, those arising directly or indirectly pursuant to or out of any aspect of Executive’s employment with Seller, the Seller Bank or any other Releasee.

II. Specifically, without limitation of the foregoing, the release and waiver of claims under this Release shall include and apply to any rights and/or claims (i) arising under any contract or employment arrangement, express or implied, written or oral, including, without limitation, the Prior Agreement; (ii) for wrongful dismissal or termination of employment; (iii) arising under any applicable federal, state, local or other statutes, laws, ordinances, regulations or the like, or case law, that relate to employment or employment practices and/or specifically, that prohibit discrimination based upon age, race, religion, sex, national origin, disability or any other unlawful bases, including without limitation, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Civil Rights Act of 1866, the Equal Pay Act of 1963, the Family Medical Leave Act of 1993, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, Executive Order 11246, the Worker Adjustment and Retraining Notification Act, all as amended, and any other statutes, orders, laws, ordinances, regulations applicable to Employee’s employment, of any state or city in which any Releasee is subject to jurisdiction, and/or any political subdivision thereof; (iv) based upon any other federal, state or local statutes, orders, laws, ordinances, regulations, case law, public policy, or common law or the like; (v) concerning recruitment, hiring, discharge, promotions, transfers, employment status, right to reemployment, wages, bonus or incentive pay, severance pay, stock or stock options, employment benefits (including, without limitation, sick or other leave, medical, disability, life, or any other insurance, 401(k), pension, other retirement plans or benefits, or any other fringe benefits), workers’ compensation, intentional or negligent misrepresentation and/or infliction of emotional distress, interference with contract, fraud, libel, slander, defamation, invasion of privacy or loss of consortium, together with any and all tort, contract, or other claims which have been or might have been asserted by Executive or on his behalf in any suit, charge of discrimination, or claim against the Releasee; and (vi) for damages, including without limitation, punitive or compensatory damages, or for attorneys’ fees, expenses, costs, wages, injunctive or equitable relief. Notwithstanding the foregoing, nothing in this Release is intended to limit Executive’s (i) vested rights under any Section 401(k) plan and any nonqualified account balance plan in which Executive participates, (ii) rights under the SERP or the Split Dollar Agreement, (iii) rights to indemnification under applicable corporate law or the organizational documents of Seller or the Seller Bank or as an insured under any director’s and officer’s liability insurance policy now or previously in force, (iv) rights due to the obligations of the Corporation under the provisions of Section 6.9 of the Merger Agreement or (v) rights as a shareholder and holder of restricted stock of Seller to receive the consideration payable under the Merger Agreement.

III. Executive acknowledges that he has been advised to discuss all aspects of this Release with his attorney, that he has carefully read and fully understands all of the provisions of this Release and that he is voluntarily entering into this Release.

10

Exhibit B

Form of Separation Agreement and Release

I. In consideration of receipt and acceptance of certain separation payments described in Section 2(d)(i) of the Employment Agreement and listed on Appendix A between NBT Bancorp Inc. and Jack H. Webb, dated October 7, 2012 (the “Employment Agreement”), into which this Separation Agreement and Release (“Separation Agreement”) is incorporated by reference (capitalized terms used herein and not defined have the meanings set forth in the Employment Agreement), Executive, on behalf of himself and his agents, heirs, executors, administrators, successors, and assigns, unconditionally and generally releases the Corporation and its subsidiary banks, their respective current and former owners, officers, directors, parents, affiliates, subsidiaries, related entities, agents and employees, and the heirs, executors, administrators, predecessors, successors and assigns of all of the foregoing (collectively, “Releasee”), from or in connection with, and Executive hereby waives and/or settles, with prejudice, any and all complaints, causes of action, suits, controversies, or any liability, claims, demands, or damages, known or unknown and of any nature whatsoever and which Executive ever had or now has, including without limitation, those arising directly or indirectly pursuant to or out of any aspect of Executive’s employment or termination from employment with the Corporation, its subsidiary banks or any other Releasee.

II. Specifically, without limitation of the foregoing, the release and waiver of claims under this Separation Agreement shall include and apply to any rights and/or claims (i) arising under any contract or employment arrangement, express or implied, written or oral; (ii) for wrongful dismissal or termination of employment; (iii) arising under any applicable federal, state, local or other statutes, laws, ordinances, regulations or the like, or case law, that relate to employment or employment practices and/or specifically, that prohibit discrimination based upon age, race, religion, sex, national origin, disability or any other unlawful bases, including without limitation, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Civil Rights Act of 1866, the Equal Pay Act of 1963, the Family Medical Leave Act of 1993, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, Executive Order 11246, the Worker Adjustment and Retraining Notification Act, all as amended, and any other statutes, orders, laws, ordinances, regulations applicable to Employee’s employment, of any state or city in which any Releasee is subject to jurisdiction, and/or any political subdivision thereof; (iv) based upon any other federal, state or local statutes, orders, laws, ordinances, regulations, case law, public policy, or common law or the like; (v) concerning recruitment, hiring, discharge, promotions, transfers, employment status, right to reemployment, wages, bonus or incentive pay, severance pay, stock or stock options, employment benefits (including, without limitation, sick or other leave, medical, disability, life, or any other insurance, 401(k), pension, other retirement plans or benefits, or any other fringe benefits), workers’ compensation, intentional or negligent misrepresentation and/or infliction of emotional distress, interference with contract, fraud, libel, slander, defamation, invasion of privacy or loss of consortium, together with any and all tort, contract, or other claims which have been or might have been asserted by Executive or on his behalf in any suit, charge of discrimination, or claim against the Releasee; and (vi) for damages, including without limitation, punitive or compensatory damages, or for attorneys’ fees, expenses, costs, wages, injunctive or equitable relief. Notwithstanding the foregoing, nothing in this Separation Agreement is intended to limit Executive’s (i) vested rights under any Section 401(k) plan and any nonqualified account balance plan in which Executive participates, (ii) rights under the SERP, (iii) rights to indemnification under applicable corporate law or the organizational documents of the Corporation, Seller or any subsidiary bank or as an insured under any director’s and officer’s liability insurance policy now or previously in force, or (iv) rights due to the obligations of the Corporation under the provisions of Section 6.9 of the Merger Agreement.

III. Executive acknowledges that he has been given the opportunity to consider this Separation Agreement for a period ending twenty-one (21) days after its delivery to him. In the event Executive executed this Separation Agreement within less than twenty-one (21) days from such date, he acknowledges that such decision was entirely voluntary and that he had the opportunity to consider this Separation Agreement until the end of the twenty-one (21) day period. To accept this Separation Agreement, Executive shall deliver a signed Separation Agreement to the Corporation’s General Counsel within such twenty-one (21) day period. For a period of seven (7) days from the date when Executive executes this Separation Agreement (the “Revocation Period”), he shall retain the right to revoke this Separation Agreement by written notice that is received by the Corporation’s General Counsel on or before the last day of the Revocation Period. This Separation Agreement shall take effect only if it is executed within the twenty-one (21) day period as set forth above and if it is not revoked pursuant to the preceding sentence. If those conditions are satisfied, this Separation Agreement shall become effective and enforceable on the date immediately following the last day of the Revocation Period.

IV. Executive acknowledges that he has been advised to discuss all aspects of this Separation Agreement with his attorney, that he has carefully read and fully understands all of the provisions of this Separation Agreement and that he is voluntarily entering into this Separation Agreement.

11

Schedule I

Performance Bonus

2013 Incentive Plan

Pay-out Matrix

EPS Levels		Webb
Threshold	Level 1	N/A
	Level 2	N/A
Base Line	Level 3	$180,000 minimum
	Level 4	$200,000
	Level 5	$220,000

12

EX-21

EXHIBIT 21

List of Subsidiaries of the Registrant

		Names Under Which
	Jurisdiction of	Subsidiary does
	Incorporation	Business
NBT Bancorp Inc. Subsidiaries:
NBT Bank, National Association	New York	NBT Bank
NBT Financial Services, Inc.	Delaware	NBT Financial Services
Hathaway Agency, Inc.	New York	Hathaway Agency
CNBF Capital Trust I	Delaware	CNBF Capital Trust I
NBT Statutory Trust I	Delaware	NBT Statutory Trust I
NBT Statutory Trust II	Delaware	NBT Statutory Trust II
NBT Holdings, Inc.	New York	NBT Holdings
NBT Bank, National Association Subsidiaries:
NBT Capital Corp.	New York	NBT Capital Corp.
LA Lease, Inc.	Pennsylvania	LA Lease
Colonial Financial Services, Inc.	New York	Colonial Financial Services
NBT Services, Inc.	Delaware	NBT Services
Broad Street Property Associates, Inc.	New York	Broad Street Property Associates
Pennstar Bank Services Company	Delaware	Pennstar Bank Services
FNB Financial Services, Inc.	Delaware	FNB Financial Services
CNB Realty Trust	Maryland	CNB Realty Trust
NBT Financial Services, Inc. Subsidiaries:
Pennstar Financial Services, Inc.	Pennsylvania	Pennstar Financial Services
EPIC Advisors, Inc.	New York	EPIC Advisors
NBT Holdings, Inc. Subsidiaries:
Mang Insurance Agency, LLC	New York	Mang Insurance Agency

EX-23

 EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

NBT Bancorp Inc.:

We consent to incorporation by reference in the Registration Statements on Form S-3 (File No. 333-181134), Form S-4 (File No. 333-185074) and Forms S-8 (File Nos. 333-71830, 333-72772, 333-73038, 333-66472, 333-97995, 333-107479, 333-107480, 333-127098, 333-139956, 333-150956 and 333-168332) of NBT Bancorp Inc. of our reports dated March 1, 2013, with respect to the consolidated balance sheets of NBT Bancorp Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2012, and the effectiveness of internal control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10-K of NBT Bancorp Inc.

/s/  KPMG LLP

Albany, New York

March 1, 2013

EX-31.1

EXHIBIT 31.1

CERTIFICATION – Rule 13a-14(a) Certification of Chief Executive Officer

I, Martin A. Dietrich, certify that:

1. I have reviewed this annual report on Form 10-K of NBT Bancorp Inc.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2013

/s/   Martin A. Dietrich

Martin A. Dietrich

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION - Rule 13a-14(a) Certification of Chief Financial Officer

I, Michael J. Chewens, certify that:

1. I have reviewed this annual report on Form 10-K of NBT Bancorp Inc.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operations of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2013

/s/  Michael J. Chewens

Michael J. Chewens

Senior Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION

906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Executive Officer of NBT Bancorp Inc. (the “Company”), hereby certifies that to his knowledge on the date hereof:

(a) the Form 10-K of the Company for the Annual Period Ended December 31, 2012, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Martin A. Dietrich

Martin A. Dietrich

Chief Executive Officer

March 1, 2013

The forgoing certification is being furnished solely pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION

906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Financial Officer of NBT Bancorp Inc. (the “Company”), hereby certifies that to his knowledge on the date hereof:

(a) the Form 10-K of the Company for the Annual Period Ended December 31, 2012, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael J. Chewens

Michael J. Chewens

Senior Executive Vice President and

Chief Financial Officer

March 1, 2013

The forgoing certification is being furnished solely pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

XML

Goodwill and other Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill and other Intangible Assets [Abstract]

Summary of goodwill

A summary of goodwill is as follows:

(In thousands)
January 1, 2012		132,029
Goodwill Acquired		20,344
December 31, 2012	$	152,373
January 1, 2011		114,841
Goodwill Acquired		17,188
December 31, 2011	$	132,029

Summary of core deposit and other intangible assets

A summary of core deposit and other intangible assets follows:

	December 31,
(In thousands)	2012		2011
Core deposit intangibles
Gross carrying amount	$	13,240	$	11,966
Less: accumulated amortization		7,794		6,401
Net carrying amount		5,446		5,565
Other Identified intangible assets
Gross carrying amount		21,743		20,919
Less: accumulated amortization		10,227		8,290
Net carrying amount		11,516		12,629
Total intangibles
Gross carrying amount		34,983		32,885
Less: accumulated amortization		18,021		14,691
Net carrying amount	$	16,962	$	18,194

XML

Securities (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 1,120,384,000	$ 1,213,934,000
Unrealized gains	27,794,000	30,839,000
Unrealized losses	179,000	154,000
Estimated fair value	1,147,999,000	1,244,619,000
Amortized cost of mortgage-backed securities comprised of Government Sponsored Enterprise Securities	221,100,000	290,200,000
Fair value of mortgage-backed securities comprised of Government Sponsored Enterprise Securities	232,300,000	303,000,000
Amortized cost of mortgage-backed securities comprised of US Government Agency Securities	16,400,000	20,500,000
Fair value of mortgage-backed securities comprised of US Government Agency Securities	18,000,000	22,400,000
Amortized cost of collateralized mortgage obligations comprised of Government Sponsored Enterprise Securities	399,200,000	398,300,000
Fair value of collateralized mortgage obligations comprised of Government Sponsored Enterprise Securities	403,600,000	402,400,000
Amortized cost of collateralized mortgage obligations comprised of US Government Agency Securities	44,800,000	60,800,000
Fair value of collateralized mortgage obligations comprised of US Government Agency Securities	46,200,000	63,100,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	40,397,000	63,966,000
12 Months or Longer, Fair Value	167,000	377,000
Total, Fair Value	40,564,000	64,343,000
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	(97,000)	(153,000)
12 Months or Longer, Unrealized Losses	(82,000)	(1,000)
Total, Unrealized Losses	(179,000)	(154,000)
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	7	11
12 Months or Longer, Number of Positions	1	2
Total, Number of Positions	8	13
Sales transactions of securities available for sale [Abstract]
Proceeds from sales	1,790,000	2,437,000	103,253,000
Gross realized gains	442,000	7,000	3,170,000
Gross realized losses	0	(165,000)	(25,000)
Net securities gains (losses)	442,000	(158,000)	3,145,000
Gains from calls on securities available for sale	200,000	300,000	100,000
Amortized costs of securities available for sale pledged to secure public deposits	1,200,000,000	1,200,000,000
Amortized costs of securities available for sale pledged as collateral for repurchase agreements	209,000,000
Schedule of Held-to-maturity Securities [Line Items]
Amortized cost	60,563,000	70,811,000
Unrealized gains	972,000	1,387,000
Unrealized losses	0	0
Estimated fair value	61,535,000	72,198,000
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis [Abstract]
Within one year	26,678,000
From one to five years	193,142,000
From five to ten years	311,575,000
After ten years	577,779,000
Total, Amortized Cost	1,109,174,000
Available-for-sale Securities, Debt Maturities, Fair Value [Abstract]
Within one year	26,788,000
From one to five years	195,953,000
From five to ten years	319,229,000
After ten years	592,075,000
Total, Fair Value	1,134,045,000
Held-to-maturity Securities, Debt Maturities, Net Carrying Amount [Abstract]
Within one year	25,184,000
From one to five years	27,413,000
From five to ten years	5,425,000
After ten years	2,541,000
Securities held to maturity	60,563,000
Held-to-maturity Securities, Debt Maturities, Fair Value [Abstract]
Within one year	25,258,000
From one to five years	28,118,000
From five to ten years	5,434,000
After ten years	2,725,000
Total, Fair Value	61,535,000
Consolidated stockholders' equity threshold percentage that no single issuer of securities exceeded except for U.S. Government securities. (in hundredths)	10.00%	10.00%
Mortgage-backed [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized cost	1,168,000	1,447,000
Unrealized gains	184,000	213,000
Unrealized losses	0	0
Estimated fair value	1,352,000	1,660,000
State & Municipal [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized cost	59,395,000	69,364,000
Unrealized gains	788,000	1,174,000
Unrealized losses	0	0
Estimated fair value	60,183,000	70,538,000
US Treasury [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	63,668,000	81,006,000
Unrealized gains	757,000	1,228,000
Unrealized losses	0	0
Estimated fair value	64,425,000	82,234,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	0	0
12 Months or Longer, Fair Value	0	0
Total, Fair Value	0	0
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	0	0
12 Months or Longer, Unrealized Losses	0	0
Total, Unrealized Losses	0	0
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	0	0
12 Months or Longer, Number of Positions	0	0
Total, Number of Positions	0	0
Federal Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	281,398,000	254,983,000
Unrealized gains	1,507,000	879,000
Unrealized losses	91,000	16,000
Estimated fair value	282,814,000	255,846,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	39,906,000	34,996,000
12 Months or Longer, Fair Value	0	0
Total, Fair Value	39,906,000	34,996,000
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	(91,000)	(16,000)
12 Months or Longer, Unrealized Losses	0	0
Total, Unrealized Losses	(91,000)	(16,000)
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	4	3
12 Months or Longer, Number of Positions	0	0
Total, Number of Positions	4	3
State & Municipal [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	82,675,000	99,176,000
Unrealized gains	4,127,000	5,624,000
Unrealized losses	0	11,000
Estimated fair value	86,802,000	104,789,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	0	957,000
12 Months or Longer, Fair Value	0	377,000
Total, Fair Value	0	1,334,000
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	0	(10,000)
12 Months or Longer, Unrealized Losses	0	(1,000)
Total, Unrealized Losses	0	(11,000)
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	0	3
12 Months or Longer, Number of Positions	0	2
Total, Number of Positions	0	5
Mortgage-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	237,461,000	310,767,000
Unrealized gains	12,820,000	14,629,000
Unrealized losses	0	0
Estimated fair value	250,281,000	325,396,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	0	0
12 Months or Longer, Fair Value	0	0
Total, Fair Value	0	0
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	0	0
12 Months or Longer, Unrealized Losses	0	0
Total, Unrealized Losses	0	0
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	0	0
12 Months or Longer, Number of Positions	0	0
Total, Number of Positions	0	0
Collateralized Mortgage Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	443,972,000	459,067,000
Unrealized gains	5,751,000	6,458,000
Unrealized losses	0	51,000
Estimated fair value	449,723,000	465,474,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	23,000	27,368,000
12 Months or Longer, Fair Value	0	0
Total, Fair Value	23,000	27,368,000
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	0	(51,000)
12 Months or Longer, Unrealized Losses	0	0
Total, Unrealized Losses	0	(51,000)
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	2	3
12 Months or Longer, Number of Positions	0	0
Total, Number of Positions	2	3
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	0	0
Unrealized gains	0	0
Unrealized losses	0	0
Estimated fair value	0	0
Other Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	11,210,000	8,935,000
Unrealized gains	2,832,000	2,021,000
Unrealized losses	88,000	76,000
Estimated fair value	13,954,000	10,880,000
Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months, Fair Value	468,000	645,000
12 Months or Longer, Fair Value	167,000	0
Total, Fair Value	635,000	645,000
Unrealized Loss Position, Unrealized Losses [Abstract]
Less Than 12 Months, Unrealized Losses	(6,000)	(76,000)
12 Months or Longer, Unrealized Losses	(82,000)	0
Total, Unrealized Losses	$ (88,000)	$ (76,000)
Unrealized Loss Position, Number of Positions [Abstract]
Less Than 12 Months, Number of Positions	1	2
12 Months or Longer, Number of Positions	1	0
Total, Number of Positions	2	2

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Parent Company Financial Information (Tables)

12 Months Ended

Dec. 31, 2012

Parent Company Financial Information [Abstract]

Parent company financial information

Condensed Balance Sheets

	December 31,
(In thousands)	2012		2011
Assets
Cash and cash equivalents	$	23,095	$	2,454
Securities available for sale, at estimated fair value		12,866		9,825
Trading securities		3,371		2,550
Investment in subsidiaries, on equity basis		635,851		622,885
Other assets		48,324		48,153
Total assets	$	723,507	$	685,867
Liabilities and Stockholders' Equity
Total liabilities	$	141,234	$	147,757
Stockholders' equity		582,273		538,110
Total liabilities and stockholders' equity	$	723,507	$	685,867

Condensed Income Statements

	Years ended December 31,
(In thousands)	2012			2011			2010
Dividends from subsidiaries	$	79,175		$	54,400		$	12,000
Management fee from subsidiaries		78,665			69,430			68,228
Securities gains (losses)		442			(31	)		1,814
Interest, dividend and other income		720			628			1,136
Total revenue		159,002			124,427			83,178
Operating expense		79,015			75,254			72,436
Income before income tax benefit and equity in undistributed income of subsidiaries		79,987			49,173			10,742
Income tax (expense) benefit		(284	)		1,340			282
Dividends in excess of income (equity in undistributed income) of subsidiaries		(25,145	)		7,388			46,380
Net income	$	54,558		$	57,901		$	57,404

Statements of Cash Flow

	Years ended December 31,
(In thousands)	2012			2011			2010
Operating activities
Net income	$	54,558		$	57,901		$	57,404
Adjustments to reconcile net income to net cash provided by operating activities
Stock-based compensation		4,364			3,244			3,782
Gain (Loss) on sales of available-for-sale securities		442			31			(1,814	)
Dividends in excess of income (equity in undistributed income) of subsidiaries		25,145			(7,388	)		(46,380	)
Net change in other liabilities		(3,181	)		15,311			2,155
Net change in other assets		2,030			(11,607	)		(2,605	)
Net cash provided by operating activities		83,358			57,492			12,542
Investing activities
Purchases of available-for-sale securities		(4,163	)		(968	)		(1,745	)
Sales and maturities of available-for-sale securities		1,445			71			7,807
Net cash used in acquisitions		(14,612	)		-			-
Purchases of premises and equipment		(1,240	)		(1,656	)		(321	)
Net cash (used in) provided by investing activities		(18,570	)		(2,553	)		5,741
Financing activities
Proceeds from the issuance of shares to employee benefit plans and other stock plans		1,387			1,386			1,675
Payments on long-term debt		(3,340	)		(140	)		(135	)
Purchases of treasury shares		(15,490	)		(30,502	)		(477	)
Cash dividends and payments for fractional shares		(26,712	)		(27,063	)		(27,577	)
Excess tax benefit from exercise of stock options		8			341			140
Net cash used in financing activities		(44,147	)		(55,978	)		(26,374	)
Net increase (decrease) in cash and cash equivalents		20,641			(1,039	)		(8,091	)
Cash and cash equivalents at beginning of year		2,454			3,493			11,584
Cash and cash equivalents at end of year	$	23,095		$	2,454		$	3,493

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Regulatory Capital Requirements (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Total Capital (to risk weighted assets) [Abstract]
Total capital to risk weighted assets	$ 560,745	$ 528,674
Total capital to risk weighted assets (in hundredths)	12.25%	12.81%
Minimum capital required for capital adequacy to risk weighted assets (in hundredths)	8.00%	8.00%
Capital required for classification as well capitalized to risk weighted assets (in hundredths)	10.00%	10.00%
Tier I Capital (to risk weighted assets) [Abstract]
Tier I capital to risk weighted assets	503,359	476,837
Tier I capital to risk weighted assets (in hundredths)	11.00%	11.56%
Minimum Tier one capital required for capital adequacy to risk weighted assets(in hundredths)	4.00%	4.00%
Tier one capital required for classification as well capitalized to risk weighted assets (in hundredths)	6.00%	6.00%
Tier I Capital (to average assets) [Abstract]
Tier I capital to average assets	503,359	476,837
Tier I capital to average assets (in hundredths)	8.54%	8.74%
Minimum Tier I leverage capital required for capital adequacy to average assets (in hundredths)	4.00%	4.00%
Tier I leverage capital required for classification as well capitalized to average assets (in hundredths)	5.00%	5.00%
NBT Bank [Member]
Total Capital (to risk weighted assets) [Abstract]
Total capital to risk weighted assets	505,027	506,246
Total capital to risk weighted assets (in hundredths)	11.08%	12.28%
Minimum capital required for capital adequacy to risk weighted assets (in hundredths)	8.00%	8.00%
Capital required for classification as well capitalized to risk weighted assets (in hundredths)	10.00%	10.00%
Tier I Capital (to risk weighted assets) [Abstract]
Tier I capital to risk weighted assets	447,909	454,476
Tier I capital to risk weighted assets (in hundredths)	9.83%	11.03%
Minimum Tier one capital required for capital adequacy to risk weighted assets(in hundredths)	4.00%	4.00%
Tier one capital required for classification as well capitalized to risk weighted assets (in hundredths)	6.00%	6.00%
Tier I Capital (to average assets) [Abstract]
Tier I capital to average assets	$ 447,909	$ 454,476
Tier I capital to average assets (in hundredths)	7.62%	8.35%
Minimum Tier I leverage capital required for capital adequacy to average assets (in hundredths)	4.00%	4.00%
Tier I leverage capital required for classification as well capitalized to average assets (in hundredths)	5.00%	5.00%

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Loans (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	$ 4,277,616,000	$ 3,800,203,000
Deferred loan origination costs, net	900,000	1,600,000
Residential loans held for sale	3,800,000	2,700,000
Residential Real Estate Mortgages [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	651,107,000	581,511,000
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	694,799,000	611,298,000
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	1,072,807,000	888,879,000
Real Estate Construction and Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	123,078,000	93,977,000
Agricultural and Agricultural Real Estate Mortgages [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	112,687,000	108,423,000
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	1,047,856,000	946,470,000
Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net Loans	$ 575,282,000	$ 569,645,000

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans [Abstract]

Components of accumulated other comprehensive income (loss), net periodic benefit cost

The components of accumulated other comprehensive loss, which have not yet been recognized as components of net periodic benefit cost, related to pensions and other postretirement benefits at December 31, 2012 are summarized below. The Company expects that $3.0 million in net actuarial loss and $0.2 million in prior service credit will be recognized as components of net periodic benefit cost in 2013.

	Pension Benefits				Other Benefits
(In thousands)	2012		2011		2012			2011
Net actuarial loss	$	35,478	$	37,914	$	2,277		$	2,323
Prior service cost		141		1,430		(672	)		(874	)
Total amounts recognized in accumulated other comprehensive loss (pre-tax)	$	35,619	$	39,344	$	1,605		$	1,449

Changes in benefit obligations, changes in plan assets, and the funded status of the pension plans and postretirement benefits

A December 31 measurement date is used for the pension, supplemental pension and postretirement benefit plans. The following table sets forth changes in benefit obligations, changes in plan assets, and the funded status of the pension plans and other postretirement benefits:

	Pension Benefits						Other Benefits
(In thousands)	2012			2011			2012			2011
Change in benefit obligation
Benefit obligation at beginning of year	$	78,024		$	70,229		$	3,985		$	4,554
Service cost		3,122			2,589			20			17
Interest cost		3,145			3,544			155			202
Plan participants' contributions		-			-			233			263
Actuarial loss (gain)		5,941			5,935			136			(562	)
Amendments		(1,006	)		-			-			-
Benefits paid		(4,097	)		(4,273	)		(458	)		(489	)
Projected benefit obligation at end of year		85,129			78,024			4,071			3,985
Change in plan assets
Fair value of plan assets at beginning of year		91,575			97,821			-			-
Actual return (loss) on plan assets		11,733			(2,452	)		-			-
Employer contributions		493			479			225			226
Plan participants' contributions		-			-			233			263
Benefits paid		(4,097	)		(4,273	)		(458	)		(489	)
Fair value of plan assets at end of year		99,704			91,575			-			-
Funded status at year end	$	14,575		$	13,551		$	(4,071	)	$	(3,985	)

Amounts recognized in balance sheet

The funded status of the pension and other postretirement benefit plans has been recognized as follows in the consolidated balance sheets at December 31, 2012 and 2011. An asset is recognized for an overfunded plan and a liability is recognized for an underfunded plan. The accumulated benefit obligation for pension benefits was $84.5 million and $76.5 million at December 31, 2012 and 2011, respectively. The accumulated benefit obligation for other postretirement benefits was $4.1 million and $4.0 million at December 31, 2012 and 2011, respectively.

	Pension Benefits						Other Benefits
(In thousands)	2012			2011			2012			2011
Other assets	$	27,062		$	23,972		$	-		$	-
Other liabilities		(12,487	)		(10,421	)		(4,071	)		(3,985	)
Funded status	$	14,575		$	13,551		$	(4,071	)	$	(3,985	)

Assumptions used to determine benefit obligations and net periodic pension cost

The following assumptions were used to determine the benefit obligation and the net periodic pension cost for the years indicated:

	Years ended December 31,
(In thousands)	2012			2011			2010
Weighted average assumptions:
The following assumptions were used to determine benefit obligations:
Discount rate		3.50	%		4.10	%		5.15	%
Expected long-term return on plan assets		7.50	%		7.50	%		8.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%
The following assumptions were used to determine net periodic pension cost:
Discount rate		4.10	%		5.15	%		5.70	%
Expected long-term return on plan assets		7.50	%		8.00	%		8.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%

Components of net periodic pension benefits and other benefit costs

Net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the years ended December 31 included the following components:

	Pension Benefits									Other Benefits
(In thousands)	2012			2011			2010			2012			2011			2010
Components of net periodic benefit cost
Service cost	$	3,122		$	2,589		$	2,254		$	20		$	17		$	17
Interest cost		3,145			3,544			3,613			155			202			228
Expected return on plan assets		(6,686	)		(7,720	)		(7,166	)		-			-			-
Amortization of prior service cost		283			309			322			(202	)		(202	)		(202	)
Amortization of unrecognized net loss		3,330			1,353			1,447			182			205			201
Net periodic pension cost	$	3,194		$	75		$	470		$	155		$	222		$	244
Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax)
Net loss (gain)	$	894		$	16,108		$	1,620		$	136		$	(562	)	$	955
Prior service cost		(1,006	)		-			21			-			-			-
Amortization of prior service cost		(283	)		(309	)		(322	)		202			202			202
Amortization of unrecognized net gain		(3,330	)		(1,353	)		(1,447	)		(182	)		(205	)		(201	)
Total recognized in other comprehensive loss (income)		(3,725	)		14,446			(128	)		156			(565	)		956
Total recognized in net periodic benefit cost and other comprehensive income (loss) - pre-tax	$	(531	)	$	14,521		$	342		$	311		$	(343	)	$	1,200

Estimated future benefit payments for the pension plans and other postretirement benefit plans

The following table sets forth estimated future benefit payments for the pension plans and other postretirement benefit plans:

	Pension		Other
	Benefits		Benefits
2013		5,247		215
2014		5,243		224
2015		5,285		234
2016		7,767		242
2017		5,942		250
2018 - 2022		29,180		1,311

Effect of one-percentage point change in assumed health care cost trend rates

For measurement purposes, the annual rates of increase in the per capita cost of covered medical and prescription drug benefits for fiscal year 2012 were assumed to be 6.0 to 6.5 percent. The rates were assumed to decrease gradually to 5.0 percent for fiscal year 2018 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on amounts reported for health care plans. A one-percentage point change in the health care trend rates would have the following effects as of and for the year ended December 31, 2012:

(In thousands)	One Percentage point increase		One Percentage point decrease
Increase (decrease) on total service and interest cost components	$	24	$	(20	)
Increase (decrease) on postretirement accumulated benefit obligation		503		(426	)

Target and actual allocations of defined benefit pension plan's assets

The Company's key investment objectives in managing its defined benefit plan assets are to ensure that present and future benefit obligations to all participants and beneficiaries are met as they become due; to provide a total return that, over the long-term, maximizes the ratio of the plan assets to liabilities, while minimizing the present value of required Company contributions, at the appropriate levels of risk; to meet statutory requirements and regulatory agencies' requirements; and to satisfy applicable accounting standards. The Company periodically evaluates the asset allocations, funded status, rate of return assumption and contribution strategy for satisfaction of our investment objectives. The target and actual allocations expressed as a percentage of the defined benefit pension plan's assets are as follows:

	Target 2013			2012			2011
Cash and cash equivalents		0 - 20	%		5	%		2	%
Fixed income securities		20 - 40	%		29	%		34	%
Equities		40 - 80	%		66	%		64	%
Total					100	%		100	%

Financial instruments recorded at fair value on a recurring basis by the Plan

Only high-quality bonds are to be included in the portfolio. All issues that are rated lower than A by Standard and Poor's are to be excluded. Equity securities at December 31, 2012 and 2011 do not include any Company common stock. The following table presents the financial instruments recorded at fair value on a recurring basis by the Plan as of December 31, 2012 and 2011:

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2012
Cash and Cash Equivalents	$	5,464	$	-	$	-	$	5,464
Foreign Equity Mutual Funds		9,763		-		-		9,763
Equity Mutual Funds		13,110		-		-		13,110
US Government Bonds		-		12,744		-		12,744
Corporate Bonds		-		13,604		-		13,604
Common Stock		40,430		-		-		40,430
Municipal bonds and Notes		-		1,805		-		1,805
Foreign Bonds and Notes		-		1,137		-		1,137
Foreign Equity		1,647		-		-		1,647
Totals	$	70,414	$	29,290	$	-	$	99,704

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2011
Cash and Cash Equivalents	$	1,503	$	-	$	-	$	1,503
Foreign Equity Mutual Funds		6,577		-		-		6,577
Equity Mutual Funds		9,902		-		-		9,902
US Government Bonds		-		15,683		-		15,683
Corporate Bonds		-		12,954		-		12,954
Common Stock		33,850		-		-		33,850
Municipal bonds and Notes		-		1,799		-		1,799
Foreign Bonds and Notes		-		1,096		-		1,096
Foreign Equity		8,211		-		-		8,211
Totals	$	60,043	$	31,532	$	-	$	91,575

Fair value assumptions

The per share weighted average fair value of stock options granted during 2012, 2011, and 2010 was $4.57, $5.45, and $5.03, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the years ended December 31. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued:

	Years ended December 31,
	2012			2011			2010
Dividend yield		3.94	%		3.31%–3.82	%		3.27%–3.96	%
Expected volatility		34.64	%		33.75%–34.36	%		33.00%–33.86	%
Risk-free interest rates		1.24	%		1.48%–2.81	%		1.90%–3.17	%
Expected life		7 years			7 years			7 years

Stock option activity

The following table summarizes information concerning stock options outstanding at December 31, 2012:

	Number of Shares			Weighted average exercise price		Weighted Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		1,863,590		$	22.41
Granted		150			20.30
Exercised		(108,817	)		17.53
Forfeited		(11,150	)		21.92
Expired		(48,211	)		22.50
Outstanding at December 31, 2012		1,695,562		$	22.72		4.58	$	51,236
Exercisable at December 31, 2012		1,480,737		$	22.83		4.21	$	43,043
Expected to Vest		205,476		$	21.97		7.01	$	7,752

Cash proceeds, tax benefits and intrinsic value of stock options exercised

Total stock-based compensation expense for stock option awards totaled $0.5 million for the year ended December 31, 2012, $0.9 million for the year ended December 31, 2011, and $1.8 million for the year ended December 31, 2010. Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:

	Years ended
(dollars in thousands)	2012		2011		2010
Proceeds from stock options exercised	$	1,908	$	2,255	$	1,778
Tax benefits related to stock options exercised		8		341		140
Intrinsic value of stock options exercised		498		897		574
Fair value of shares vested during the year		1,656		1,597		1,800

Unvested restricted awards and unvested restricted units activity

The Company has outstanding restricted and deferred stock awards granted from various plans at December 31, 2012. The Company recognized $3.7 million in stock-based compensation expense related to these stock awards for the year ended December 31, 2012, $3.2 million for the year ended December 31, 2011, and $2.0 million for the year ended December 31, 2010. Tax benefits recognized with respect to restricted stock awards and stock units were $1.5 million, $1.2 million and $0.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Unrecognized compensation cost related to restricted stock awards and stock units totaled $4.7 million at December 31, 2012 and will be recognized over 2.5 years on a weighted average basis. Shares issued are funded from the Company's treasury stock. The following table summarizes information for unvested restricted stock awards outstanding as of December 31, 2012:

	Number			Weighted-Average
	of			Grant Date Fair
	Shares			Value
Unvested Restricted Stock Awards
Unvested at January 1, 2012		155,376		$	23.92
Forfeited		(3,500	)	$	21.96
Vested		(34,726	)	$	22.61
Unvested at December 31, 2012		117,150		$	24.36

The following table summarizes information for unvested restricted stock units outstanding as of December 31, 2012:

	Number			Weighted-Average
	of			Grant Date Fair
	Shares			Value
Unvested Restricted Stock Units
Unvested at January 1, 2012		241,907		$	23.95
Forfeited		(5,103	)		-
Vested		(37,068	)		-
Granted		206,322			22.38
Unvested at December 31, 2012		406,058		$	25.64

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

Reconciliation of basic and diluted earnings per share

The following is a reconciliation of basic and diluted earnings per share for the years presented in the consolidated statements of income:

	Years ended December 31,
	2012						2011						2010
	Net		Weighted average		Per share		Net		Weighted average		Per share		Net		Weighted average		Per share
(In thousands, except per share data)	income		shares		amount		income		shares		amount		income		shares		amount
Basic earnings per share	$	54,558		33,379	$	1.63	$	57,901		33,662	$	1.72	$	57,404		34,275	$	1.67
Effect of dilutive securities
Stock based compensation				340						262						234
Diluted earnings per share	$	54,558		33,719	$	1.62	$	57,901		33,924	$	1.71	$	57,404		34,509	$	1.66

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Parent Company Financial Information (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Assets [Abstract]
Cash and cash equivalents	$ 163,668	$ 129,381	$ 168,792
Securities available for sale, at estimated fair value	1,147,999	1,244,619
Trading securities	3,918	3,062
Other assets	99,997	92,254
Total assets	6,042,259	5,598,406
Liabilities and Stockholders' Equity [Abstract]
Total liabilities	5,459,986	5,060,296
Stockholders' equity	582,273	538,110	533,572	505,123
Total liabilities and stockholders' equity	6,042,259	5,598,406
Condensed Income Statements [Abstract]
Securities gains (losses)	599	150	3,274
Interest, dividend and other income	239,397	239,997	255,738
Income before income tax benefit and equity in undistributed income of subsidiaries	77,374	79,174	78,316
Income tax (expense) benefit	(22,816)	(21,273)	(20,912)
Net income	54,558	57,901	57,404
Operating activities [Abstract]
Net income	54,558	57,901	57,404
Adjustments to reconcile net income to net cash provided by operating activities [Abstract]
Stock based compensation	4,364	3,244	3,782
Gain (Loss) on sales of available-for-sale securities	(442)	(7)	(3,170)
Net change in other liabilities	(128)	11,806	2,645
Net change in other assets	6,804	(3,579)	6,627
Net cash provided by operating activities	88,854	83,765	89,437
Investing activities [Abstract]
Purchases of available-for-sale securities	(483,858)	(648,048)	(635,319)
Sales and maturities of available-for-sale securities	573,828	541,555	511,394
Purchases of premises and equipment	(6,994)	(9,954)	(6,510)
Net cash (used in) provided by investing activities	(126,850)	(175,498)	58,494
Financing activities [Abstract]
Payments on long-term debt	(3,354)	(2,146)	(184,824)
Purchases of treasury shares	(15,490)	(30,502)
Cash dividends and payments for fractional shares	(26,712)	(27,063)	(27,577)
Excess tax benefit from exercise of stock options	8	341	140
Net cash provided by (used in) financing activities	72,283	52,322	(166,300)
Net increase (decrease) in cash and cash equivalents	34,287	(39,411)	(18,369)
Cash and cash equivalents at beginning of year	129,381	168,792	187,161
Cash and cash equivalents at end of year	163,668	129,381	168,792
NBT Bancorp Inc [Member]
Assets [Abstract]
Cash and cash equivalents	23,095	2,454	3,493
Securities available for sale, at estimated fair value	12,866	9,825
Trading securities	3,371	2,550
Investment in subsidiaries, on equity basis	635,851	622,885
Other assets	48,324	48,153
Total assets	723,507	685,867
Liabilities and Stockholders' Equity [Abstract]
Total liabilities	141,234	147,757
Stockholders' equity	582,273	538,110
Total liabilities and stockholders' equity	723,507	685,867
Condensed Income Statements [Abstract]
Dividends from subsidiaries	79,175	54,400	12,000
Management fee from subsidiaries	78,665	69,430	68,228
Securities gains (losses)	442	(31)	1,814
Interest, dividend and other income	720	628	1,136
Total revenue	159,002	124,427	83,178
Operating expense	79,015	75,254	72,436
Income before income tax benefit and equity in undistributed income of subsidiaries	79,987	49,173	10,742
Income tax (expense) benefit	(284)	1,340	282
Equity in undistributed income of subsidiaries	(25,145)	7,388	46,380
Net income	54,558	57,901	57,404
Operating activities [Abstract]
Net income	54,558	57,901	57,404
Adjustments to reconcile net income to net cash provided by operating activities [Abstract]
Stock based compensation	4,364	3,244	3,782
Gain (Loss) on sales of available-for-sale securities	442	31	(1,814)
Equity in undistributed income of subsidiaries	25,145	(7,388)	(46,380)
Net change in other liabilities	(3,181)	15,311	2,155
Net change in other assets	2,030	(11,607)	(2,605)
Net cash provided by operating activities	83,358	57,492	12,542
Investing activities [Abstract]
Purchases of available-for-sale securities	(4,163)	(968)	(1,745)
Sales and maturities of available-for-sale securities	1,445	71	7,807
Net cash used in acquisitions	(14,612)	0	0
Purchases of premises and equipment	(1,240)	(1,656)	(321)
Net cash (used in) provided by investing activities	(18,570)	(2,553)	5,741
Financing activities [Abstract]
Proceeds from the issuance of shares to employee benefit plans and other stock plans	1,387	1,386	1,675
Payments on long-term debt	(3,340)	(140)	(135)
Purchases of treasury shares	(15,490)	(30,502)	(477)
Cash dividends and payments for fractional shares	(26,712)	(27,063)	(27,577)
Excess tax benefit from exercise of stock options	8	341	140
Net cash provided by (used in) financing activities	(44,147)	(55,978)	(26,374)
Net increase (decrease) in cash and cash equivalents	20,641	(1,039)	(8,091)
Cash and cash equivalents at beginning of year	2,454	3,493	11,584
Cash and cash equivalents at end of year	$ 23,095	$ 2,454	$ 3,493

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Allowance for Loan Losses and Credit Quality of Loans, Past Due Loans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Aging [Abstract]
Minimum number of days past due for nonaccrual loan status (in days)	90 days
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	$ 22,852,000	$ 25,351,000
61 - 90 Days Past Due Accruing	5,277,000	5,278,000
Greater Than 90 Days Past Due Accruing	2,448,000	3,190,000
Total Past Due Accruing	30,577,000	33,819,000
Non-Accrual	39,676,000	38,290,000
Current	4,207,363,000	3,728,094,000
Recorded Total Loans and Leases	4,277,616,000	3,800,203,000
Within non accrual loans [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
Troubled debt restructured loans amount	2,200,000	4,000,000
Commercial Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
Recorded Total Loans and Leases	2,003,371,000	1,702,577,000
Commercial Loans [Member] | Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	0	663,000
61 - 90 Days Past Due Accruing	0	50,000
Greater Than 90 Days Past Due Accruing	0	0
Total Past Due Accruing	0	713,000
Non-Accrual	4,985,000	1,699,000
Current	556,496,000	508,662,000
Recorded Total Loans and Leases	561,481,000	511,074,000
Commercial Loans [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	126,000	1,942,000
61 - 90 Days Past Due Accruing	0	0
Greater Than 90 Days Past Due Accruing	0	0
Total Past Due Accruing	126,000	1,942,000
Non-Accrual	7,977,000	4,868,000
Current	966,692,000	828,089,000
Recorded Total Loans and Leases	974,795,000	834,899,000
Commercial Loans [Member] | Agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	22,000	77,000
61 - 90 Days Past Due Accruing	0	13,000
Greater Than 90 Days Past Due Accruing	0	0
Total Past Due Accruing	22,000	90,000
Non-Accrual	699,000	3,307,000
Current	63,037,000	63,140,000
Recorded Total Loans and Leases	63,758,000	66,537,000
Commercial Loans [Member] | Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	108,000	0
61 - 90 Days Past Due Accruing	0	0
Greater Than 90 Days Past Due Accruing	103,000	50,000
Total Past Due Accruing	211,000	50,000
Non-Accrual	1,038,000	2,067,000
Current	36,128,000	31,809,000
Recorded Total Loans and Leases	37,377,000	33,926,000
Commercial Loans [Member] | Business Banking [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	3,019,000	1,871,000
61 - 90 Days Past Due Accruing	708,000	1,024,000
Greater Than 90 Days Past Due Accruing	45,000	0
Total Past Due Accruing	3,772,000	2,895,000
Non-Accrual	6,738,000	7,446,000
Current	355,450,000	245,800,000
Recorded Total Loans and Leases	365,960,000	256,141,000
Commercial Loans [Member] | Total Commercial Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	3,275,000	4,553,000
61 - 90 Days Past Due Accruing	708,000	1,087,000
Greater Than 90 Days Past Due Accruing	148,000	50,000
Total Past Due Accruing	4,131,000	5,690,000
Non-Accrual	21,437,000	19,387,000
Current	1,977,803,000	1,677,500,000
Recorded Total Loans and Leases	2,003,371,000	1,702,577,000
Consumer Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
Recorded Total Loans and Leases	1,623,138,000	1,516,115,000
Consumer Loans [Member] | Indirect [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	10,956,000	12,141,000
61 - 90 Days Past Due Accruing	2,477,000	2,584,000
Greater Than 90 Days Past Due Accruing	1,205,000	1,283,000
Total Past Due Accruing	14,638,000	16,008,000
Non-Accrual	1,557,000	1,550,000
Current	964,802,000	855,545,000
Recorded Total Loans and Leases	980,997,000	873,103,000
Consumer Loans [Member] | Home Equity Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	6,065,000	5,823,000
61 - 90 Days Past Due Accruing	1,223,000	1,277,000
Greater Than 90 Days Past Due Accruing	681,000	954,000
Total Past Due Accruing	7,969,000	8,054,000
Non-Accrual	7,247,000	7,931,000
Current	560,066,000	553,660,000
Recorded Total Loans and Leases	575,282,000	569,645,000
Consumer Loans [Member] | Direct [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	717,000	831,000
61 - 90 Days Past Due Accruing	144,000	191,000
Greater Than 90 Days Past Due Accruing	84,000	140,000
Total Past Due Accruing	945,000	1,162,000
Non-Accrual	266,000	378,000
Current	65,648,000	71,827,000
Recorded Total Loans and Leases	66,859,000	73,367,000
Consumer Loans [Member] | Total Consumer Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	17,738,000	18,795,000
61 - 90 Days Past Due Accruing	3,844,000	4,052,000
Greater Than 90 Days Past Due Accruing	1,970,000	2,377,000
Total Past Due Accruing	23,552,000	25,224,000
Non-Accrual	9,070,000	9,859,000
Current	1,590,516,000	1,481,032,000
Recorded Total Loans and Leases	1,623,138,000	1,516,115,000
Residential Real Estate Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Abstract]
31 - 60 Days Past Due Accruing	1,839,000	2,003,000
61 - 90 Days Past Due Accruing	725,000	139,000
Greater Than 90 Days Past Due Accruing	330,000	763,000
Total Past Due Accruing	2,894,000	2,905,000
Non-Accrual	9,169,000	9,044,000
Current	639,044,000	569,562,000
Recorded Total Loans and Leases	$ 651,107,000	$ 581,511,000

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Employee Benefit Plans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Transition obligation period of recognition	20 years
Net actuarial loss that will be amortized from Accumulated other comprehensive income (loss) in next fiscal year	$ 3,000,000
Prior service credit that will be amortized from Accumulated other comprehensive income (loss) in next fiscal year	200,000
Assumptions used to determine benefit obligations [Abstract]
Discount rate (in hundredths)	3.50%	4.10%	5.15%
Expected long-term return on plan assets (in hundredths)	7.50%	7.50%	8.00%
Rate of compensation increase (in hundredths)	3.00%	3.00%	3.00%
Assumptions used to determine net periodic pension cost [Abstract]
Discount rate (in hundredths)	4.10%	5.15%	5.70%
Expected long-term return on plan assets (in hundredths)	7.50%	7.50%	8.00%
Rate of compensation increase (in hundredths)	3.00%	3.00%	3.00%
Estimate future benefit payments [Abstract]
Annual rates of increase in the per capita cost of covered medical and prescription drug benefits, minimum (in hundredths)	6.00%
Annual rates of increase in the per capita cost of covered medical and prescription drug benefits, maximum (in hundredths)	6.50%
Ultimate health care cost trend rate (in hundredths)	5.00%
Actual plan asset allocations [Abstract]
Actual plan asset allocations (in hundredths)	100.00%	100.00%
Employer contributions to 401 (k) plan	1,800,000	3,700,000	3,500,000
Effect of one-percentage point change in assumed health care cost trend rates [Abstract]
One-percentage point Increase on total service and interest cost components	24,000
One-percentage point (decrease) on total service and interest cost components	(20,000)
One-percentage point Increase on postretirement accumulated benefit obligation	503,000
One-percentage point (decrease) on postretirement accumulated benefit obligation	(426,000)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards termination period	10 years
Stock options additional disclosures [Abstract]
Stock-based compensation expense	4,364,000	3,244,000	3,782,000
Restricted Stock and restricted stock additional disclosures [Abstract]
Number of shares available for future grant (in shares)	4,400,000
Fair value assumptions [Abstract]
Dividend yield (in hundredths)	3.94%
Dividend yield, minimum (in hundredths)		3.31%	3.27%
Dividend yield, maximum (in hundredths)		3.82%	3.96%
Expected volatility (in hundredths)	34.64%
Expected volatility, minimum (in hundredths)		33.75%	33.00%
Expected volatility, maximum (in hundredths)		34.36%	33.86%
Risk-free interest rates (in hundredths)	1.24%
Risk-free interest rates, minimum (in hundredths)		1.48%	1.90%
Risk-free interest rates, maximum (in hundredths)		2.81%	3.17%
Expected life (in years)	7	7	7
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards vesting period	4 years
Weighted average fair value of stock options granted (in dollars per share)	$ 4.57	$ 5.45	$ 5.03
Stock options [Roll Forward]
Outstanding, Beginning of period (in shares)	1,863,590
Granted (in shares)	150
Exercised (in shares)	(108,817)
Forfeited (in shares)	(11,150)
Expired (in shares)	(48,211)
Outstanding, End of period (in shares)	1,695,562	1,863,590
Exercisable, End of period (in shares)	1,480,737
Expected to Vest (in shares)	205,476
Stock options additional disclosures [Abstract]
Weighted average exercise price, Outstanding, Beginning of period (in dollars per share)	$ 22.41
Weighted average exercise price, Granted (in dollars per share)	$ 20.30
Weighted average exercise price, Exercised (in dollars per share)	$ 17.53
Weighted average exercise price, Forfeited (in dollars per share)	$ 21.92
Weighted average exercise price, Expired (in dollars per share)	$ 22.50
Weighted average exercise price, Outstanding, End of period (in dollars per share)	$ 22.72	$ 22.41
Weighted average exercise price, Exercisable, End of period (in dollars per share)	$ 22.83
Weighted average exercise price, Expected to Vest (in dollars per share)	$ 21.97
Weighted Average Remaining Contractual Term, Outstanding, End of period (in years)	4.58
Weighted Average Remaining Contractual Term, Exercisable, End of period (in years)	4.21
Weighted Average Remaining Contractual Term, Expected to Vest (in years)	7.01
Aggregate Intrinsic Value, Outstanding, End of period	51,236
Aggregate Intrinsic Value, Exercisable, End of period	43,043
Aggregate Intrinsic Value, Expected to Vest	7,752
Stock-based compensation expense	500,000	900,000	1,800,000
Proceeds from stock options exercised	1,908,000	2,255,000	1,778,000
Tax benefits related to stock options exercised	8,000	341,000	140,000
Intrinsic value of stock options exercised	498,000	897,000	574,000
Fair value of shares vested during the year	1,656,000	1,597,000	1,800,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares vesting period for employees, minimum	5 years
Restricted shares vesting period for non-employee directors, minimum	3 years
Stock options additional disclosures [Abstract]
Unrecognized compensation cost	4,700,000
Unrecognized compensation cost, weighted average period of recognition (in years)	2.5
Restricted Stock and restricted stock [Roll Forward]
Unvested, Beginning of period (in shares)	155,376
Forfeited (in shares)	(3,500)
Vested (in shares)	(34,726)
Unvested, End of period (in shares)	117,150
Restricted Stock and restricted stock additional disclosures [Abstract]
Weighted-average grant date fair value, Unvested, Beginning of period (in dollars per share)	$ 23.92
Weighted-average grant date fair value, Forfeited (in dollars per share)	$ 21.96
Weighted-average grant date fair value, Vested (in dollars per share)	$ 22.61
Weighted-average grant date fair value, Unvested, End of period (in dollars per share)	$ 24.36
Restricted Stock Units (RSUs) [Member]
Restricted Stock and restricted stock [Roll Forward]
Unvested, Beginning of period (in shares)	241,907
Forfeited (in shares)	(5,103)
Vested (in shares)	(37,068)
Granted (in shares)	206,322
Unvested, End of period (in shares)	406,058
Restricted Stock and restricted stock additional disclosures [Abstract]
Weighted-average grant date fair value, Unvested, Beginning of period (in dollars per share)	$ 23.95
Weighted-average grant date fair value, Forfeited (in dollars per share)	$ 0
Weighted-average grant date fair value, Vested (in dollars per share)	$ 0
Weighted-average grant date fair value, Granted (in dollars per share)	$ 22.38
Weighted-average grant date fair value, Unvested, End of period (in dollars per share)	$ 25.64
Restricted and Deferred Stock Awards [Member]
Stock options additional disclosures [Abstract]
Stock-based compensation expense	3,700,000	3,200,000	2,000,000
Tax benefit from compensation expense	1,500,000	1,200,000	700,000
Pension Benefits [Member]
Accumulated other comprehensive income (loss), before tax [Abstract]
Net actuarial loss	35,478,000	37,914,000
Prior service cost	141,000	1,430,000
Total amounts recognized in accumulated other comprehensive loss (pre-tax)	35,619,000	39,344,000
Change in benefit obligation [Roll Forward]
Benefit obligation at beginning of period	78,024,000	70,229,000
Service cost	3,122,000	2,589,000	2,254,000
Interest cost	3,145,000	3,544,000	3,613,000
Plan participants' contributions	0	0
Actuarial loss (gain)	5,941,000	5,935,000
Amendments	(1,006,000)	0
Benefits paid	(4,097,000)	(4,273,000)
Projected benefit obligation at end of period	85,129,000	78,024,000	70,229,000
Change in plan assets [Roll Forward]
Fair value of plan assets at beginning of period	91,575,000	97,821,000
Actual return (loss) on plan assets	11,733,000	(2,452,000)
Employer contributions	493,000	479,000
Plan participants' contributions	0	0
Benefits paid	(4,097,000)	(4,273,000)
Fair value of plan assets at end of period	99,704,000	91,575,000	97,821,000
Funded status	14,575,000	13,551,000
Accumulated benefit obligation	84,500,000	76,500,000
Amounts recognized in Balance Sheet [Abstract]
Other assets	27,062,000	23,972,000
Other liabilities	(12,487,000)	(10,421,000)
Funded status	14,575,000	13,551,000
Components of net periodic benefit cost [Abstract]
Service cost	3,122,000	2,589,000	2,254,000
Interest cost	3,145,000	3,544,000	3,613,000
Expected return on plan assets	(6,686,000)	(7,720,000)	(7,166,000)
Amortization of prior service cost	283,000	309,000	322,000
Amortization of unrecognized net loss	3,330,000	1,353,000	1,447,000
Net periodic pension cost	3,194,000	75,000	470,000
Other changes in plan assets and benefit obligation recognized in other comprehensive income (pre-tax) [Abstract]
Net loss (gain)	894,000	16,108,000	1,620,000
Prior service cost	(1,006,000)	0	21,000
Amortization of prior service cost	(283,000)	(309,000)	(322,000)
Amortization of unrecognized net gain	(3,330,000)	(1,353,000)	(1,447,000)
Total recognized in other comprehensive loss (income)	(3,725,000)	14,446,000	(128,000)
Total recognized in net periodic benefit cost and other comprehensive income (loss) - pre-tax	(531,000)	14,521,000	342,000
Estimate future benefit payments [Abstract]
2013	5,247,000
2014	5,243,000
2015	5,285,000
2016	7,767,000
2017	5,942,000
2018 - 2022	29,180,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	99,704,000	91,575,000	97,821,000
Pension Benefits [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	70,414,000	60,043,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	70,414,000	60,043,000
Pension Benefits [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	29,290,000	31,532,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	29,290,000	31,532,000
Pension Benefits [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Cash and Cash Equivalents [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at beginning of period	1,503,000
Fair value of plan assets at end of period	5,464,000
Target asset allocations [Abstract]
Target allocation percentage of assets, range minimum (in hundredths)	0.00%
Target allocation percentage of assets, range maximum (in hundredths)	20.00%
Actual plan asset allocations [Abstract]
Actual plan asset allocations (in hundredths)	5.00%	2.00%
Fair value of plan assets	5,464,000
Pension Benefits [Member] | Cash and Cash Equivalents [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	5,464,000	1,503,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	5,464,000	1,503,000
Pension Benefits [Member] | Cash and Cash Equivalents [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Cash and Cash Equivalents [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Fixed Income Securities [Member]
Target asset allocations [Abstract]
Target allocation percentage of assets, range minimum (in hundredths)	20.00%
Target allocation percentage of assets, range maximum (in hundredths)	40.00%
Actual plan asset allocations [Abstract]
Actual plan asset allocations (in hundredths)	29.00%	34.00%
Pension Benefits [Member] | Equity Securities [Member]
Target asset allocations [Abstract]
Target allocation percentage of assets, range minimum (in hundredths)	40.00%
Target allocation percentage of assets, range maximum (in hundredths)	80.00%
Actual plan asset allocations [Abstract]
Actual plan asset allocations (in hundredths)	66.00%	64.00%
Pension Benefits [Member] | Foreign Equity Mutual Funds [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	9,763,000	6,577,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	9,763,000	6,577,000
Pension Benefits [Member] | Foreign Equity Mutual Funds [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	9,763,000	6,577,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	9,763,000	6,577,000
Pension Benefits [Member] | Foreign Equity Mutual Funds [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Foreign Equity Mutual Funds [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Equity Mutual Funds [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	13,110,000	9,902,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	13,110,000	9,902,000
Pension Benefits [Member] | Equity Mutual Funds [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	13,110,000	9,902,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	13,110,000	9,902,000
Pension Benefits [Member] | Equity Mutual Funds [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Equity Mutual Funds [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | US Government Bonds [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	12,744,000	15,683,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	12,744,000	15,683,000
Pension Benefits [Member] | US Government Bonds [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | US Government Bonds [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	12,744,000	15,683,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	12,744,000	15,683,000
Pension Benefits [Member] | US Government Bonds [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Corporate Bonds [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	13,604,000	12,954,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	13,604,000	12,954,000
Pension Benefits [Member] | Corporate Bonds [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Corporate Bonds [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	13,604,000	12,954,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	13,604,000	12,954,000
Pension Benefits [Member] | Corporate Bonds [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Common Stock [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	40,430,000	33,850,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	40,430,000	33,850,000
Pension Benefits [Member] | Common Stock [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	40,430,000	33,850,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	40,430,000	33,850,000
Pension Benefits [Member] | Common Stock [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Common Stock [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Municipal Bonds and Notes [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	1,805,000	1,799,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	1,805,000	1,799,000
Pension Benefits [Member] | Municipal Bonds and Notes [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Municipal Bonds and Notes [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	1,805,000	1,799,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	1,805,000	1,799,000
Pension Benefits [Member] | Municipal Bonds and Notes [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Foreign Bonds and Notes [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	1,137,000	1,096,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	1,137,000	1,096,000
Pension Benefits [Member] | Foreign Bonds and Notes [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Foreign Bonds and Notes [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	1,137,000	1,096,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	1,137,000	1,096,000
Pension Benefits [Member] | Foreign Bonds and Notes [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Foreign Equity [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	1,647,000	8,211,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	1,647,000	8,211,000
Pension Benefits [Member] | Foreign Equity [Member] | Level 1 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	1,647,000	8,211,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	1,647,000	8,211,000
Pension Benefits [Member] | Foreign Equity [Member] | Level 2 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Pension Benefits [Member] | Foreign Equity [Member] | Level 3 [Member]
Change in plan assets [Roll Forward]
Fair value of plan assets at end of period	0	0
Actual plan asset allocations [Abstract]
Fair value of plan assets	0	0
Other Benefits [Member]
Accumulated other comprehensive income (loss), before tax [Abstract]
Net actuarial loss	2,277,000	2,323,000
Prior service cost	(672,000)	(874,000)
Total amounts recognized in accumulated other comprehensive loss (pre-tax)	1,605,000	1,449,000
Change in benefit obligation [Roll Forward]
Benefit obligation at beginning of period	3,985,000	4,554,000
Service cost	20,000	17,000	17,000
Interest cost	155,000	202,000	228,000
Plan participants' contributions	233,000	263,000
Actuarial loss (gain)	136,000	(562,000)
Amendments	0	0
Benefits paid	(458,000)	(489,000)
Projected benefit obligation at end of period	4,071,000	3,985,000	4,554,000
Change in plan assets [Roll Forward]
Fair value of plan assets at beginning of period	0	0
Actual return (loss) on plan assets	0	0
Employer contributions	225,000	226,000
Plan participants' contributions	233,000	263,000
Benefits paid	(458,000)	(489,000)
Fair value of plan assets at end of period	0	0	0
Funded status	(4,071,000)	(3,985,000)
Accumulated benefit obligation	4,100,000	4,000,000
Amounts recognized in Balance Sheet [Abstract]
Other assets	0	0
Other liabilities	(4,071,000)	(3,985,000)
Funded status	(4,071,000)	(3,985,000)
Components of net periodic benefit cost [Abstract]
Service cost	20,000	17,000	17,000
Interest cost	155,000	202,000	228,000
Expected return on plan assets	0	0	0
Amortization of prior service cost	(202,000)	(202,000)	(202,000)
Amortization of unrecognized net loss	182,000	205,000	201,000
Net periodic pension cost	155,000	222,000	244,000
Other changes in plan assets and benefit obligation recognized in other comprehensive income (pre-tax) [Abstract]
Net loss (gain)	136,000	(562,000)	955,000
Prior service cost	0	0	0
Amortization of prior service cost	202,000	202,000	202,000
Amortization of unrecognized net gain	(182,000)	(205,000)	(201,000)
Total recognized in other comprehensive loss (income)	156,000	(565,000)	956,000
Total recognized in net periodic benefit cost and other comprehensive income (loss) - pre-tax	311,000	(343,000)	1,200,000
Estimate future benefit payments [Abstract]
2013	215,000
2014	224,000
2015	234,000
2016	242,000
2017	250,000
2018 - 2022	1,311,000
Actual plan asset allocations [Abstract]
Fair value of plan assets	$ 0	$ 0	$ 0

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Stockholders Equity

12 Months Ended

Dec. 31, 2012

Stockholders Equity [Abstract]

Stockholders Equity

(16) Stockholders' Equity

In accordance with accounting standards, unrealized gains on available for sale securities and unrecognized actuarial gains or losses and prior service costs associated with the Company's pension and postretirement benefit plans are included in accumulated other comprehensive loss. For the years ended December 31, components of accumulated other comprehensive loss are:

(In thousands)	2012			2011
Unrecognized prior service cost and net actuarial loss on pension plans	$	(22,555	)	$	(24,633	)
Unrealized net holding gains on available for sale securities		16,675			18,529
Accumulated other comprehensive income (loss)	$	(5,880	)	$	(6,104	)

Certain restrictions exist regarding the ability of the subsidiary bank to transfer funds to the Company in the form of cash dividends. The approval of the Office of Comptroller of the Currency ("OCC") is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank's earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At December 31, 2012, approximately $21.3 million of the total stockholders' equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.

In October 2004, the Company adopted a Stockholder Rights Plan (the "Plan") designed to ensure that any potential acquirer of the Company negotiate with the board of directors and that all Company stockholders are treated equitably in the event of a takeover attempt. At that time, the Company paid a dividend of one Preferred Share Purchase Right (a "Right") for each outstanding share of common stock of the Company. Similar rights are attached to each share of the Company's common stock issued after November 16, 2004. Under the Plan, the Rights will not be exercisable until a person or group acquires beneficial ownership of 15% or more of the Company's outstanding common stock or begins a tender or exchange offer for 15% or more of the Company's outstanding common stock. Additionally, until the occurrence of such an event, the Rights are not severable from the Company's common stock and, therefore, the Rights will be transferred upon the transfer of shares of the Company's common stock. Upon the occurrence of such events, each Right entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company, no par value and $0.01 stated value per share, at a price of $70.

The Plan also provides that upon the occurrence of certain specified events, the holders of Rights will be entitled to acquire additional equity interests in the Company or in the acquiring entity and such interests will have a market value of two times the Right's exercise price of $70. The Rights, which expire October 24, 2014, are redeemable in whole, but not in part, at the Company's option prior to the time they are exercisable, for a price of $0.001 per Right.

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Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Summary of Significant Accounting Policies [Abstract]
Balance of OREO	$ 2.3	$ 2.2
Standby letters of credit, description	typically have one year expirations with an option to renew upon annual review
Mortgage loans on real estate, by loan disclosure	The Company originates and services residential mortgage loans for consumers and sells 15-year, 20-year and 30-year residential real estate mortgages in the secondary market when the interest rate environment is determined to be favorable by management, while retaining servicing rights on the sold loans.

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Long-Term Debt (Tables)

12 Months Ended

Dec. 31, 2012

Long-Term Debt [Abstract]

Schedule of Long-term Debt

Long-term debt consists of obligations having an original maturity at issuance of more than one year. A majority of the Company's long-term debt is comprised of FHLB advances collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans. A summary as of December 31, 2012 and 2011 is as follows:

	As of December 31, 2012										As of December 31, 2011
Maturity	Amount		Weighted Average Rate			Callable Amount		Weighted Average Rate			Amount		Weighted Average Rate			Callable Amount		Weighted Average Rate
2013		119,502		3.87	%		100,000		3.71	%		119,400		3.87	%		100,000		3.71	%
2014		2,610		1.89	%		-		-			2,604		2.00	%		-		-
2015		250		0.00	%		-		-			-		0.00	%		-		-
2016		70,000		4.21	%		70,000		4.21	%		70,000		4.21	%		70,000		4.21	%
2017		100,000		3.89	%		100,000		3.89	%		100,000		3.89	%		100,000		3.89	%
2018		75,000		3.61	%		75,000		3.61	%		75,000		3.61	%		75,000		3.61	%
2021		130		4.00	%		-		-			-		0.00	%		-		-
2025		-		0.00	%		-		-			3,340		2.75	%		-		-
	$	367,492				$	345,000				$	370,344				$	345,000

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Loans

In the ordinary course of business, the Company has made loans at prevailing rates and terms to directors, officers, and other related parties. Such loans, in management's opinion, do not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties and changes during the years are summarized as follows:

(In thousands)	2012			2011
Balance at January 1	$	2,537		$	2,914
New loans		750			25
Adjustment due to change in composition of related parties		(130	)		328
Repayments		(367	)		(730	)
Balance at December 31	$	2,790		$	2,537

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Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Basic earnings per share [Abstract]
Net income available to common shareholders	$ 54,558	$ 57,901	$ 57,404
Weighted average common shares, basic (in shares)	33,379,000	33,662,000	34,275,000
Basic EPS (in dollars per share)	$ 1.63	$ 1.72	$ 1.67
Diluted earnings per share [Abstract]
Net income available to common shareholders	$ 54,558	$ 57,901	$ 57,404
Dilutive effect of stock based compensation (in shares)	340,000	262,000	234,000
Weighted average common shares, diluted (in shares)	33,719,000	33,924,000	34,509,000
Diluted EPS (in dollars per share)	$ 1.62	$ 1.71	$ 1.66
Stock options excluded from calculation of diluted EPS (in shares)	1,193,000	1,258,000	1,309,000

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Trust Preferred Debentures (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Debt Instrument [Line Items]
Proceeds from issuance of junior subordinated deferrable interest debentures to wholly owned trusts	$ 75.4
Wholly owned Delaware statutory business trusts - variable interest entities	three wholly owned Delaware statutory business trusts
Fixed rate to convert to a floating rate (in years)	5 years
Deferral period of payments of interest, description	ten consecutive semi-annual periods with respect to each deferral period
Tier I risk based regulatory capital included from Trust preferred securities issued by subsidiary trusts	74
Minimum assets for bank holding companies to be subject to the same capital requirements as insured depository institutions	500
CNBF Capital Trust I VIE Entity Not Primary Beneficiary [Member] | CNBF Capital Trust I Debenture [Member]
Debt Instrument [Line Items]
Trust preferred debt owed to trust	18.7
Trust preferred securities outstanding	18
Issuance Date	1999-06-30
Interest Rate	three-month LIBOR plus 275 basis points
Final maturity date	2029-08-31
Common equity securities issued by Variable Interest Entity to NBT	0.7
CNBF Trust I securities owned by bank	1
NBT Statutory Trust I VIE Entity Not Primary Beneficiary [Member] | NBT Statutory Trust I Debenture [Member]
Debt Instrument [Line Items]
Trust preferred debt owed to trust	5.2
Trust preferred securities outstanding	5
Issuance Date	2005-11-30
Interest Rate	three-month LIBOR plus 140 basis points
Final maturity date	2035-12-01
Common equity securities issued by Variable Interest Entity to NBT	0.2
Original issuance fixed interest rate (in hundredths)	6.30%
NBT Statutory Trust II VIE Entity Not Primary Beneficiary [Member] | NBT Statutory Trust II Debenture [Member]
Debt Instrument [Line Items]
Trust preferred debt owed to trust	51.5
Trust preferred securities outstanding	50
Issuance Date	2006-02-28
Interest Rate	three-month LIBOR plus 140 basis points
Final maturity date	2036-03-15
Common equity securities issued by Variable Interest Entity to NBT	$ 1.5
Original issuance fixed interest rate (in hundredths)	6.195%

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Related Party Transactions (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Loans and Leases Receivable, Related Parties [Roll Forward]
Balance at January 1	$ 2,537	$ 2,914
New loans	750	25
Adjustment due to change in composition of related parties	(130)	328
Repayments	(367)	(730)
Balance at December 31	$ 2,790	$ 2,537

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Commitments and Contingent Liabilities (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingent Liabilities [Abstract]

Schedule of maximum commitments potential obligation

The Company is a party to certain financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit, and certain mortgage loans sold to investors with recourse. The Company's exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit, and loans sold with recourse is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management's assessment of the customer's creditworthiness.

	At December 31,
(In thousands)	2012		2011
Unused lines of credit	$	163,626	$	161,551
Commitments to extend credits, primarily variable rate		678,093		603,322
Standby letters of credit		37,510		26,783
Commercial letters of credit		16,607		15,218
Loans sold with recourse		13,690		16,175

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating activities
Net income	$ 54,558	$ 57,901	$ 57,404
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses	20,269	20,737	29,809
Depreciation and amortization of premises and equipment	6,276	5,463	5,327
Net accretion on securities	2,408	1,597	1,468
Amortization of intangible assets	3,394	3,046	3,072
Stock based compensation	4,364	3,244	3,782
Bank owned life insurance income	(3,077)	(3,085)	(3,316)
Trading security purchases	(753)	(447)	(184)
Unrealized (gains) losses in trading securities	(103)	193	(214)
Deferred income tax benefit	(10)	(9,478)	(14,955)
Proceeds from sale of loans held for sale	65,160	13,545	83,143
Originations of loans held for sale	(66,252)	(14,167)	(80,469)
Net gains on sales of loans held for sale	(2,469)	(329)	(911)
Net security gains	(599)	(151)	(3,274)
Net gains on sales of other real estate owned	(988)	(2,531)	(517)
Net decrease (increase) in other assets	6,804	(3,579)	6,627
Net increase in other liabilities	(128)	11,806	2,645
Net cash provided by operating activities	88,854	83,765	89,437
Investing activities
Net cash provided by acquisitions	52,871	81,467	0
Securities available for sale:
Proceeds from maturities, calls, and principal paydowns	573,828	541,555	511,394
Proceeds from sales	1,790	2,437	103,253
Purchases	(483,858)	(648,048)	(635,319)
Securities held to maturity:
Proceeds from maturities, calls, and principal paydowns	31,506	47,186	112,399
Purchases	(20,193)	(20,736)	(48,701)
Net (increase) decrease in loans	(277,530)	(172,920)	7,292
Net (increase) decrease in Federal Reserve and FHLB stock	(1,886)	226	8,733
Proceeds from bank owned life insurance	0	758	2,767
Purchases of premises and equipment, net	(6,994)	(9,954)	(6,510)
Proceeds from sales of other real estate owned	3,616	2,531	3,186
Net cash (used in) provided by investing activities	(126,850)	(175,498)	58,494
Financing activities
Net increase in deposits	135,095	87,992	41,306
Net (decrease) increase in short-term borrowings	(18,651)	22,158	3,457
Proceeds from issuance of long-term debt	0	156	0
Repayments of long-term debt	(3,354)	(2,146)	(184,824)
Excess tax benefit from exercise of stock options	8	341	140
Proceeds from the issuance of shares to employee benefit plans and other stock plans	1,387	1,386	1,675
Purchase of treasury stock	(15,490)	(30,502)	(477)
Cash dividends and payment for fractional shares	(26,712)	(27,063)	(27,577)
Net cash provided by (used in) financing activities	72,283	52,322	(166,300)
Net increase (decrease) in cash and cash equivalents	34,287	(39,411)	(18,369)
Cash and cash equivalents at beginning of year	129,381	168,792	187,161
Cash and cash equivalents at end of year	163,668	129,381	168,792
Cash paid during the period for:
Interest	35,344	40,135	54,668
Income taxes, net of refund	25,512	31,258	37,033
Noncash investing activities:
Loans transferred to other real estate owned	2,734	2,927	1,212
Acquisitions:
Fair value of assets acquired	258,467	67,020	0
Fair value of liabilities assumed	285,012	148,487	0
Fair value of debt issued in purchase combination	$ 502	$ 2,460	$ 0

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Premises and Equipment, Net (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment [Line Items]
Premises and equipment before accumulated depreciation	$ 160,922,000	$ 151,120,000
Accumulated depreciation	83,047,000	76,579,000
Total premises and equipment	77,875,000	74,541,000
Rental expense	6,400,000	5,600,000	5,300,000
Operating Leases, Future Minimum Payments Due [Abstract]
2013	5,727,000
2014	5,453,000
2015	4,714,000
2016	4,309,000
2017	4,063,000
Thereafter	28,314,000
Total	52,580,000
Land, Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment before accumulated depreciation	109,601,000	103,399,000
Pledged to secure long-term borrowings	2,700,000	2,900,000
Equipment [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment before accumulated depreciation	51,321,000	47,646,000
Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life (in years)	3
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life (in years)	10
Construction In Progress [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment before accumulated depreciation	$ 0	$ 75,000
Building and Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life (in years)	15
Building and Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life (in years)	40

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Components of income tax expense attributable to operations

The significant components of income tax expense attributable to operations are:

	Years ended December 31,
	2012			2011			2010
Current
Federal	$	21,011		$	29,274		$	34,124
State		1,815			1,477			1,743
		22,826			30,751			35,867
Deferred
Federal		(13	)		(8,129	)		(12,121	)
State		3			(1,349	)		(2,834	)
		(10	)		(9,478	)		(14,955	)
Total income tax expense	$	22,816		$	21,273		$	20,912

Components of deferred tax assets and liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(In thousands)	2012		2011
Deferred tax assets
Allowance for loan losses	$	26,687	$	27,487
Deferred compensation		5,362		4,911
Postretirement benefit obligation		1,600		1,036
Fair value adjustments from acquisitions		3,633		2,227
Accrued liabilities		1,524		1,482
Stock-based compensation expense		5,726		4,440
Other		1,933		1,214
Total deferred tax assets		46,465		42,797
Deferred tax liabilities
Pension and executive retirement		7,676		6,916
Unrealized gains on securities available for sale		10,939		12,156
Premises and equipment, primarily due to accelerated depreciation		1,980		2,340
Equipment leasing		582		3,090
Deferred loan costs		873		767
Intangible amortization		13,146		11,081
Other		154		494
Total deferred tax liabilities		35,350		36,844
Net deferred tax asset at year-end		11,115		5,953
Net deferred tax asset (liability) at beginning of year		5,953		(4,023	)
Increase in net deferred tax asset	$	5,162	$	9,976

Reconciliation of gross unrecognized tax benefits

A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is as follows:

(In thousands)	2012			2011			2010
Balance at January 1	$	888		$	3,081		$	2,287
Additions for tax positions of prior years		-			-			1,714
Reduction for tax positions of prior years		(888	)		(2,193	)		(920	)
Balance at December 31	$	-		$	888		$	3,081

Reconciliation of the provision for income taxes to the amount computed by applying the federal statutory rate

The following is a reconciliation of the provision for income taxes to the amount computed by applying the applicable Federal statutory rate of 35% to income before taxes:

	Years ended December 31
(In thousands)	2012			2011			2010
Federal income tax at statutory rate	$	27,081		$	27,711		$	27,410
Tax exempt income		(2,536	)		(2,925	)		(3,448	)
Net increase in CSV of life insurance		(908	)		(919	)		(939	)
Low income housing tax credits		(629	)		(782	)		(296	)
State taxes, net of federal tax benefit		1,182			764			756
State audit settlements		-			(681	)		(1,465	)
Other, net		(1,374	)		(1,895	)		(1,106	)
Income tax expense	$	22,816		$	21,273		$	20,912

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Parent Company Financial Information

12 Months Ended

Dec. 31, 2012

Parent Company Financial Information [Abstract]

Parent Company Financial Information

(20) Parent Company Financial Information

Condensed Balance Sheets

	December 31,
(In thousands)	2012		2011
Assets
Cash and cash equivalents	$	23,095	$	2,454
Securities available for sale, at estimated fair value		12,866		9,825
Trading securities		3,371		2,550
Investment in subsidiaries, on equity basis		635,851		622,885
Other assets		48,324		48,153
Total assets	$	723,507	$	685,867
Liabilities and Stockholders' Equity
Total liabilities	$	141,234	$	147,757
Stockholders' equity		582,273		538,110
Total liabilities and stockholders' equity	$	723,507	$	685,867

Condensed Income Statements

	Years ended December 31,
(In thousands)	2012			2011			2010
Dividends from subsidiaries	$	79,175		$	54,400		$	12,000
Management fee from subsidiaries		78,665			69,430			68,228
Securities gains (losses)		442			(31	)		1,814
Interest, dividend and other income		720			628			1,136
Total revenue		159,002			124,427			83,178
Operating expense		79,015			75,254			72,436
Income before income tax benefit and equity in undistributed income of subsidiaries		79,987			49,173			10,742
Income tax (expense) benefit		(284	)		1,340			282
Dividends in excess of income (equity in undistributed income) of subsidiaries		(25,145	)		7,388			46,380
Net income	$	54,558		$	57,901		$	57,404

Statements of Cash Flow

	Years ended December 31,
(In thousands)	2012			2011			2010
Operating activities
Net income	$	54,558		$	57,901		$	57,404
Adjustments to reconcile net income to net cash provided by operating activities
Stock-based compensation		4,364			3,244			3,782
Gain (Loss) on sales of available-for-sale securities		442			31			(1,814	)
Dividends in excess of income (equity in undistributed income) of subsidiaries		25,145			(7,388	)		(46,380	)
Net change in other liabilities		(3,181	)		15,311			2,155
Net change in other assets		2,030			(11,607	)		(2,605	)
Net cash provided by operating activities		83,358			57,492			12,542
Investing activities
Purchases of available-for-sale securities		(4,163	)		(968	)		(1,745	)
Sales and maturities of available-for-sale securities		1,445			71			7,807
Net cash used in acquisitions		(14,612	)		-			-
Purchases of premises and equipment		(1,240	)		(1,656	)		(321	)
Net cash (used in) provided by investing activities		(18,570	)		(2,553	)		5,741
Financing activities
Proceeds from the issuance of shares to employee benefit plans and other stock plans		1,387			1,386			1,675
Payments on long-term debt		(3,340	)		(140	)		(135	)
Purchases of treasury shares		(15,490	)		(30,502	)		(477	)
Cash dividends and payments for fractional shares		(26,712	)		(27,063	)		(27,577	)
Excess tax benefit from exercise of stock options		8			341			140
Net cash used in financing activities		(44,147	)		(55,978	)		(26,374	)
Net increase (decrease) in cash and cash equivalents		20,641			(1,039	)		(8,091	)
Cash and cash equivalents at beginning of year		2,454			3,493			11,584
Cash and cash equivalents at end of year	$	23,095		$	2,454		$	3,493

A statement of changes in stockholders' equity has not been presented since it is the same as the consolidated statement of changes in stockholders' equity previously presented.

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Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2012

Commitments and Contingent Liabilities [Abstract]

Commitments and Contingent Liabilities

(19) Commitments and Contingent Liabilities

The Company's concentrations of credit risk are reflected in the consolidated balance sheets. The concentrations of credit risk with standby letters of credit, unused lines of credit, commitments to originate new loans and loans sold with recourse generally follow the loan classifications.

At December 31, 2012, approximately 59% of the Company's loans were secured by real estate located in central and upstate New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire, and the greater Burlington, Vermont area. Accordingly, the ultimate collectibility of a substantial portion of the Company's portfolio is susceptible to changes in market conditions of those areas. Management is not aware of any material concentrations of credit to any industry or individual borrowers.

The Company is a party to certain financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit, and certain mortgage loans sold to investors with recourse. The Company's exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit, and loans sold with recourse is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management's assessment of the customer's creditworthiness.

	At December 31,
(In thousands)	2012		2011
Unused lines of credit	$	163,626	$	161,551
Commitments to extend credits, primarily variable rate		678,093		603,322
Standby letters of credit		37,510		26,783
Commercial letters of credit		16,607		15,218
Loans sold with recourse		13,690		16,175

Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.

The Company guarantees the obligations or performance of customers by issuing stand-by letters of credit to third parties. These stand-by letters of credit are frequently issued in support of third party debt, such as corporate debt issuances, industrial revenue bonds, and municipal securities. The risk involved in issuing stand-by letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have terms of five years or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. The fair value of the Company's stand-by letters of credit at December 31, 2012 and 2011 was not significant.

The total amount of loans serviced by the Company for unrelated third parties was approximately $308.4 million and $301.9 million at December 31, 2012 and 2011, respectively.

In the normal course of business there are various outstanding legal proceedings. If legal costs are deemed material by management, the Company accrues for the estimated loss from a loss contingency if the information available indicates that it is probable that a liability had been incurred at the date of the financial statements, and the amount of loss can be reasonably estimated. In the opinion of management, the aggregate amount involved in such proceedings at December 31, 2012 is not material to the consolidated balance sheets or results of operations of the Company.

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Allowance for Loan Losses and Credit Quality of Loans, Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan portfolio segments	3
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance as of Beginning of Period	$ 71,334	$ 71,234	$ 66,550
Charge-offs	(26,504)	(24,488)	(29,837)
Recoveries	4,235	3,851	4,712
Provision	20,269	20,737	29,809
Balance as of Ending of Period	69,334	71,334	71,234
Allowance loan losses [Abstract]
Allowance for loan losses	69,334	71,334	71,234
Allowance for loans individually evaluated for impairment	2,848	175
Allowance for loans collectively evaluated for impairment	66,486	71,159
Ending balance of loans	4,277,616	3,800,203
Ending balance of loans individually evaluated for impairment	11,972	6,219
Ending balance of loans collectively evaluated for impairment	4,265,644	3,793,984
Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance as of Beginning of Period	38,831	40,101	36,599
Charge-offs	(8,750)	(8,969)	(12,969)
Recoveries	1,641	1,438	1,922
Provision	3,902	6,261	14,549
Balance as of Ending of Period	35,624	38,831	40,101
Allowance loan losses [Abstract]
Allowance for loan losses	35,624	38,831	40,101
Allowance for loans individually evaluated for impairment	2,848	175
Allowance for loans collectively evaluated for impairment	32,776	38,656
Ending balance of loans	2,003,371	1,702,577
Ending balance of loans individually evaluated for impairment	11,972	6,219
Ending balance of loans collectively evaluated for impairment	1,991,399	1,696,358
Commercial Loans [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Real estate loan amount, percentage of appraised value or purchase price of the property, maximum (in hundredths)	80.00%
Commercial Loans [Member] | Agricultural Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Real estate loan amount, percentage of appraised value or purchase price of the property, maximum (in hundredths)	75.00%
Allowance loan losses [Abstract]
Ending balance of loans	37,377	33,926
Commercial Loans [Member] | Business Banking [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Business banking loans, maximum amount	500
Allowance loan losses [Abstract]
Ending balance of loans	365,960	256,141
Consumer Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance as of Beginning of Period	26,049	26,126	26,664
Charge-offs	(15,848)	(14,209)	(15,692)
Recoveries	2,556	2,406	2,747
Provision	14,405	11,726	12,407
Balance as of Ending of Period	27,162	26,049	26,126
Allowance loan losses [Abstract]
Allowance for loan losses	27,162	26,049	26,126
Allowance for loans individually evaluated for impairment	0	0
Allowance for loans collectively evaluated for impairment	27,162	26,049
Ending balance of loans	1,623,138	1,516,115
Ending balance of loans individually evaluated for impairment	0	0
Ending balance of loans collectively evaluated for impairment	1,623,138	1,516,115
Consumer Loans [Member] | Indirect [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage of automobile financing to indirect relationships with dealers (in hundredths)	70.00%
Principal repayment term of loan, minimum (in years)	3 years
Principal repayment term of loan, maximum (in years)	6 years
Allowance loan losses [Abstract]
Ending balance of loans	980,997	873,103
Consumer Loans [Member] | Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Home equity loan amount, percentage of equity in home, maximum (in hundredths)	85.00%
Consumer Loans [Member] | Direct [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal repayment term of loan, minimum (in years)	1 year
Principal repayment term of loan, maximum (in years)	10 years
Allowance loan losses [Abstract]
Ending balance of loans	66,859	73,367
Residential Real Estate Mortgages [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Real estate loan amount, percentage of appraised value or purchase price of the property, maximum (in hundredths)	85.00%
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance as of Beginning of Period	6,249	4,627	3,002
Charge-offs	(1,906)	(1,310)	(1,176)
Recoveries	38	7	43
Provision	1,871	2,925	2,758
Balance as of Ending of Period	6,252	6,249	4,627
Allowance loan losses [Abstract]
Allowance for loan losses	6,252	6,249	4,627
Allowance for loans individually evaluated for impairment	0	0
Allowance for loans collectively evaluated for impairment	6,252	6,249
Ending balance of loans	651,107	581,511
Ending balance of loans individually evaluated for impairment	0	0
Ending balance of loans collectively evaluated for impairment	651,107	581,511
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance as of Beginning of Period	205	380	285
Charge-offs	0	0	0
Recoveries	0	0	0
Provision	91	(175)	95
Balance as of Ending of Period	296	205	380
Allowance loan losses [Abstract]
Allowance for loan losses	296	205	380
Allowance for loans collectively evaluated for impairment	$ 296	$ 205

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Stockholders Equity (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders Equity [Abstract]

Components of accumulated other comprehensive (loss) income

In accordance with accounting standards, unrealized gains on available for sale securities and unrecognized actuarial gains or losses and prior service costs associated with the Company's pension and postretirement benefit plans are included in accumulated other comprehensive loss. For the years ended December 31, components of accumulated other comprehensive loss are:

(In thousands)	2012			2011
Unrecognized prior service cost and net actuarial loss on pension plans	$	(22,555	)	$	(24,633	)
Unrealized net holding gains on available for sale securities		16,675			18,529
Accumulated other comprehensive income (loss)	$	(5,880	)	$	(6,104	)

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Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Values of Financial Instruments [Abstract]

Fair Values of Financial Instruments

(21) Fair Values of Financial Instruments

The following table sets forth information with regard to estimated fair values of financial instruments at December 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, securities available for sale, trading securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable, and interest rate swaps.

			December 31, 2012				December 31, 2011
(In thousands)	Fair Value Hierarchy		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets
Securities held to maturity		2	$	60,563	$	61,535	$	70,811	$	72,198
Net loans		3		4,208,282		4,313,244		3,728,869		3,821,640
Financial liabilities
Time deposits		2	$	983,261	$	994,376	$	933,127	$	942,437
Long-term debt		2		367,492		407,404		370,344		427,107
Trust preferred debentures		2		75,422		74,147		75,422		75,422

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial trust and investment management operation that contributes net fee income annually. The trust and investment management operation is not considered a financial instrument, and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value.

Securities Held to Maturity

The fair value of the Company's investment securities held to maturity is primarily measured using information from a third party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Net Loans

The fair value of the Company's loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type, and then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Time Deposits

The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company's time deposit liabilities do not take into consideration the value of the Company's long-term relationships with depositors, which may have significant value.

Long-Term Debt

The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments.

Trust Preferred Debentures

The fair value of trust preferred debentures has been estimated using a discounted cash flow analysis.

The following table sets forth the Company's financial assets and liabilities measured on a recurring basis that were accounted for at fair value as of December 31, 2012 and December 31, 2011. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2012
Assets:
Securities Available for Sale:
U.S. Treasury	$	64,425	$	-	$	-	$	64,425
Federal Agency		-		282,814		-		282,814
State & municipal		-		86,802		-		86,802
Mortgage-backed		-		250,281		-		250,281
Collateralized mortgage obligations		-		449,723		-		449,723
Other securities		11,866		2,088		-		13,954
Total Securities Available for Sale	$	76,291	$	1,071,708	$	-	$	1,147,999
Trading Securities		3,918		-		-		3,918
Interest Rate Swaps		-		1,490		-		1,490
Total	$	80,208	$	1,073,198	$	-	$	1,153,407
Liabilities:
Interest Rate Swaps	$	-	$	1,490	$	-	$	1,490
Total	$	-	$	1,490	$	-	$	1,490

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2011
Assets:
Securities Available for Sale:
U.S. Treasury	$	82,233	$	-	$	-	$	82,233
Federal Agency		-		255,846		-		255,846
State & municipal		-		104,789		-		104,789
Mortgage-backed		-		325,397		-		325,397
Collateralized mortgage obligations		-		465,475		-		465,475
Other securities		8,825		2,054		-		10,879
Total Securities Available for Sale	$	91,058	$	1,153,561	$	-	$	1,244,619
Trading Securities		3,062		-		-		3,062
Total	$	94,120	$	1,153,561	$	-	$	1,247,681

Fair values for securities are based on quoted market prices or dealer quotes, where available. Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. When necessary, the Company utilizes matrix pricing from a third party pricing vendor to determine fair value pricing. Matrix prices are based on quoted prices for securities with similar coupons, ratings, and maturities, rather than on specific bids and offers for the designated security.

FASB ASC Topic 820 requires disclosure of assets and liabilities measured and recorded at fair value on a nonrecurring basis. In accordance with the provisions of FASB ASC Topic 310, the Company had collateral dependent impaired loans with a carrying value of approximately $8.4 million which had specific reserves included in the allowance for loan losses of $2.8 million at December 31, 2012. The Company uses the fair value of underlying collateral to estimate the specific reserves for collateral dependent impaired loans. The fair value of underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses ranging from 10% to 35%. Based on the valuation techniques used, the fair value measurements for collateral dependent impaired loans are classified as Level 3.

FASB ASC Topic 825 gives entities the option to measure eligible financial assets, financial liabilities and Company commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Company commitment. Subsequent changes in fair value must be recorded in earnings. As of December 31, 2012, the Company has not elected the fair value option for any eligible items.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Consolidation

Consolidation

The accompanying consolidated financial statements include the accounts of NBT Bancorp and its wholly owned subsidiaries mentioned above. All material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to the current year's presentation. In the "Parent Company Financial Information," the investment in subsidiaries is recorded using the equity method of accounting.

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity's activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, variable interest entities ("VIEs") are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in an entity is present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. The Company's wholly owned subsidiaries CNBF Capital Trust I, NBT Statutory Trust I and NBT Statutory Trust II are VIEs for which the Company is not the primary beneficiary. Accordingly, the accounts of these entities are not included in the Company's consolidated financial statements.

Segment Report

Segment Report

The Company's operations are primarily in the community banking industry and include the provision of traditional banking services. The Company also provides other services through its subsidiaries such as insurance, retirement plan administration, and trust administration. The Company operates solely in the geographical regions of central and upstate New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire and Burlington, Vermont. The Company has no reportable operating segments.

Cash Equivalents

Cash Equivalents

The Company considers amounts due from correspondent banks, cash items in process of collection, and institutional money market mutual funds to be cash equivalents for purposes of the consolidated statements of cash flows.

Securities

Securities

The Company classifies its securities at date of purchase as either available for sale, held to maturity or trading. Held to maturity debt securities are those that the Company has the ability and intent to hold until maturity. Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported in stockholders' equity and the statement of comprehensive income as a component of accumulated other comprehensive income or loss. Held to maturity securities are recorded at amortized cost. Trading securities are recorded at fair value, with net unrealized gains and losses recognized in income. Transfers of securities between categories are recorded at fair value at the date of transfer. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses or in other comprehensive income, depending on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be separated into (a) the amount representing the credit loss and (b) the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss shall be recognized in earnings. The amount of the total other-than-temporary impairment related to other factors shall be recognized in other comprehensive income, net of applicable taxes.

In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the historical and implied volatility of the fair value of the security.

Non-marketable equity securities are carried at cost.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividend and interest income are recognized when earned. Realized gains and losses on securities sold are derived using the specific identification method for determining the cost of securities sold.

Investments in Federal Reserve and Federal Home Loan Bank ("FHLB") stock are required for membership in those organizations and are carried at cost since there is no market value available.

Loans

Loans

Loans are recorded at their current unpaid principal balance, net of unearned income and unamortized loan fees and expenses, which are amortized under the effective interest method over the estimated lives of the loans. Interest income on loans is accrued based on the principal amount outstanding.

Lease receivables primarily represent automobile financing to customers through direct financing leases and are carried at the aggregate of the lease payments receivable and the estimated residual values, net of unearned income and net deferred lease origination fees and costs. Net deferred lease origination fees and costs are amortized under the effective interest method over the estimated lives of the leases. The estimated residual value related to the total lease portfolio is reviewed and if there has been a decline in the estimated fair value of the total residual value that is judged by management to be other-than-temporary a loss is recognized. Adjustments related to such other-than-temporary declines in estimated fair value are recorded in noninterest expense in the consolidated statements of income.

For all loan classes within the Company's loan portfolio, loans are placed on nonaccrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. Loans are transferred to nonaccrual status generally when principal or interest payments become ninety days delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes circumstances indicate that borrowers may be unable to meet contractual principal or interest payments. When a loan is transferred to a nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for loan losses.

If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected. For all loan classes within the Company's loan portfolio, nonaccrual loans are returned to accrual status when they become current as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest. For loans in all portfolios, the principal amount is charged off in full or in part as soon as management determines, based on available facts, that the collection of principal in full is improbable. For commercial loans, management considers specific facts and circumstances relative to individual credits in making such a determination. For consumer and residential loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council's Uniform Retail Credit Classification and Account Management Policy.

Commercial type loans are considered impaired when it is probable that the borrower will not repay the loan according to the original contractual terms of the loan agreement, and all loan types are considered impaired if the loan is restructured in a troubled debt restructuring ("TDR"). In determining that we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, we consider factors such as payment history and changes in the financial condition of individual borrowers, local economic conditions, historical loss experience and the conditions of the various markets in which the collateral may be liquidated.

A loan is considered to be a TDR when the Company grants a concession to the borrower because of the borrower's financial condition that the Company would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of all or a portion of principal or interest, or other modifications at interest rates that are less than the current market rate for new obligations with similar risk. TDR loans are nonaccrual loans; however, they can be returned to accrual status after a period of performance, generally evidenced by six months of compliance with their modified terms.

Allowance for LoanLosses

Allowance for Loan Losses

The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb probable losses inherent in the loan portfolio. The allowance is determined based upon numerous considerations, including local and regional conditions, the growth and composition of the loan portfolio with respect to the mix between the various types of loans and their related risk characteristics, a review of the value of collateral supporting the loans, comprehensive reviews of the loan portfolio by the independent loan review staff and management, as well as consideration of volume and trends of delinquencies, nonperforming loans, and loan charge-offs. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. As a result of tests of adequacy, required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses.

The allowance for loan losses related to impaired loans is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral (collateral dependent loans). The Company's impaired loans are generally collateral dependent. The Company considers the estimated cost to sell, on a discounted basis, when determining the fair value of collateral in the measurement of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loans.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions or changes in the values of properties securing loans in the process of foreclosure. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination which may not be currently available to management.

Premises and Equipment

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation of premises and equipment is determined using the straight-line method over the estimated useful lives of the respective assets. Expenditures for maintenance, repairs, and minor replacements are charged to expense as incurred.

Other Real Estate Owned

Other Real Estate Owned

OREO consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or "cost" (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of OREO are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of OREO at December 31, 2012 and 2011 was approximately $2.3 million and $2.2 million, respectively.

Acquired Loans

Acquired Loans

Acquired loans are initially measured at fair value as of the acquisition date without carryover of historical allowance for loan losses.

For loans that meet the criteria stipulated in ASC 310-30, the Company shall recognize the accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan's contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference shall not be recognized as an adjustment of yield, a loss accrual, or a valuation allowance. Decreases in the expected cash flows in subsequent periods require the establishment of an allowance for loan losses. Improvements in expected cash flows in future periods result in a reduction of the nonaccretable discount, with such amount reclassified as part of the accretable yield and subsequently recognized in interest income over the remaining lives of the acquired loans on a level-yield basis if the amount and timing of future cash flows is reasonably estimable.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan losses recognized subsequent to acquisition.

For loans that meet the criteria stipulated in ASC 310-20, the Company shall amortize/accrete into interest income the premium/discount determined at the date of purchase on a level-yield basis over the life of the loan. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses are similar to originated loans. Loans accounted for under ASC 310-20 are placed on nonaccrual status when past due in accordance with the Company's nonaccrual policy.

Subsequent to acquisition the estimate of cash flows expected to be collected on loans accounted for in accordance with ASC 310-20 is periodically re-assessed. These re-assessments involve the use of key assumptions and estimates, similar to those used in the initial estimate of fair value. A decrease in expected cash flows in subsequent periods may indicate that the loan pool is impaired, which would require the establishment of an allowance for loan losses by a charge to the provision for credit losses.

An acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale is recognized and reported within noninterest income based on the difference between the sales proceeds and the carrying amount of the loan. In other cases, individual loans are removed from the pool based on comparing the amount received from its resolution (fair value of the underlying collateral less costs to sell in the case of a foreclosure) with its outstanding balance. Any difference between these amounts is recorded as a charge-off through the allowance for loan losses. Acquired loans subject to modification are not removed from the pool even if those loans would otherwise be deemed troubled debt restructurings as the pool, and not the individual loan, represents the unit of account.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill and intangible assets that have indefinite useful lives are not amortized, but are tested at least annually for impairment. Intangible assets that have finite useful lives are amortized over their useful lives. Core deposit intangibles at the Company are amortized using the sum-of-the-years'-digits method. Covenants not to compete are amortized on a straight-line basis. Customer lists are amortized using an accelerated method.

When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the asset carrying value, using estimates of undiscounted future cash flows over the remaining asset life. Any impairment loss is measured by the excess of carrying value over fair value. Goodwill impairment tests are performed on an annual basis or when events or circumstances dictate. In these tests, the fair values of each reporting unit, or segment, is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated. If so, the implied fair value of the reporting unit's goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value.

Treasury Stock

Treasury Stock

Treasury stock acquisitions are recorded at cost. Subsequent sales of treasury stock are recorded on an average cost basis. Gains on the sale of treasury stock are credited to additional paid-in-capital. Losses on the sale of treasury stock are charged to additional paid-in-capital to the extent of previous gains, otherwise charged to retained earnings.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

Stock-Based Compensation

We maintain various long-term incentive stock benefit plans under which we grant stock options, restricted stock awards, and restricted stock units to certain directors and key employees. We recognize compensation expense in our income statement over the requisite service period, based on the grant-date fair value of the award. The fair values of options are estimated using the Black-Scholes option pricing model. For restricted stock awards and units, we recognize compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date.

The Company's stock-based employee compensation plan is described in Note 18 "Employee Benefit Plans," of this Report.

Interest Rate Swaps

Interest Rate Swaps

Beginning in June 2012 with the acquisition of Hampshire First Bank, the Bank offers interest rate swap agreements to its customers. These agreements allow the Bank's customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement. Simultaneous with the execution of such an agreement with a customer, the Bank enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Bank to continue to receive the historical variable rate under the loan agreement with the customer. The agreement with the third party is not a hedge contract therefore changes in fair value are recorded through earnings. Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet. Gains and losses are recorded as other noninterest income. The Bank is not subject to any fee or penalty should the customer elect to terminate the interest rate swap agreement prior to maturity. The Bank is exposed to credit loss equal to the fair value of the derivatives (not the notional amount of the derivatives) in the event of nonperformance by the counterparty to the interest rate swap agreements. Additionally, the Bank receives a fee from the customer that is recognized when the Bank has fulfilled its obligations under each agreement, which is generally upon execution of the agreement with the Bank's customer. Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Bank is limited to the fees it receives from the customer.

Other Financial Instruments

Other Financial Instuments

The Company is a party to certain other financial instruments with off-balance-sheet risk such as commitments to extend credit, unused lines of credit, as well as certain mortgage loans sold to investors with recourse. The Company's policy is to record such instruments when funded.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Under the standby letters of credit, the Company is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer's failure to perform under the terms of the underlying contract with the beneficiary. Standby letters of credit typically have one year expirations with an option to renew upon annual review. The Company typically receives a fee for these transactions. The fair value of stand-by letters of credit is recorded upon inception.

Loan Sales and Loan Servicing

Loan Sales and Loan Servicing

The Company originates and services residential mortgage loans for consumers and sells 15-year, 20-year and 30-year residential real estate mortgages in the secondary market when the interest rate environment is determined to be favorable by management, while retaining servicing rights on the sold loans. Loan sales are recorded when the sales are funded. Mortgage servicing rights are recorded at fair value upon sale of the loan. Loans held for sale are recorded at the lower of cost or market.

Repurchase Agreements

Repurchase Agreements

Repurchase agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets the other criteria for such accounting. Obligations to repurchase securities sold are reflected as a liability in the Consolidated Balance Sheets. The securities underlying the agreements are delivered to a custodial account for the benefit of the dealer or bank with whom each transaction is executed. The dealers or banks, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agree to resell to the Company the same securities at the maturities of the agreements.

Earnings Per Share

Earnings Per Share

Basic earnings per share ("EPS") excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company's dilutive stock options and restricted stock).

Subsequent Events

Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.

Comprehensive Income

Comprehensive Income

At the Company, comprehensive income represents net income plus other comprehensive income (loss), which consists primarily of the net change in unrealized gains or losses on securities available for sale for the period and changes in the funded status of employee benefit plans. Accumulated other comprehensive (loss) income represents the net unrealized gains or losses on securities available for sale and the previously unrecognized portion of the funded status of employee benefit plans, net of income taxes, as of the consolidated balance sheet dates.

Pension Costs

Pension Costs

The Company maintains a noncontributory, defined benefit pension plan covering substantially all employees, as well as supplemental employee retirement plans covering certain executives and a defined benefit postretirement healthcare plan that covers certain employees. Costs associated with these plans, based on actuarial computations of current and future benefits for employees, are charged to current operating expenses.

Trust Operations

Trust Operations

Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Company. Trust income is recognized on the accrual method based on contractual rates applied to the balances of trust accounts.

Fair Value Measurements

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within level 1 or level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations, and certain physical commodities. Such instruments are generally classified within level 2 of the fair value hierarchy.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate will be used. Management's best estimate consists of both internal and external support on certain Level 3 investments. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements of Changes in Stockholders' Equity [Abstract]
Cash dividends - per share (in dollars per share)	$ 0.80	$ 0.80	$ 0.80
Net issuance of common shares (in shares)			23,810
Purchase of treasury shares (in shares)	769,568	1,458,609
Net issuance of shares for acquisition (in shares)	1,269,592
Net issuance of shares to employee stock plans, including tax benefit (in shares)	118,616	112,512	141,146

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Merger and Acquisition Activity (Tables)

12 Months Ended

Dec. 31, 2012

Merger and Acquisition Activity [Abstract]

Consideration paid, assets acquired, and liabilities assumed

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

Acquired loan portfolio

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

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Deposits (Tables)

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Maturity distribution of time deposits

The following table sets forth the maturity distribution of time deposits at December 31, 2012 (in thousands):

Time deposits
Within one year	$	454,235
After one but within two years		326,502
After two but within three years		109,348
After three but within four years		49,222
After four but within five years		35,972
After five years		7,982
Total	$	983,261

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Federal Reserve Bank Requirement (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 26, 2012
Federal Reserve Bank Requirement [Abstract]
Federal Reserve Bank maintenance period	14 days
Average reserve at Federal Reserve Bank for maintenance period		$ 35.2

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Commitments and Contingent Liabilities (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Commitments and Contingent Liabilities [Abstract]
Percentage of the Company's loans secured by real estate (in hundredths)	59.00%
Guarantor Obligations [Line Items]
Loans serviced by the Company for unrelated third parties	$ 308,400,000	$ 301,900,000
Unused lines of Credit [Member]
Guarantor Obligations [Line Items]
Commitments - maximum potential obligation	163,626,000	161,551,000
Commitment to Extend Credits [Member]
Guarantor Obligations [Line Items]
Commitments - maximum potential obligation	678,093,000	603,322,000
Standby Letters of Credit [Member]
Guarantor Obligations [Line Items]
Commitments - maximum potential obligation	37,510,000	26,783,000
Obligation instrument term	five years or less and expire unused
Commercial Letters of Credit [Member]
Guarantor Obligations [Line Items]
Commitments - maximum potential obligation	16,607,000	15,218,000
Loans Sold with Recourse [Member]
Guarantor Obligations [Line Items]
Commitments - maximum potential obligation	$ 13,690,000	$ 16,175,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 157,094	$ 128,517
Short-term interest bearing accounts	6,574	864
Securities available for sale, at fair value	1,147,999	1,244,619
Securities held to maturity (fair value $61,535 and $72,198)	60,563	70,811
Trading securities	3,918	3,062
Federal Reserve and Federal Home Loan Bank stock	29,920	27,020
Loans	4,277,616	3,800,203
Less allowance for loan losses	69,334	71,334
Net loans	4,208,282	3,728,869
Premises and equipment, net	77,875	74,541
Goodwill	152,373	132,029
Intangible assets, net	16,962	18,194
Bank owned life insurance	80,702	77,626
Other assets	99,997	92,254
Total assets	6,042,259	5,598,406
Liabilities
Demand (noninterest bearing)	1,242,712	1,052,906
Savings, NOW, and money market	2,558,376	2,381,116
Time	983,261	933,127
Total deposits	4,784,349	4,367,149
Short-term borrowings	162,941	181,592
Long-term debt	367,492	370,344
Trust preferred debentures	75,422	75,422
Other liabilities	69,782	65,789
Total liabilities	5,459,986	5,060,296
Stockholders' equity
Preferred stock, $0.01 par value; authorized 2,500,000 shares at December 31, 2012 and 2011	0	0
Common stock, $0.01 par value. Authorized 100,000,000 shares at December 31, 2012 and 50,000,000 at December 31, 2011; issued 39,305,131 at December 31, 2012 and 38,035,539 at December 31, 2011	393	380
Additional paid-in-capital	346,692	317,329
Retained earnings	357,558	329,981
Accumulated other comprehensive loss	(5,880)	(6,104)
Common stock in treasury, at cost, 5,529,781 and 4,878,829 shares at December 31, 2012 and 2011, respectively	(116,490)	(103,476)
Total stockholders' equity	582,273	538,110
Total liabilities and stockholders' equity	$ 6,042,259	$ 5,598,406

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Regulatory Capital Requirements (Tables)

12 Months Ended

Dec. 31, 2012

Regulatory Capital Requirements [Abstract]

Schedule of compliance with regulatory compliance requirements under banking regulations

The Company and NBT Bank's actual capital amounts and ratios are presented as follows:

	Actual					Regulatory ratio requirements
(Dollars in thousands)	Amount		Ratio			Minimum capital adequacy			For classification as well capitalized
As of December 31, 2012
Total Capital (to risk weighted assets):
Company	$	560,745		12.25	%		8.00	%		10.00	%
NBT Bank		505,027		11.08	%		8.00	%		10.00	%
Tier I Capital (to risk weighted assets)
Company		503,359		11.00	%		4.00	%		6.00	%
NBT Bank		447,909		9.83	%		4.00	%		6.00	%
Tier I Capital (to average assets)
Company		503,359		8.54	%		4.00	%		5.00	%
NBT Bank		447,909		7.62	%		4.00	%		5.00	%
As of December 31, 2011
Total Capital (to risk weighted assets):
Company	$	528,674		12.81	%		8.00	%		10.00	%
NBT Bank		506,246		12.28	%		8.00	%		10.00	%
Tier I Capital (to risk weighted assets)
Company		476,837		11.56	%		4.00	%		6.00	%
NBT Bank		454,476		11.03	%		4.00	%		6.00	%
Tier I Capital (to average assets)
Company		476,837		8.74	%		4.00	%		5.00	%
NBT Bank		454,476		8.35	%		4.00	%		5.00	%

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Other comprehensive (loss) income, net of tax
Unrealized net holding (losses) gains arising during the period, pre-tax amounts	$ (2,471)	$ 12,757	$ (6,660)
Reclassification adjustment for net gains related to securities available for sale included in net income, pre-tax amounts	599	150	3,274
Amortization of prior service cost and actuarial gains, pre-tax amounts	3,593	1,665	1,768
Decrease in unrecognized actuarial loss, pre-tax amounts	$ (24)	$ (15,546)	$ (2,596)

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Allowance for Loan Losses and Credit Quality of Loans, Credit Quality by Loan Class (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Commercial Credit Exposure [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	$ 1,637,411	$ 1,446,436
Commercial Credit Exposure [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	1,515,732	1,316,413
Commercial Credit Exposure [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	50,552	34,876
Commercial Credit Exposure [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	68,347	94,622
Commercial Credit Exposure [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	2,780	525
Commercial Credit Exposure [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	561,481	511,074
Commercial Credit Exposure [Member] | Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	522,985	470,332
Commercial Credit Exposure [Member] | Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	18,401	10,346
Commercial Credit Exposure [Member] | Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	17,351	29,940
Commercial Credit Exposure [Member] | Commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	2,744	456
Commercial Credit Exposure [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	974,795	834,899
Commercial Credit Exposure [Member] | Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	901,928	758,673
Commercial Credit Exposure [Member] | Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	32,135	24,478
Commercial Credit Exposure [Member] | Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	40,732	51,748
Commercial Credit Exposure [Member] | Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Commercial Credit Exposure [Member] | Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	63,758	66,537
Commercial Credit Exposure [Member] | Agricultural [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	57,347	58,481
Commercial Credit Exposure [Member] | Agricultural [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	13	42
Commercial Credit Exposure [Member] | Agricultural [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	6,362	7,945
Commercial Credit Exposure [Member] | Agricultural [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	36	69
Commercial Credit Exposure [Member] | Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	37,377	33,926
Commercial Credit Exposure [Member] | Agricultural Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	33,472	28,927
Commercial Credit Exposure [Member] | Agricultural Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	3	10
Commercial Credit Exposure [Member] | Agricultural Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	3,902	4,989
Commercial Credit Exposure [Member] | Agricultural Real Estate [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Commercial Credit Exposure [Member] | Business Banking [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	365,960	256,141
Commercial Credit Exposure [Member] | Business Banking [Member] | Non-classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	342,528	237,887
Commercial Credit Exposure [Member] | Business Banking [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	23,432	18,254
Consumer Credit Exposure [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	1,623,138	1,516,115
Consumer Credit Exposure [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	1,612,098	1,503,879
Consumer Credit Exposure [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	11,040	12,236
Consumer Credit Exposure [Member] | Indirect [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	980,997	873,103
Consumer Credit Exposure [Member] | Indirect [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	978,235	870,270
Consumer Credit Exposure [Member] | Indirect [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	2,762	2,833
Consumer Credit Exposure [Member] | Home Equity Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	575,282	569,645
Consumer Credit Exposure [Member] | Home Equity Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	567,354	560,760
Consumer Credit Exposure [Member] | Home Equity Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	7,928	8,885
Consumer Credit Exposure [Member] | Direct [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	66,859	73,367
Consumer Credit Exposure [Member] | Direct [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	66,509	72,849
Consumer Credit Exposure [Member] | Direct [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	350	518
Residential Mortgage Credit Exposure [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	651,107	581,511
Residential Mortgage Credit Exposure [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	641,608	571,704
Residential Mortgage Credit Exposure [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	$ 9,499	$ 9,807

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Loans (Tables)

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Loans, net of deferred fees and origination costs

A summary of loans, net of deferred fees and origination costs, by category is as follows:

	At December 31,
(In thousands)	2012		2011
Residential real estate mortgages	$	651,107	$	581,511
Commercial		694,799		611,298
Commercial real estate		1,072,807		888,879
Real estate construction and development		123,078		93,977
Agricultural and agricultural real estate mortgages		112,687		108,423
Consumer		1,047,856		946,470
Home equity		575,282		569,645
Total loans	$	4,277,616	$	3,800,203

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Short-Term Borrowings (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Short-term Debt [Line Items]
Balance at year-end	$ 162,941,000	$ 181,592,000
FHLB, unused lines of credit available for short-term financing	418,000,000	323,000,000
Federal Funds Purchased [Member]
Short-term Debt [Line Items]
Balance at year-end	10,000,000	27,000,000	0
Average during the year	12,658,000	3,017,000	0
Maximum month end balance	60,000,000	28,000,000	0
Weighted average rate during the year (in hundredths)	0.27%	0.11%	0.00%
Weighted average rate at December 31 (in hundredths)	0.27%	0.13%	0.00%
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Balance at year-end	152,941,000	154,592,000	159,184,000
Average during the year	153,084,000	150,663,000	157,964,000
Maximum month end balance	165,977,000	178,414,000	169,278,000
Weighted average rate during the year (in hundredths)	0.10%	0.13%	0.25%
Weighted average rate at December 31 (in hundredths)	0.10%	0.10%	0.15%
Other Short-Term Borrowings [Member]
Short-term Debt [Line Items]
Balance at year-end	0	0	250,000
Average during the year	0	249,000	250,000
Maximum month end balance	$ 0	$ 250,000	$ 250,000
Weighted average rate during the year (in hundredths)	0.00%	0.00%	0.00%
Weighted average rate at December 31 (in hundredths)	0.00%	0.00%	0.00%

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Long-Term Debt

12 Months Ended

Dec. 31, 2012

Long-Term Debt [Abstract]

Long-Term Debt

(13) Long-Term Debt

Long-term debt consists of obligations having an original maturity at issuance of more than one year. A majority of the Company's long-term debt is comprised of FHLB advances collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans. A summary as of December 31, 2012 and 2011 is as follows:

	As of December 31, 2012										As of December 31, 2011
Maturity	Amount		Weighted Average Rate			Callable Amount		Weighted Average Rate			Amount		Weighted Average Rate			Callable Amount		Weighted Average Rate
2013		119,502		3.87	%		100,000		3.71	%		119,400		3.87	%		100,000		3.71	%
2014		2,610		1.89	%		-		-			2,604		2.00	%		-		-
2015		250		0.00	%		-		-			-		0.00	%		-		-
2016		70,000		4.21	%		70,000		4.21	%		70,000		4.21	%		70,000		4.21	%
2017		100,000		3.89	%		100,000		3.89	%		100,000		3.89	%		100,000		3.89	%
2018		75,000		3.61	%		75,000		3.61	%		75,000		3.61	%		75,000		3.61	%
2021		130		4.00	%		-		-			-		0.00	%		-		-
2025		-		0.00	%		-		-			3,340		2.75	%		-		-
	$	367,492				$	345,000				$	370,344				$	345,000

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Allowance for Loan Losses and Credit Quality of Loans (Tables)

12 Months Ended

Dec. 31, 2012

Allowance for Loan Losses and Credit Quality of Loans and Leases [Abstract]

Allowance for loan losses by portfolio

After a thorough consideration of the factors discussed above, any required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses. These charges are necessary to maintain the allowance at a level which management believes is reasonably reflective of overall inherent risk of probable loss in the portfolio. While management uses available information to recognize losses on loans, additions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management's assessment of any or all of the determining factors discussed above. The following table illustrates the changes in the allowance for loan losses by portfolio segment for the years ended December 31, 2012 and 2011

Allowance for Loan Losses
(in thousands)
Years ended December 31							Residential
	Commercial			Consumer			Real Estate
	Loans			Loans			Mortgages			Unallocated			Total
Balance as of December 31, 2011	$	38,831		$	26,049		$	6,249		$	205		$	71,334
Charge-offs		(8,750	)		(15,848	)		(1,906	)		-			(26,504	)
Recoveries		1,641			2,556			38			-			4,235
Provision		3,902			14,405			1,871			91			20,269
Ending Balance as of December 31, 2012	$	35,624		$	27,162		$	6,252		$	296		$	69,334
Balance as of December 31, 2010	$	40,101		$	26,126		$	4,627		$	380		$	71,234
Charge-offs		(8,969	)		(14,209	)		(1,310	)		-			(24,488	)
Recoveries		1,438			2,406			7			-			3,851
Provision		6,261			11,726			2,925			(175	)		20,737
Ending Balance as of December 31, 2011	$	38,831		$	26,049		$	6,249		$	205		$	71,334
Balance as of December 31, 2009	$	36,599		$	26,664		$	3,002		$	285		$	66,550
Charge-offs		(12,969	)		(15,692	)		(1,176	)		-			(29,837	)
Recoveries		1,922			2,747			43			-			4,712
Provision		14,549			12,407			2,758			95			29,809
Ending Balance as of December 31, 2010	$	40,101		$	26,126		$	4,627		$	380		$	71,234

The following table illustrates the allowance for loan losses and the recorded investment by portfolio segment as of December 31, 2012 and 2011:

Allowance for Loan Losses and Recorded Investment in Loans
(in thousands)
					Residential
	Commercial		Consumer		Real Estate
	Loans		Loans		Mortgages		Unallocated		Total
As of December 31, 2012
Allowance for loan losses	$	35,624	$	27,162	$	6,252	$	296	$	69,334
Allowance for loans individually evaluated for impairment	$	2,848	$	-	$	-			$	2,848
Allowance for loans collectively evaluated for impairment	$	32,776	$	27,162	$	6,252	$	296	$	66,486
Ending balance of loans	$	2,003,371	$	1,623,138	$	651,107			$	4,277,616
Ending balance of loans individually evaluated for impairment	$	11,972	$	-	$	-			$	11,972
Ending balance of loans collectively evaluated for impairment	$	1,991,399	$	1,623,138	$	651,107			$	4,265,644
As of December 31, 2011
Allowance for loan losses	$	38,831	$	26,049	$	6,249	$	205	$	71,334
Allowance for loans individually evaluated for impairment	$	175	$	-	$	-			$	175
Allowance for loans collectively evaluated for impairment	$	38,656	$	26,049	$	6,249	$	205	$	71,159
Ending balance of loans	$	1,702,577	$	1,516,115	$	581,511			$	3,800,203
Ending balance of loans individually evaluated for impairment	$	6,219	$	-	$	-			$	6,219
Ending balance of loans collectively evaluated for impairment	$	1,696,358	$	1,516,115	$	581,511			$	3,793,984

Past due and nonperforming loans by loan class

The following table illustrates the Company's nonaccrual loans by loan class as of December 31, 2012 and 2011:

Loans on Nonaccrual Status
As of December 31, 2012
(In thousands)	December 31, 2012		December 31, 2011
Commercial Loans
Commercial	$	4,985	$	1,699
Commercial Real Estate		7,977		4,868
Agricultural		699		3,307
Agricultural Real Estate		1,038		2,067
Business Banking		6,738		7,446
		21,437		19,387
Consumer Loans
Indirect		1,557		1,550
Home Equity		7,247		7,931
Direct		266		378
		9,070		9,859
Residential Real Estate Mortgages		9,169		9,044
Total Nonaccrual	$	39,676	$	38,290

The following table sets forth information with regard to past due and nonperforming loans by loan class:

Age Analysis of Past Due Loans

As of December 31, 2012

(in thousands)

					Greater Than								Recorded
	31-60 Days		61-90 Days		90 Days		Total						Total
	Past Due		Past Due		Past Due		Past Due						Loans and
	Accruing		Accruing		Accruing		Accruing		Non-Accrual		Current		Leases
Commercial
Commercial	$	-	$	-	$	-	$	-	$	4,985	$	556,496	$	561,481
Commercial Real Estate		126		-		-		126		7,977		966,692		974,795
Agricultural		22		-		-		22		699		63,037		63,758
Agricultural Real Estate		108		-		103		211		1,038		36,128		37,377
Business Banking		3,019		708		45		3,772		6,738		355,450		365,960
		3,275		708		148		4,131		21,437		1,977,803		2,003,371
Consumer
Indirect		10,956		2,477		1,205		14,638		1,557		964,802		980,997
Home Equity		6,065		1,223		681		7,969		7,247		560,066		575,282
Direct		717		144		84		945		266		65,648		66,859
		17,738		3,844		1,970		23,552		9,070		1,590,516		1,623,138
Residential Real Estate Mortgages		1,839		725		330		2,894		9,169		639,044		651,107
	$	22,852	$	5,277	$	2,448	$	30,577	$	39,676	$	4,207,363	$	4,277,616

Age Analysis of Past Due Loans

As of December 31, 2011

(in thousands)

					Greater Than								Recorded
	31-60 Days		61-90 Days		90 Days		Total						Total
	Past Due		Past Due		Past Due		Past Due						Loans and
	Accruing		Accruing		Accruing		Accruing		Non-Accrual		Current		Leases
Commercial Loans
Commercial	$	663	$	50	$	-	$	713	$	1,699	$	508,662	$	511,074
Commercial Real Estate		1,942		-		-		1,942		4,868		828,089		834,899
Agricultural		77		13		-		90		3,307		63,140		66,537
Agricultural Real Estate		-		-		50		50		2,067		31,809		33,926
Business Banking		1,871		1,024		-		2,895		7,446		245,800		256,141
		4,553		1,087		50		5,690		19,387		1,677,500		1,702,577
Consumer Loans
Indirect		12,141		2,584		1,283		16,008		1,550		855,545		873,103
Home Equity		5,823		1,277		954		8,054		7,931		553,660		569,645
Direct		831		191		140		1,162		378		71,827		73,367
		18,795		4,052		2,377		25,224		9,859		1,481,032		1,516,115
Residential Real Estate Mortgages		2,003		139		763		2,905		9,044		569,562		581,511
	$	25,351	$	5,278	$	3,190	$	33,819	$	38,290	$	3,728,094	$	3,800,203

Impaired loans and specific reserve allocations

The following provides additional information on impaired loans for the years ended December 31, 2012 and 2011:

Impaired Loans
	December 31, 2012						December 31, 2011
	Recorded		Unpaid				Recorded		Unpaid
	Investment		Principal				Investment		Principal
	Balance		Balance		Related		Balance		Balance		Related
(in thousands)	(Book)		(Legal)		Allowance		(Book)		(Legal)		Allowance
With no related allowance recorded:
Commercial Loans
Commercial	$	650	$	709			$	1,243	$	2,723
Commercial Real Estate		3,909		4,753				4,868		7,165
Agricultural		699		1,019				3,307		4,166
Agricultural Real Estate		1,038		1,225				2,067		2,288
Business Banking		6,738		9,269				7,446		9,976
Total Commercial Loans		13,034		16,975				18,931		26,318
Consumer Loans
Home Equity		2,553		2,657				2,000		2,103
Residential Real Estate Mortgages		2,011		2,308				1,040		1,125
		17,598		21,940				21,971		29,546
With an allowance recorded:
Commercial Loans
Commercial	$	4,335	$	4,340	$	2,241	$	456	$	808	$	175
Commercial Real Estate		4,068		5,689		607		-		-		-
Agricultural		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		-		-		-
		8,403		10,029		2,848		456		808		175
Total:	$	26,001	$	31,969	$	2,848	$	22,427	$	30,354	$	175

The following table summarizes the average recorded investments on impaired loans and the interest income recognized for the years ended December 31, 2012, 2011 and 2010:

	December 31, 2012						December 31, 2011						December 31, 2010
	Average		Interest Income				Average		Interest Income				Average		Interest Income
	Recorded		Recognized				Recorded		Recognized				Recorded		Recognized
(in thousands)	Investment		Accrual		Cash		Investment		Accrual		Cash		Investment		Accrual		Cash
With no related allowance recorded:
Commercial Loans
Commercial	$	1,421	$	25	$	25	$	2,322	$	94	$	94	$	1,898	$	113	$	113
Commercial Real Estate		6,167		70		70		4,794		163		163		4,219		317		317
Agricultural		2,611		368		368		3,013		133		133		2,990		82		82
Agricultural Real Estate		1,575		86		86		1,719		109		109		1,929		150		150
Business Banking		6,636		227		227		6,121		266		266		4,959		234		234
Consumer Loans
Home Equity		1,877		66		66		1,904		91		91		-		-		-
Residential Real Estate Mortgages		1,143		73		73		926		58		58		132		6		6
	$	21,429	$	915	$	915	$	20,798	$	914	$	914	$	16,127	$	902	$	902
With an allowance recorded:
Commercial Loans
Commercial	$	4,217	$	43	$	43	$	861	$	86	$	86	$	2,366	$	118	$	118
Commercial Real Estate		339		-		-		287		-		-		1,234		-		-
Agricultural		-		-		-		791		68		68		1,386		150		150
Agricultural Real Estate		-		-		-		357		18		18		816		67		67
	$	4,556	$	43	$	43	$	2,295	$	172	$	172	$	5,802	$	335	$	335
Total:	$	25,985	$	958	$	958	$	23,094	$	1,086	$	1,086	$	21,929	$	1,237	$	1,237

Financing receivable credit quality by loan class

The following tables illustrates the Company's credit quality by loan class for the years ended December 31, 2012 and 2011:

Credit Quality Indicators

As of December 31, 2012

Commercial Credit Exposure			Commercial				Agricultural
By Internally Assigned Grade:	Commercial		Real Estate		Agricultural		Real Estate		Total
Pass	$	522,985	$	901,928	$	57,347	$	33,472	$	1,515,732
Special Mention		18,401		32,135		13		3		50,552
Substandard		17,351		40,732		6,362		3,902		68,347
Doubtful		2,744		-		36		-		2,780
Total	$	561,481	$	974,795	$	63,758	$	37,377	$	1,637,411
Business Banking Credit Exposure	Business
By Internally Assigned Grade:	Banking								Total
Non-classified	$	342,528							$	342,528
Classified		23,432								23,432
Total	$	365,960							$	365,960
Consumer Credit Exposure
By Payment Activity:	Indirect		Home Equity		Direct				Total
Performing	$	978,235	$	567,354	$	66,509			$	1,612,098
Nonperforming		2,762		7,928		350				11,040
Total	$	980,997	$	575,282	$	66,859			$	1,623,138
Residential Mortgage Credit Exposure	Residential
By Payment Activity:	Mortgage								Total
Performing	$	641,608							$	641,608
Nonperforming		9,499								9,499
Total	$	651,107							$	651,107

Credit Quality Indicators

As of December 31, 2011

Commercial Credit Exposure			Commercial				Agricultural
By Internally Assigned Grade:	Commercial		Real Estate		Agricultural		Real Estate		Total
Pass	$	470,332	$	758,673	$	58,481	$	28,927	$	1,316,413
Special Mention		10,346		24,478		42		10		34,876
Substandard		29,940		51,748		7,945		4,989		94,622
Doubtful		456		-		69		-		525
Total	$	511,074	$	834,899	$	66,537	$	33,926	$	1,446,436
Business Banking Credit Exposure	Business
By Internally Assigned Grade:	Banking								Total
Non-classified	$	237,887							$	237,887
Classified		18,254								18,254
Total	$	256,141							$	256,141
Consumer Credit Exposure
By Payment Activity:	Indirect		Home Equity		Direct				Total
Performing	$	870,270	$	560,760	$	72,849			$	1,503,879
Nonperforming		2,833		8,885		518				12,236
Total	$	873,103	$	569,645	$	73,367			$	1,516,115
Residential Mortgage Credit Exposure	Residential
By Payment Activity:	Mortgage								Total
Performing	$	571,704							$	571,704
Nonperforming		9,807								9,807
Total	$	581,511							$	581,511

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

(15) Income Taxes

The significant components of income tax expense attributable to operations are:

	Years ended December 31,
	2012			2011			2010
Current
Federal	$	21,011		$	29,274		$	34,124
State		1,815			1,477			1,743
		22,826			30,751			35,867
Deferred
Federal		(13	)		(8,129	)		(12,121	)
State		3			(1,349	)		(2,834	)
		(10	)		(9,478	)		(14,955	)
Total income tax expense	$	22,816		$	21,273		$	20,912

Not included in the above table are items that were recorded to stockholders' equity of approximately ($0.1 million), ($0.5 million), and ($4.3 million) for 2012, 2011, and 2010, respectively, relating to deferred taxes on the unrealized (gain) loss on available for sale securities, tax benefits recognized with respect to stock options exercised, and deferred taxes related to pension plans.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(In thousands)	2012		2011
Deferred tax assets
Allowance for loan losses	$	26,687	$	27,487
Deferred compensation		5,362		4,911
Postretirement benefit obligation		1,600		1,036
Fair value adjustments from acquisitions		3,633		2,227
Accrued liabilities		1,524		1,482
Stock-based compensation expense		5,726		4,440
Other		1,933		1,214
Total deferred tax assets		46,465		42,797
Deferred tax liabilities
Pension and executive retirement		7,676		6,916
Unrealized gains on securities available for sale		10,939		12,156
Premises and equipment, primarily due to accelerated depreciation		1,980		2,340
Equipment leasing		582		3,090
Deferred loan costs		873		767
Intangible amortization		13,146		11,081
Other		154		494
Total deferred tax liabilities		35,350		36,844
Net deferred tax asset at year-end		11,115		5,953
Net deferred tax asset (liability) at beginning of year		5,953		(4,023	)
Increase in net deferred tax asset	$	5,162	$	9,976

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the available carryback period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Based on available evidence, gross deferred tax assets will ultimately be realized and a valuation allowance was not deemed necessary at December 31, 2012 and 2011.

A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is as follows:

(In thousands)	2012			2011			2010
Balance at January 1	$	888		$	3,081		$	2,287
Additions for tax positions of prior years		-			-			1,714
Reduction for tax positions of prior years		(888	)		(2,193	)		(920	)
Balance at December 31	$	-		$	888		$	3,081

At December 31, 2012, the Company had no ASC 740-10 unrecognized tax benefits with $.9 million and $3.1 million of unrecognized tax benefits at December 31, 2011 and 2010, respectively. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. During 2012 and 2011 there was a reduction of reserves for Federal tax benefits for expiration of the statute of limitations of prior years' tax filings and in 2011 the Company reached a settlement with New York State on franchise tax examinations for the years 2003 through 2007. As a result, unrecognized tax benefits were reduced $0.9 million and $2.2 million for 2012 and 2011, respectively, with a reduction of tax expense of $0.8 million in 2012 and $1.5 million in 2011.

The Company is no longer subject to U.S. Federal and New York State examination by tax authorities for years prior to 2008.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense. The total amount of accrued interest at December 31, 2011 was approximately $0.1 million. Net interest impacting the Company's 2011 and 2010 tax expense was $0.3 million and $0.3 million, respectively.

The following is a reconciliation of the provision for income taxes to the amount computed by applying the applicable Federal statutory rate of 35% to income before taxes:

	Years ended December 31
(In thousands)	2012			2011			2010
Federal income tax at statutory rate	$	27,081		$	27,711		$	27,410
Tax exempt income		(2,536	)		(2,925	)		(3,448	)
Net increase in CSV of life insurance		(908	)		(919	)		(939	)
Low income housing tax credits		(629	)		(782	)		(296	)
State taxes, net of federal tax benefit		1,182			764			756
State audit settlements		-			(681	)		(1,465	)
Other, net		(1,374	)		(1,895	)		(1,106	)
Income tax expense	$	22,816		$	21,273		$	20,912

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Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current [Abstract]
Federal	$ 21,011,000	$ 29,274,000	$ 34,124,000
State	1,815,000	1,477,000	1,743,000
Current tax expense (benefit)	22,826,000	30,751,000	35,867,000
Deferred [Abstract]
Federal	(13,000)	(8,129,000)	(12,121,000)
State	3,000	(1,349,000)	(2,834,000)
Deferred tax expense (benefit)	(10,000)	(9,478,000)	(14,955,000)
Total income tax expense	22,816,000	21,273,000	20,912,000
Income tax recorded to stockholders' equity	(100,000)	(500,000)	(4,300,000)
Deferred tax assets [Abstract]
Allowance for loan and lease losses	26,687,000	27,487,000
Deferred compensation	5,362,000	4,911,000
Postretirement benefit obligation	1,600,000	1,036,000
Fair value adjustments from acquisitions	3,633,000	2,227,000
Accrued liabilities	1,524,000	1,482,000
Stock-based compensation expense	5,726,000	4,440,000
Other	1,933,000	1,214,000
Total deferred tax assets	46,465,000	42,797,000
Deferred tax liabilities [Abstract]
Pension and executive retirement	7,676,000	6,916,000
Unrealized gains on securities available for sale	10,939,000	12,156,000
Premises and equipment, primarily due to accelerated depreciation	1,980,000	2,340,000
Equipment leasing	582,000	3,090,000
Deferred loan costs	873,000	767,000
Intangible amortization	13,146,000	11,081,000
Other	154,000	494,000
Total deferred tax liabilities	35,350,000	36,844,000
Net deferred tax asset at year-end	11,115,000	5,953,000	(4,023,000)
Net deferred tax asset (liability) at beginning of year	5,953,000	(4,023,000)
Increase in net deferred tax asset	5,162,000	9,976,000
Reconciliation of gross unrecognized tax benefits [Roll Forward]
Balance, beginning of period	888,000	3,081,000	2,287,000
Additions for tax positions of prior years	0	0	1,714,000
Reduction for tax positions of prior years	(888,000)	(2,193,000)	(920,000)
Balance, end of period	0	888,000	3,081,000
Decrease in tax expense resulting from lapse of statute of limitations	800,000	1,500,000
Accrued interest		100,000
Net interest		300,000	300,000
Federal statutory income tax rate (in hundredths)	35.00%
Income tax reconciliation [Abstract]
Federal income tax at statutory rate	27,081,000	27,711,000	27,410,000
Tax exempt income	(2,536,000)	(2,925,000)	(3,448,000)
Net increase in CSV of life insurance	(908,000)	(919,000)	(939,000)
Low income housing tax credits	(629,000)	(782,000)	(296,000)
State taxes, net of federal tax benefit	1,182,000	764,000	756,000
State audit settlements	0	(681,000)	(1,465,000)
Other, net	(1,374,000)	(1,895,000)	(1,106,000)
Income tax expense	$ 22,816,000	$ 21,273,000	$ 20,912,000

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Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands	Total	Common Stock [Member]	Additional Paid-in-Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss) Income [Member]	Common Stock in Treasury [Member]
Beginning Balance at Dec. 31, 2009	$ 505,123	$ 380	$ 311,164	$ 270,232	$ 1,163	$ (77,816)
Net income	57,404	0	0	57,404	0	0
Cash dividends	(27,577)	0	0	(27,577)	0	0
Net issuance of common shares	(477)	0	0	0	0	(477)
Net issuance of shares to employee stock plans, including tax benefit	1,815	0	(923)	(262)	0	3,000
Stock-based compensation	3,782	0	3,782	0	0	0
Other comprehensive income	(6,498)	0	0	0	(6,498)	0
Ending Balance at Dec. 31, 2010	533,572	380	314,023	299,797	(5,335)	(75,293)
Net income	57,901	0	0	57,901	0	0
Cash dividends	(27,063)	0	0	(27,063)	0	0
Purchases of treasury shares	(30,502)	0	0	0	0	(30,502)
Net issuance of shares to employee stock plans, including tax benefit	1,727	0	62	(654)	0	2,319
Stock-based compensation	3,244	0	3,244	0	0	0
Other comprehensive income	(769)	0	0	0	(769)	0
Ending Balance at Dec. 31, 2011	538,110	380	317,329	329,981	(6,104)	(103,476)
Net income	54,558	0	0	54,558	0	0
Cash dividends	(26,712)	0	0	(26,712)	0	0
Purchases of treasury shares	(15,490)	0	0	0	0	(15,490)
Net issuance of shares for acquisition	25,824	13	25,811	0	0	0
Net issuance of shares to employee stock plans, including tax benefit	1,395	0	(812)	(269)	0	2,476
Stock-based compensation	4,364	0	4,364	0	0	0
Other comprehensive income	224	0	0	0	224	0
Ending Balance at Dec. 31, 2012	$ 582,273	$ 393	$ 346,692	$ 357,558	$ (5,880)	$ (116,490)

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Securities held to maturity fair value	$ 61,535	$ 72,198
Stockholders' equity
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	2,500,000	2,500,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	100,000,000	50,000,000
Common stock, shares issued (in shares)	39,305,131	38,035,539
Common stock in treasury, at cost (in shares)	5,529,781	4,878,829

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Related Party Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions

(8) Related Party Transactions

In the ordinary course of business, the Company has made loans at prevailing rates and terms to directors, officers, and other related parties. Such loans, in management's opinion, do not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties and changes during the years are summarized as follows:

(In thousands)	2012			2011
Balance at January 1	$	2,537		$	2,914
New loans		750			25
Adjustment due to change in composition of related parties		(130	)		328
Repayments		(367	)		(730	)
Balance at December 31	$	2,790		$	2,537

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Feb. 15, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	NBT BANCORP INC
Entity Central Index Key	0000790359
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 688,194,085
Entity Common Stock, Shares Outstanding		33,795,298
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012

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Premises and Equipment, Net

12 Months Ended

Dec. 31, 2012

Premises and Equipment, Net [Abstract]

Premises and Equipment, Net

(9) Premises and Equipment, Net

A summary of premises and equipment follows:

	December 31,
(In thousands)	2012		2011
Land, buildings, and improvements	$	109,601	$	103,399
Equipment		51,321		47,646
Construction in progress		-		75
Premises and equipment before accumulated depreciation		160,922		151,120
Accumulated depreciation		83,047		76,579
Total premises and equipment	$	77,875	$	74,541

Land, buildings, and improvements with a carrying value of approximately $2.7 million and $2.9 million at December 31, 2012 and 2011, respectively, are pledged to secure long-term borrowings. Buildings and improvements are depreciated based on useful lives of 15 to 40 years. Equipment is depreciated based on useful lives of three to ten years.

Rental expense included in occupancy expense amounted to $6.4 million in 2012, $5.6 million in 2011, and $5.3 million in 2010. The future minimum rental payments related to noncancelable operating leases with original terms of one year or more are as follows at December 31, 2012 (in thousands):

Future Minimum Rental Payments
2013	$	5,727
2014		5,453
2015		4,714
2016		4,309
2017		4,063
Thereafter		28,314
Total	$	52,580

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest, fee, and dividend income
Interest and fees on loans	$ 208,458	$ 204,370	$ 213,429
Securities available for sale	27,005	31,083	36,167
Securities held to maturity	2,378	2,886	3,968
Other	1,556	1,658	2,174
Total interest, fee, and dividend income	239,397	239,997	255,738
Interest expense
Deposits	18,848	23,020	30,354
Short-term borrowings	188	205	402
Long-term debt	14,428	14,404	18,314
Trust preferred debentures	1,730	2,092	4,140
Total interest expense	35,194	39,721	53,210
Net interest income	204,203	200,276	202,528
Provision for loan losses	20,269	20,737	29,809
Net interest income after provision for loan losses	183,934	179,539	172,719
Noninterest income
Insurance and other financial services revenue	22,387	20,843	18,867
Service charges on deposit accounts	18,225	21,464	24,041
ATM and debit card fees	12,358	11,642	10,035
Retirement plan administration fees	10,097	8,918	10,356
Trust	9,172	8,864	7,722
Bank owned life insurance income	3,077	3,085	3,316
Net securities gains	599	150	3,274
Other	11,412	5,345	6,277
Total noninterest income	87,327	80,311	83,888
Noninterest expense
Salaries and employee benefits	104,815	99,212	93,718
Occupancy	17,415	16,363	15,350
Data processing and communications	13,437	12,271	12,347
Professional fees and outside services	10,463	8,921	9,032
Equipment	9,627	8,864	8,317
Office supplies and postage	6,489	6,073	6,102
FDIC expenses	3,832	4,267	6,081
Advertising	2,889	3,460	3,487
Amortization of intangible assets	3,394	3,046	3,072
Loan collection and other real estate owned	2,560	2,631	3,036
Merger expenses	2,608	804	0
Prepayment penalty on long-term debt	0	0	4,526
Other	16,358	14,764	13,223
Total noninterest expense	193,887	180,676	178,291
Income before income tax expense	77,374	79,174	78,316
Income tax expense	22,816	21,273	20,912
Net income	$ 54,558	$ 57,901	$ 57,404
Earnings per share
Basic (in dollars per share)	$ 1.63	$ 1.72	$ 1.67
Diluted (in dollars per share)	$ 1.62	$ 1.71	$ 1.66

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Earnings Per Share

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share

(3) Earnings Per Share

The following is a reconciliation of basic and diluted earnings per share for the years presented in the consolidated statements of income:

	Years ended December 31,
	2012						2011						2010
	Net		Weighted average		Per share		Net		Weighted average		Per share		Net		Weighted average		Per share
(In thousands, except per share data)	income		shares		amount		income		shares		amount		income		shares		amount
Basic earnings per share	$	54,558		33,379	$	1.63	$	57,901		33,662	$	1.72	$	57,404		34,275	$	1.67
Effect of dilutive securities
Stock based compensation				340						262						234
Diluted earnings per share	$	54,558		33,719	$	1.62	$	57,901		33,924	$	1.71	$	57,404		34,509	$	1.66

There were approximately 1,193,000, 1,258,000, and 1,309,000 weighted average stock options for the years ended December 31, 2012, 2011, and 2010, respectively, that were not considered in the calculation of diluted earnings per share since the stock options' exercise prices were greater than the average market price during these periods.

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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.

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Trust Preferred Debentures

12 Months Ended

Dec. 31, 2012

Trust Preferred Debentures [Abstract]

Trust Preferred Debentures

(14) Trust Preferred Debentures

The Company has issued a total of $75.4 million of junior subordinated deferrable interest debentures to three wholly owned Delaware statutory business trusts, CNBF Capital Trust I ("CNBF Trust I"), NBT Statutory Trust I ("NBT Trust I") and NBT Statutory Trust II ("NBT Trust II", and, together with CNBF Trust I and NBT Trust I, the "Trusts"). The Trusts are considered variable interest entities for which the Company is not the primary beneficiary. Accordingly, the accounts of the Trusts are not included in the Company's consolidated financial statements. See Note 1 — Summary of Significant Accounting Policies for additional information about the Company's consolidation policy. Details of the Company's transactions with these trusts are presented below.

CNBF Trust I

In June 1999, CNBF Trust I issued $18.0 million of floating rate (three-month LIBOR plus 275 basis points) trust preferred securities, which represent beneficial interests in the assets of CNBF Trust I. The trust preferred securities will mature on August 31, 2029 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Company at any time after September 1, 2009 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. CNBF Trust I also issued $0.7 million of common equity securities to the Company. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase $18.7 million of floating rate (three-month LIBOR plus 275 basis points) junior subordinated deferrable interest debentures issued by the Company, which have terms substantially similar to the trust preferred securities.

NBT Trust I

In November 2005, NBT Trust I issued $5.0 million of fixed rate (at 6.30%) trust preferred securities, which represent beneficial interests in the assets of the trust. The rate converted to a floating rate (three-month LIBOR plus 140 basis points) in November 2010. The trust preferred securities will mature on December 1, 2035 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Corporation at any time after December 1, 2010 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. NBT Trust I also issued $0.2 million of common equity securities to the Company. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase $5.2 million of fixed rate (at 6.30%) junior subordinated deferrable interest debentures issued by the Corporation, which have terms substantially similar to the trust preferred securities.

NBT Trust II

In connection with acquisition of CNB, the Company formed NBT Trust II in February 2006 to fund the cash portion of the acquisition as well as to provide regulatory capital. NBT Trust II issued $50.0 million of fixed rate (at 6.195%) trust preferred securities, which represent beneficial interests in the assets of NBT Trust II. In February 2011, the rate converted to a floating rate (three-month LIBOR plus 140 basis points). The trust preferred securities will mature on March 15, 2036 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Company at any time after March 15, 2011 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. NBT Trust II also issued $1.5 million of common equity securities to the Company. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase $51.5 million of fixed rate (at 6.195%) junior subordinated deferrable interest debentures issued by the Corporation, which have terms substantially similar to the trust preferred securities.

With respect to the Trusts, the Company has the right to defer payments of interest on the debentures issued to the Trusts at any time or from time to time for a period of up to ten consecutive semi-annual periods with respect to each deferral period. Under the terms of the debentures, if in certain circumstances there is an event of default under the debentures or the Company elects to defer interest on the debentures, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock.

Payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by the Company on a limited basis. The Company also entered into an agreement as to expenses and liabilities with the Trusts pursuant to which it agreed, on a subordinated basis, to pay any costs, expenses or liabilities of each Trust other than those arising under the trust preferred securities. The obligations of the Company under the junior subordinated debentures, the related indentures, the trust agreements establishing the Trusts, the guarantees and the agreements as to expenses and liabilities, in the aggregate, constitute a full and unconditional guarantee by the Company of each Trust's obligations under the trust preferred securities.

Despite the fact that the accounts of CNBF Trust I, NBT Trust I, and NBT Trust II are not included in the Company's consolidated financial statements, $74 million of the $75 million in trust preferred securities issued by these subsidiary trusts is included in the Tier 1 capital of the Company for regulatory capital purposes as allowed by the Federal Reserve Board (NBT Bank owns $1.0 million of CNBF Trust I securities). The Dodd-Frank Act requires bank holding companies with assets greater than $500 million to be subject to the same capital requirements as insured depository institutions, meaning, for instance, that such bank holding companies will not be able to count trust preferred securities issued after May 19, 2010 as Tier 1 capital. The aforementioned Trusts are grandfathered with respect to this enactment based on their date of issuance.

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Goodwill and other Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill and other Intangible Assets [Abstract]

Goodwill and other Intangible Assets

(10) Goodwill and other Intangible Assets

A summary of goodwill is as follows:

(In thousands)
January 1, 2012		132,029
Goodwill Acquired		20,344
December 31, 2012	$	152,373
January 1, 2011		114,841
Goodwill Acquired		17,188
December 31, 2011	$	132,029

The Company has intangible assets with definite useful lives capitalized on its consolidated balance sheet in the form of core deposit and other identified intangible assets. These intangible assets are amortized over their estimated useful lives, which range primarily from one to twelve years.

A summary of core deposit and other intangible assets follows:

	December 31,
(In thousands)	2012		2011
Core deposit intangibles
Gross carrying amount	$	13,240	$	11,966
Less: accumulated amortization		7,794		6,401
Net carrying amount		5,446		5,565
Other Identified intangible assets
Gross carrying amount		21,743		20,919
Less: accumulated amortization		10,227		8,290
Net carrying amount		11,516		12,629
Total intangibles
Gross carrying amount		34,983		32,885
Less: accumulated amortization		18,021		14,691
Net carrying amount	$	16,962	$	18,194

Amortization expense on intangible assets with definite useful lives totaled $3.4 million for 2012, $3.0 million for 2011 and $3.1 million for 2010. Amortization expense on intangible assets with definite useful lives is expected to total $3.3 million for 2013, $3.1 million for 2014, $2.9 million for 2015, $1.8 million for 2016, $1.4 million for 2017 and $2.4 million thereafter. Other identified intangible assets include customer lists, non-competes, and trademark intangibles, of which $2.0 million will not amortize.

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Loans

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Loans

(6) Loans

A summary of loans, net of deferred fees and origination costs, by category is as follows:

	At December 31,
(In thousands)	2012		2011
Residential real estate mortgages	$	651,107	$	581,511
Commercial		694,799		611,298
Commercial real estate		1,072,807		888,879
Real estate construction and development		123,078		93,977
Agricultural and agricultural real estate mortgages		112,687		108,423
Consumer		1,047,856		946,470
Home equity		575,282		569,645
Total loans	$	4,277,616	$	3,800,203

Included in the above loans are net deferred loan origination costs totaling $0.9 million and $1.6 million at December 31, 2012 and 2011, respectively. The Company had residential loans held for sale totaling $3.8 million as of December 31, 2012 and $2.7 million as of December 31, 2011.

FHLB advances are collateralized by a blanket lien on the Company's residential real estate mortgages.

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Allowance for Loan Losses and Credit Quality of Loans, Troubled Debt Restructurings (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Modifications [Line Items]
Period of sustained repayment performance for nonperforming TDRs to be returned to performing status (in months)	6 months
Subsequent Default [Member] | Home Equity [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	1
Pre-modification oustanding recorded investment	$ 0.1
Business Banking [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	1
Pre-modification oustanding recorded investment	0.1
Home Equity [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	18	25
Pre-modification oustanding recorded investment	0.9	2.4
Home Equity [Member] | Subsequent Default [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts		7
Pre-modification oustanding recorded investment		0.6
Commercial Loans [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	4	3
Pre-modification oustanding recorded investment	6.6	0.7
Commercial Loans [Member] | Subsequent Default [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts		2
Pre-modification oustanding recorded investment		0.7
Residential Real Estate Mortgages [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	12	4
Pre-modification oustanding recorded investment	1.2	0.8
Residential Real Estate Mortgages [Member] | Subsequent Default [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	2	2
Pre-modification oustanding recorded investment	$ 0.3	$ 0.4

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Federal Reserve Bank Requirement

12 Months Ended

Dec. 31, 2012

Federal Reserve Bank Requirement [Abstract]

Federal Reserve Bank Requirement

(4) Federal Reserve Bank Requirement

The Company is required to maintain reserve balances with the Federal Reserve Bank of New York. The required average total reserve for NBT Bank for the 14-day maintenance period ending December 26, 2012 was $35.2 million.

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Securities

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

Securities

(5) Securities

The amortized cost, estimated fair value, and unrealized gains and losses of securities available for sale are as follows:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses		Estimated fair value
December 31, 2012
U.S. Treasury	$	63,668	$	757	$	-	$	64,425
Federal Agency		281,398		1,507		91		282,814
State & municipal		82,675		4,127		-		86,802
Mortgage-backed		237,461		12,820		-		250,281
Collateralized mortgage obligations		443,972		5,751		-		449,723
Corporate		-		-		-		-
Other securities		11,210		2,832		88		13,954
Total securities available for sale	$	1,120,384	$	27,794	$	179	$	1,147,999
December 31, 2011
U.S. Treasury	$	81,006	$	1,228	$	-	$	82,234
Federal Agency		254,983		879		16		255,846
State & municipal		99,176		5,624		11		104,789
Mortgage-backed		310,767		14,629		-		325,396
Collateralized mortgage obligations		459,067		6,458		51		465,474
Corporate		-		-		-		-
Other securities		8,935		2,021		76		10,880
Total securities available for sale	$	1,213,934	$	30,839	$	154	$	1,244,619

In the available for sale category at December 31, 2012, federal agency securities were comprised of Government-Sponsored Enterprise ("GSE") securities; mortgaged-backed securities were comprised of GSEs with an amortized cost of $221.1 million and a fair value of $232.3 million and US Government Agency securities with an amortized cost of $16.4 million and a fair value of $18.0 million; Collateral Mortgage Obligations ("CMOs") were comprised of GSEs with an amortized cost of $399.2 million and a fair value of $403.6 million and U.S. Government Agency securities with an amortized cost of $44.8 million and a fair value of $46.2 million. At December 31, 2012, all of the mortgaged-backed securities held to maturity were comprised of U.S. Government Agency securities.

In the available for sale category at December 31, 2011, federal agency securities were comprised of GSE securities; mortgaged-backed securities were comprised of GSEs with an amortized cost of $290.2 million and a fair value of $303.0 million and U.S. Government Agency securities with an amortized cost of $20.5 million and a fair value of $22.4 million; CMOs were comprised of GSEs with an amortized cost of $398.3 million and a fair value of $402.4 million and U.S. Government Agency securities with an amortized cost of $60.8 million and a fair value of $63.1 million.

The following table sets forth information with regard to sales transactions of securities available for sale:

	Years ended December 31
(In thousands)	2012		2011			2010
Proceeds from sales	$	1,790	$	2,437		$	103,253
Gross realized gains	$	442	$	7		$	3,170
Gross realized losses		-		(165	)		(25	)
Net securities gains (losses)	$	442	$	(158	)	$	3,145

In addition to gains (losses) from sales transactions, the Company also recorded gains from calls on securities available for sale of approximately $0.2 million for the year ended December 31, 2012, $0.3 million for the year ended December 31, 2011, and $0.1 million for the year ended December 31, 2010.

At December 31, 2012 and 2011, securities available for sale with amortized costs totaling $1.2 billion, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at December 31, 2012, securities available for sale with an amortized cost of $209.0 million were pledged as collateral for securities sold under the repurchase agreements.

The amortized cost, estimated fair value, and unrealized gains and losses of securities held to maturity are as follows:

	Amortized		Unrealized		Unrealized		Estimated
(In thousands)	cost		gains		losses		fair value
December 31, 2012
Mortgage-backed	$	1,168	$	184	$	-	$	1,352
State & municipal		59,395		788		-		60,183
Total securities held to maturity	$	60,563	$	972	$	-	$	61,535
December 31, 2011
Mortgage-backed	$	1,447	$	213	$	-	$	1,660
State & municipal		69,364		1,174		-		70,538
Total securities held to maturity	$	70,811	$	1,387	$	-	$	72,198

At December 31, 2012 and 2011, all of the mortgaged-backed securities held to maturity were comprised of U.S. Government Agency securities.

The following table sets forth information with regard to investment securities with unrealized losses at December 31, 2012 and 2011, segregated according to the length of time the securities had been in a continuous unrealized loss position:

	Less than 12 months							12 months or longer							Total
Security Type:	Fair Value		Unrealized losses			Number of Positions		Fair Value		Unrealized losses			Number of Positions		Fair Value		Unrealized losses			Number of Positions
December 31, 2012
U.S. Treasury	$	-	$	-			-	$	-	$	-			-	$	-	$	-			-
Federal agency		39,906		(91	)		4		-		-			-		39,906		(91	)		4
State & municipal		-		-			-		-		-			-		-		-			-
Mortgage-backed		-		-			-		-		-			-		-		-			-
Collateralized mortgage obligations		23		-			2		-		-			-		23		-			2
Other securities		468		(6	)		1		167		(82	)		1		635		(88	)		2
Total securities with unrealized losses	$	40,397	$	(97	)		7	$	167	$	(82	)		1	$	40,564	$	(179	)		8
December 31, 2011
U.S. Treasury	$	-	$	-			-	$	-	$	-			-	$	-	$	-			-
Federal agency		34,996		(16	)		3		-		-			-		34,996		(16	)		3
State & municipal		957		(10	)		3		377		(1	)		2		1,334		(11	)		5
Mortgage-backed		-		-			-		-		-			-		-		-			-
Collateralized mortgage obligations		27,368		(51	)		3		-		-			-		27,368		(51	)		3
Other securities		645		(76	)		2		-		-			-		645		(76	)		2
Total securities with unrealized losses	$	63,966	$	(153	)		11	$	377	$	(1	)		2	$	64,343	$	(154	)		13

Management has the intent to hold the securities classified as held to maturity until they mature, at which time it is believed the Company will receive full value for the securities. Furthermore, as of December 31, 2012, management also had intent to hold, and will not be required to sell, the securities classified as available for sale for a period of time sufficient for a recovery of cost, which may be until maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. When necessary, the Company has performed a discounted cash flow analysis to determine whether or not it will receive the contractual principal and interest on certain securities. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. As of December 31, 2012, management believes the impairments detailed in the table above are temporary and no other-than-temporary impairment losses have been realized in the Company's consolidated statements of income.

The following tables set forth information with regard to contractual maturities of debt securities at December 31, 2012:

(In thousands)	Amortized cost		Estimated fair value
Debt securities classified as available for sale
Within one year	$	26,678	$	26,788
From one to five years		193,142		195,953
From five to ten years		311,575		319,229
After ten years		577,779		592,075
	$	1,109,174	$	1,134,045
Debt securities classified as held to maturity
Within one year	$	25,184	$	25,258
From one to five years		27,413		28,118
From five to ten years		5,425		5,434
After ten years		2,541		2,725
	$	60,563	$	61,535

Maturities of mortgage-backed, CMOs and asset-backed securities are stated based on their estimated average lives. Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Except for U.S. Government securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders' equity at December 31, 2012 and 2011.

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Allowance for Loan Losses and Credit Quality of Loans

12 Months Ended

Dec. 31, 2012

Allowance for Loan Losses and Credit Quality of Loans and Leases [Abstract]

Allowance for Loan Losses and Credit Quality of Loans and Leases

(7) Allowance for Loan Losses and Credit Quality of Loans

Allowance for Loan Losses

The allowance for loan losses is maintained at a level estimated by management to provide adequately for risk of probable losses inherent in the current loan portfolio. The adequacy of the allowance for loan losses is continuously monitored. It is assessed for adequacy using a methodology designed to ensure the level of the allowance reasonably reflects the loan portfolio's risk profile. It is evaluated to ensure that it is sufficient to absorb all reasonably estimable credit losses inherent in the current loan portfolio.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk. Each portfolio segment is broken down into class segments where appropriate. Class segments contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses. Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class segment. The following table illustrates the portfolio and class segments for the Company's loan portfolio:

Portfolio	Class
Commercial Loans	Commercial
	Commercial Real Estate
	Agricultural
	Agricultural Real Estate
	Business Banking
Consumer Loans	Indirect
	Home Equity
	Direct
Residential Real Estate Mortgages

COMMERCIAL LOANS

Commercial – The Company offers a variety of loan options to meet the specific needs of our commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. These loans carry a higher risk than commercial real estate loans by the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and is generally less liquid than real estate. To reduce the risk, management also attempts to secure real estate as collateral and obtain personal guarantees of the borrowers.

Commercial Real Estate – The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and other non owner-occupied facilities. These loans are typically less risky than commercial loans, since they are secured by real estate and buildings. The Company's underwriting analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and a detailed analysis of the borrower's underlying cash flows. These loans are typically originated in amounts of no more than 80% of the appraised value of the property.

Agricultural – The Company offers a variety of agricultural loans to meet the needs of our agricultural customers including term loans, time notes, and lines of credit. These loans are made to purchase livestock, purchase and modernize equipment, and finance seasonal crop expenses. Generally, a collateral lien is placed on the livestock, equipment, produce inventories, and/or receivables owned by the borrower. These loans may carry a higher risk than commercial and agricultural real estate loans due to the industry price volatility and the perishable nature of the underlying collateral. To reduce these risks, management may attempt to secure these loans with additional real estate collateral, obtain personal guarantees of the borrowers, or obtain government loan guarantees to provide further support.

Agricultural Real Estate – The Company offers real estate loans to our agricultural customers to finance farm related real estate purchases, refinancings, expansions, and improvements to agricultural properties. Agricultural real estate loans are made to finance the purchases and improvements of farm properties that generally consist of barns, production facilities, and land. The agricultural real estate loans are secured by first liens on the farm real estate. Because they are secured by land and buildings, these loans may be less risky than agricultural loans. The Company's underwriting analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and a detailed analysis of the borrower's underlying cash flows. These loans are typically originated in amounts of no more than 75% of the appraised value of the property. Government loan guarantees may be obtained to provide further support.

Business Banking - The Company offers a variety of loan options to meet the specific needs of our small business customers including term loans, small business mortgages and lines of credit. Such loans are generally less than $500 thousand and are made available to businesses for working capital such as inventory and receivables, business expansion, equipment purchases, and agricultural needs. Generally, a collateral lien is placed on equipment or other assets owned by the borrower such as inventory and/or receivables. These loans carry a higher risk than commercial loans due to the smaller size of the borrower and lower levels of capital. To reduce the risk, the Company obtains personal guarantees of the owners for a majority of the loans.

CONSUMER LOANS

Indirect – The Company maintains relationships with many dealers primarily in the communities that we serve. Through these relationships, the company finances the purchases of automobiles and recreational vehicles (such as campers, boats, etc.) indirectly through dealer relationships. Approximately 70% of the indirect relationships represent automobile financing. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from three to six years, based upon the nature of the collateral and the size of the loan. The majority of indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed.

Home Equity –The Company offers fixed home equity loans as well as home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses. Consumers are able to borrower up to 85% of the equity in their homes. The Company originates home equity lines of credit and second mortgage loans (loans secured by a second lien position on one-to-four-family residential real estate). These loans carry a higher risk than first mortgage residential loans as they are in a second position with respect to collateral. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

Direct – The Company offers a variety of consumer installment loans to finance vehicle purchases, mobile home purchases and personal expenditures. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to ten years, based upon the nature of the collateral and the size of the loan. The majority of consumer loans are underwritten on a secured basis using the underlying collateral being financed or a customer's deposit account. In addition to installment loans, the Company also offers personal lines of credit and overdraft protection. A minimal amount of loans are unsecured, which carry a higher risk of loss.

RESIDENTIAL REAL ESTATE LOANS

Residential real estate loans consist primarily of loans secured by first or second deeds of trust on primary residences. We originate adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company's market area. When market conditions are favorable, for longer term, fixed-rate residential mortgages without escrow, the Company retains the servicing, but sells the right to receive principal and interest to Freddie Mac when market conditions are favorable. This practice allows the Company to manage interest rate risk, liquidity risk, and credit risk. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 85% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period.

Allowance for Loan Loss Calculation

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the consolidated results of operations.

For purposes of evaluating the adequacy of the allowance, the Company considers a number of significant factors that affect the collectibility of the portfolio. For individually analyzed loans, these include estimates of loss exposure, which reflect the facts and circumstances that affect the likelihood of repayment of such loans as of the evaluation date. For homogeneous pools of loans, estimates of the Company's exposure to credit loss reflect a current assessment of a number of factors, which could affect collectibility. These factors include: past loss experience; size, trend, composition, and nature of loans; changes in lending policies and procedures, including underwriting standards and collection, charge-offs and recoveries; trends experienced in nonperforming and delinquent loans; current economic conditions in the Company's market; portfolio concentrations that may affect loss experienced across one or more components of the portfolio; the effect of external factors such as competition, legal and regulatory requirements; and the experience, ability, and depth of lending management and staff. In addition, various regulatory agencies, as an integral component of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to make loan grade changes as well as recognize additions to the allowance based on their examinations.

After a thorough consideration of the factors discussed above, any required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses. These charges are necessary to maintain the allowance at a level which management believes is reasonably reflective of overall inherent risk of probable loss in the portfolio. While management uses available information to recognize losses on loans, additions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management's assessment of any or all of the determining factors discussed above. The following table illustrates the changes in the allowance for loan losses by portfolio segment for the years ended December 31, 2012 and 2011

Allowance for Loan Losses
(in thousands)
Years ended December 31							Residential
	Commercial			Consumer			Real Estate
	Loans			Loans			Mortgages			Unallocated			Total
Balance as of December 31, 2011	$	38,831		$	26,049		$	6,249		$	205		$	71,334
Charge-offs		(8,750	)		(15,848	)		(1,906	)		-			(26,504	)
Recoveries		1,641			2,556			38			-			4,235
Provision		3,902			14,405			1,871			91			20,269
Ending Balance as of December 31, 2012	$	35,624		$	27,162		$	6,252		$	296		$	69,334
Balance as of December 31, 2010	$	40,101		$	26,126		$	4,627		$	380		$	71,234
Charge-offs		(8,969	)		(14,209	)		(1,310	)		-			(24,488	)
Recoveries		1,438			2,406			7			-			3,851
Provision		6,261			11,726			2,925			(175	)		20,737
Ending Balance as of December 31, 2011	$	38,831		$	26,049		$	6,249		$	205		$	71,334
Balance as of December 31, 2009	$	36,599		$	26,664		$	3,002		$	285		$	66,550
Charge-offs		(12,969	)		(15,692	)		(1,176	)		-			(29,837	)
Recoveries		1,922			2,747			43			-			4,712
Provision		14,549			12,407			2,758			95			29,809
Ending Balance as of December 31, 2010	$	40,101		$	26,126		$	4,627		$	380		$	71,234

The following table illustrates the allowance for loan losses and the recorded investment by portfolio segment as of December 31, 2012 and 2011:

Allowance for Loan Losses and Recorded Investment in Loans
(in thousands)
					Residential
	Commercial		Consumer		Real Estate
	Loans		Loans		Mortgages		Unallocated		Total
As of December 31, 2012
Allowance for loan losses	$	35,624	$	27,162	$	6,252	$	296	$	69,334
Allowance for loans individually evaluated for impairment	$	2,848	$	-	$	-			$	2,848
Allowance for loans collectively evaluated for impairment	$	32,776	$	27,162	$	6,252	$	296	$	66,486
Ending balance of loans	$	2,003,371	$	1,623,138	$	651,107			$	4,277,616
Ending balance of loans individually evaluated for impairment	$	11,972	$	-	$	-			$	11,972
Ending balance of loans collectively evaluated for impairment	$	1,991,399	$	1,623,138	$	651,107			$	4,265,644
As of December 31, 2011
Allowance for loan losses	$	38,831	$	26,049	$	6,249	$	205	$	71,334
Allowance for loans individually evaluated for impairment	$	175	$	-	$	-			$	175
Allowance for loans collectively evaluated for impairment	$	38,656	$	26,049	$	6,249	$	205	$	71,159
Ending balance of loans	$	1,702,577	$	1,516,115	$	581,511			$	3,800,203
Ending balance of loans individually evaluated for impairment	$	6,219	$	-	$	-			$	6,219
Ending balance of loans collectively evaluated for impairment	$	1,696,358	$	1,516,115	$	581,511			$	3,793,984

Credit Quality of Loans

For all loan classes within the Company's loan portfolio, loans are placed on nonaccrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. Loans are transferred to nonaccrual status generally when principal or interest payments become ninety days delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes or circumstances indicate that borrowers may be unable to meet contractual principal or interest payments. When a loan is transferred to a nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for loan losses.

If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected. For all loan classes within the Company's loan portfolio, nonaccrual loans are returned to accrual status when they become current as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest. For loans in all portfolios, the principal amount is charged off in full or in part as soon as management determines, based on available facts, that the collection of principal in full is improbable. For commercial loans, management considers specific facts and circumstances relative to individual credits in making such a determination. For consumer and residential loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council's Uniform Retail Credit Classification and Account Management Policy.

The following table illustrates the Company's nonaccrual loans by loan class as of December 31, 2012 and 2011:

Loans on Nonaccrual Status
As of December 31, 2012
(In thousands)	December 31, 2012		December 31, 2011
Commercial Loans
Commercial	$	4,985	$	1,699
Commercial Real Estate		7,977		4,868
Agricultural		699		3,307
Agricultural Real Estate		1,038		2,067
Business Banking		6,738		7,446
		21,437		19,387
Consumer Loans
Indirect		1,557		1,550
Home Equity		7,247		7,931
Direct		266		378
		9,070		9,859
Residential Real Estate Mortgages		9,169		9,044
Total Nonaccrual	$	39,676	$	38,290

The following table sets forth information with regard to past due and nonperforming loans by loan class:

Age Analysis of Past Due Loans

As of December 31, 2012

(in thousands)

					Greater Than								Recorded
	31-60 Days		61-90 Days		90 Days		Total						Total
	Past Due		Past Due		Past Due		Past Due						Loans and
	Accruing		Accruing		Accruing		Accruing		Non-Accrual		Current		Leases
Commercial
Commercial	$	-	$	-	$	-	$	-	$	4,985	$	556,496	$	561,481
Commercial Real Estate		126		-		-		126		7,977		966,692		974,795
Agricultural		22		-		-		22		699		63,037		63,758
Agricultural Real Estate		108		-		103		211		1,038		36,128		37,377
Business Banking		3,019		708		45		3,772		6,738		355,450		365,960
		3,275		708		148		4,131		21,437		1,977,803		2,003,371
Consumer
Indirect		10,956		2,477		1,205		14,638		1,557		964,802		980,997
Home Equity		6,065		1,223		681		7,969		7,247		560,066		575,282
Direct		717		144		84		945		266		65,648		66,859
		17,738		3,844		1,970		23,552		9,070		1,590,516		1,623,138
Residential Real Estate Mortgages		1,839		725		330		2,894		9,169		639,044		651,107
	$	22,852	$	5,277	$	2,448	$	30,577	$	39,676	$	4,207,363	$	4,277,616

Age Analysis of Past Due Loans

As of December 31, 2011

(in thousands)

					Greater Than								Recorded
	31-60 Days		61-90 Days		90 Days		Total						Total
	Past Due		Past Due		Past Due		Past Due						Loans and
	Accruing		Accruing		Accruing		Accruing		Non-Accrual		Current		Leases
Commercial Loans
Commercial	$	663	$	50	$	-	$	713	$	1,699	$	508,662	$	511,074
Commercial Real Estate		1,942		-		-		1,942		4,868		828,089		834,899
Agricultural		77		13		-		90		3,307		63,140		66,537
Agricultural Real Estate		-		-		50		50		2,067		31,809		33,926
Business Banking		1,871		1,024		-		2,895		7,446		245,800		256,141
		4,553		1,087		50		5,690		19,387		1,677,500		1,702,577
Consumer Loans
Indirect		12,141		2,584		1,283		16,008		1,550		855,545		873,103
Home Equity		5,823		1,277		954		8,054		7,931		553,660		569,645
Direct		831		191		140		1,162		378		71,827		73,367
		18,795		4,052		2,377		25,224		9,859		1,481,032		1,516,115
Residential Real Estate Mortgages		2,003		139		763		2,905		9,044		569,562		581,511
	$	25,351	$	5,278	$	3,190	$	33,819	$	38,290	$	3,728,094	$	3,800,203

There were no material commitments to extend further credit to borrowers with nonperforming loans. Within nonaccrual loans, there were approximately $2.2 million and $4.0 million of TDR loans at December 31, 2012 and 2011, respectively.

Impaired loans, which primarily consist of nonaccruing commercial, commercial real estate, agricultural, agricultural real estate and business banking loans, as well as certain consumer and residential real estate loans that have been modified in a TDR were $26.0 million at December 31, 2012 and $22.4 million at December 31, 2011.

The methodology used to establish the allowance for loan losses on impaired loans incorporates specific allocations on loans analyzed individually. Classified loans, including all TDRs and commercial loans that are graded substandard or below, with outstanding balances of $500 thousand or more are evaluated for impairment through the Company's quarterly status review process. In determining that we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, we consider factors such as payment history and changes in the financial condition of individual borrowers, local economic conditions, historical loss experience and the conditions of the various markets in which the collateral may be liquidated. For loans that are evaluated for impairment, impairment is measured by one of three methods: 1) the fair value of collateral less cost to sell, 2) present value of expected future cash flows or 3) the loan's observable market price. These impaired loans are reviewed on a quarterly basis for changes in the measurement of impairment. For impaired loans measured using the present value of expected cash flow method, any change to the previously recognized impairment loss is recognized as a change to the allowance account and recorded in the consolidated statement of income as a component of the provision for credit losses. At December 31, 2012, $8.4 million of the total impaired loans had a specific reserve allocation of $2.8 million compared to $0.5 million of impaired loans at December 31, 2011 which had a specific reserve allocation of $0.2 million.

The following provides additional information on impaired loans for the years ended December 31, 2012 and 2011:

Impaired Loans
	December 31, 2012						December 31, 2011
	Recorded		Unpaid				Recorded		Unpaid
	Investment		Principal				Investment		Principal
	Balance		Balance		Related		Balance		Balance		Related
(in thousands)	(Book)		(Legal)		Allowance		(Book)		(Legal)		Allowance
With no related allowance recorded:
Commercial Loans
Commercial	$	650	$	709			$	1,243	$	2,723
Commercial Real Estate		3,909		4,753				4,868		7,165
Agricultural		699		1,019				3,307		4,166
Agricultural Real Estate		1,038		1,225				2,067		2,288
Business Banking		6,738		9,269				7,446		9,976
Total Commercial Loans		13,034		16,975				18,931		26,318
Consumer Loans
Home Equity		2,553		2,657				2,000		2,103
Residential Real Estate Mortgages		2,011		2,308				1,040		1,125
		17,598		21,940				21,971		29,546
With an allowance recorded:
Commercial Loans
Commercial	$	4,335	$	4,340	$	2,241	$	456	$	808	$	175
Commercial Real Estate		4,068		5,689		607		-		-		-
Agricultural		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		-		-		-
		8,403		10,029		2,848		456		808		175
Total:	$	26,001	$	31,969	$	2,848	$	22,427	$	30,354	$	175

The following table summarizes the average recorded investments on impaired loans and the interest income recognized for the years ended December 31, 2012, 2011 and 2010:

	December 31, 2012						December 31, 2011						December 31, 2010
	Average		Interest Income				Average		Interest Income				Average		Interest Income
	Recorded		Recognized				Recorded		Recognized				Recorded		Recognized
(in thousands)	Investment		Accrual		Cash		Investment		Accrual		Cash		Investment		Accrual		Cash
With no related allowance recorded:
Commercial Loans
Commercial	$	1,421	$	25	$	25	$	2,322	$	94	$	94	$	1,898	$	113	$	113
Commercial Real Estate		6,167		70		70		4,794		163		163		4,219		317		317
Agricultural		2,611		368		368		3,013		133		133		2,990		82		82
Agricultural Real Estate		1,575		86		86		1,719		109		109		1,929		150		150
Business Banking		6,636		227		227		6,121		266		266		4,959		234		234
Consumer Loans
Home Equity		1,877		66		66		1,904		91		91		-		-		-
Residential Real Estate Mortgages		1,143		73		73		926		58		58		132		6		6
	$	21,429	$	915	$	915	$	20,798	$	914	$	914	$	16,127	$	902	$	902
With an allowance recorded:
Commercial Loans
Commercial	$	4,217	$	43	$	43	$	861	$	86	$	86	$	2,366	$	118	$	118
Commercial Real Estate		339		-		-		287		-		-		1,234		-		-
Agricultural		-		-		-		791		68		68		1,386		150		150
Agricultural Real Estate		-		-		-		357		18		18		816		67		67
	$	4,556	$	43	$	43	$	2,295	$	172	$	172	$	5,802	$	335	$	335
Total:	$	25,985	$	958	$	958	$	23,094	$	1,086	$	1,086	$	21,929	$	1,237	$	1,237

There has been significant disruption and volatility in the financial and capital markets since the second half of 2008. Turmoil in the mortgage market adversely impacted both domestic and global markets and led to a significant credit and liquidity crisis in many domestic markets. These market conditions were attributable to a variety of factors, in particular the fallout associated with subprime mortgage loans (a type of lending we have never actively pursued). The disruption was exacerbated by the decline of the real estate and housing market. However, in the markets in which the Company does business, the disruption has been less significant than in the national market. For example, our real estate market has not suffered the extreme declines seen nationally and our unemployment rate, while notably higher than in prior periods, is still below the national average.

While we continue to adhere to prudent underwriting standards, as a lender we may be adversely impacted by general economic weaknesses and, in particular, a sharp downturn in the housing market nationally. Decreases in real estate values could adversely affect the value of property used as collateral for our loans. Adverse changes in the economy may have a negative effect on the ability of our borrowers to make timely loan payments, which would have an adverse impact on our earnings. A further increase in loan delinquencies would decrease our net interest income and adversely impact our loan loss experience, causing increases in our provision and allowance for loan losses.

The Company has developed an internal loan grading system to evaluate and quantify the Bank's loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of management, primary and secondary sources of repayment, payment history, nature of the business, outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a continuous basis and provide management with an early warning system, enabling recognition and response to problem loans and potential problem loans.

Commercial Grading System

For commercial and agricultural loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available. This would include comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy, and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment, and management. The grading system for commercial and agricultural loans is as follows:

• 4 – Doubtful

A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Because of high probability of loss, nonaccrual treatment is required for doubtful assets.

• 3 – Substandard

Substandard loans have a high probability of payment default, or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and should be placed on nonaccrual. Although substandard assets in the aggregate will have a distinct potential for loss, an individual asset's loss potential does not have to be distinct for the asset to be rated substandard.

• 2 – Special Mention

Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company's position at some future date. These loans pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Although a Special Mention loan has a higher probability of default than a pass asset, its default is not imminent.

• 1 – Pass

Loans graded as Pass encompass all loans not graded as Doubtful, Substandard, or Special Mention. Pass loans are in compliance with loan covenants, and payments are generally made as agreed. Pass loans range from superior quality to fair quality.

Business Banking Grading System

Business Banking loans are graded as either Classified or Non-classified:

• Classified

Classified loans are inadequately protected by the current worth and paying capacity of the obligor or, if applicable, the collateral pledged. These loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt, or in some cases make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Classified loans have a high probability of payment default, or a high probability of total or substantial loss. These loans require more intensive supervision by management and are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. When the likelihood of full collection of interest and principal may be in doubt; classified loans are considered to have a nonaccrual status. In some cases, classified loans are considered uncollectible and of such little value that their continuance as assets is not warranted.

• Non-classified

Loans graded as Non-classified encompass all loans not graded as Classified. Non-classified loans are in compliance with loan covenants, and payments are generally made as agreed.

Consumer and Residential Mortgage Grading System

Consumer and Residential Mortgage loans are graded as either Performing or Nonperforming. Nonperforming loans are loans that are 1) over 90 days past due and interest is still accruing or 2) on nonaccrual status. All loans not meeting any of these three criteria are considered Performing.

The following tables illustrates the Company's credit quality by loan class for the years ended December 31, 2012 and 2011:

Credit Quality Indicators

As of December 31, 2012

Commercial Credit Exposure			Commercial				Agricultural
By Internally Assigned Grade:	Commercial		Real Estate		Agricultural		Real Estate		Total
Pass	$	522,985	$	901,928	$	57,347	$	33,472	$	1,515,732
Special Mention		18,401		32,135		13		3		50,552
Substandard		17,351		40,732		6,362		3,902		68,347
Doubtful		2,744		-		36		-		2,780
Total	$	561,481	$	974,795	$	63,758	$	37,377	$	1,637,411
Business Banking Credit Exposure	Business
By Internally Assigned Grade:	Banking								Total
Non-classified	$	342,528							$	342,528
Classified		23,432								23,432
Total	$	365,960							$	365,960
Consumer Credit Exposure
By Payment Activity:	Indirect		Home Equity		Direct				Total
Performing	$	978,235	$	567,354	$	66,509			$	1,612,098
Nonperforming		2,762		7,928		350				11,040
Total	$	980,997	$	575,282	$	66,859			$	1,623,138
Residential Mortgage Credit Exposure	Residential
By Payment Activity:	Mortgage								Total
Performing	$	641,608							$	641,608
Nonperforming		9,499								9,499
Total	$	651,107							$	651,107

Credit Quality Indicators

As of December 31, 2011

Commercial Credit Exposure			Commercial				Agricultural
By Internally Assigned Grade:	Commercial		Real Estate		Agricultural		Real Estate		Total
Pass	$	470,332	$	758,673	$	58,481	$	28,927	$	1,316,413
Special Mention		10,346		24,478		42		10		34,876
Substandard		29,940		51,748		7,945		4,989		94,622
Doubtful		456		-		69		-		525
Total	$	511,074	$	834,899	$	66,537	$	33,926	$	1,446,436
Business Banking Credit Exposure	Business
By Internally Assigned Grade:	Banking								Total
Non-classified	$	237,887							$	237,887
Classified		18,254								18,254
Total	$	256,141							$	256,141
Consumer Credit Exposure
By Payment Activity:	Indirect		Home Equity		Direct				Total
Performing	$	870,270	$	560,760	$	72,849			$	1,503,879
Nonperforming		2,833		8,885		518				12,236
Total	$	873,103	$	569,645	$	73,367			$	1,516,115
Residential Mortgage Credit Exposure	Residential
By Payment Activity:	Mortgage								Total
Performing	$	571,704							$	571,704
Nonperforming		9,807								9,807
Total	$	581,511							$	581,511

Modifications

The Company's loan portfolio includes certain loans that have been modified in a TDR, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company's loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower's sustained repayment performance for a reasonable period, generally six months.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of the expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan's classification at origination.

Modifications made during the year ended December 31, 2012 consisted of four commercial loans totaling $6.6 million, one business banking loan totaling $0.1 million, 18 home equity loans totaling $0.9 million and 12 residential real estate mortgages totaling $1.2 million. For all such modifications, the pre-and post-outstanding recorded investment amount remained unchanged. During the year ended December 31, 2012, there were two residential real estate loans classified as TDRs totaling $0.3 million and one home equity loan totaling less than $0.1 million that subsequently defaulted on their renegotiated terms.

Modifications made during the year ended December 31, 2011 consisted of three commercial loans totaling $0.7 million, 25 home equity loans totaling $2.4 million and four residential real estate mortgages totaling $0.8 million. The pre- and post-outstanding recorded investment amount remained unchanged for this loan. During the year ended December 31, 2011, there were two commercial loans classified as TDRs totaling $0.7 million, seven home equity loans classified as TDRs totaling $0.6 million and two residential real estate loans classified as TDRs totaling $0.4 million that subsequently defaulted on their renegotiated terms.

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Deposits (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Maturities of Time Deposits [Abstract]
Within one year	$ 454,235,000
After one but within two years	326,502,000
After two but within three years	109,348,000
After three but within four years	49,222,000
After four but within five years	35,972,000
After five years	7,982,000
Total	983,261,000	933,127,000
Time Deposits, $100,000 or More [Abstract]
Time deposits of $100,000 or more	$ 352,300,000	$ 305,700,000

XML

Long-Term Debt (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Long-Term Debt by Maturity Periods [Abstract]
Amount	$ 367,492	$ 370,344
Callable Amount	345,000	345,000
2013 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2013	Dec. 31, 2013
Amount	119,502	119,400
Weighted Average Rate (in hundredths)	3.87%	3.87%
Callable Amount	100,000	100,000
Weighted Average Rate Callable portion	3.71%	3.71%
2014 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2014	Dec. 31, 2014
Amount	2,610	2,604
Weighted Average Rate (in hundredths)	1.89%	2.00%
Callable Amount	0	0
Weighted Average Rate Callable portion	0.00%	0.00%
2015 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2015	Dec. 31, 2015
Amount	250	0
Weighted Average Rate (in hundredths)	0.00%	0.00%
Callable Amount	0	0
Weighted Average Rate Callable portion	0.00%	0.00%
2016 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2016	Dec. 31, 2016
Amount	70,000	70,000
Weighted Average Rate (in hundredths)	4.21%	4.21%
Callable Amount	70,000	70,000
Weighted Average Rate Callable portion	4.21%	4.21%
2017 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2017	Dec. 31, 2017
Amount	100,000	100,000
Weighted Average Rate (in hundredths)	3.89%	3.89%
Callable Amount	100,000	100,000
Weighted Average Rate Callable portion	3.89%	3.89%
2018 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2018	Dec. 31, 2018
Amount	75,000	75,000
Weighted Average Rate (in hundredths)	3.61%	3.61%
Callable Amount	75,000	75,000
Weighted Average Rate Callable portion	3.61%	3.61%
2021 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2021	Dec. 31, 2021
Amount	130	0
Weighted Average Rate (in hundredths)	4.00%	0.00%
Callable Amount	0	0
Weighted Average Rate Callable portion	0.00%	0.00%
2025 [Member]
Long-Term Debt by Maturity Periods [Abstract]
Maturity year	Dec. 31, 2025	Dec. 31, 2025
Amount	0	3,340
Weighted Average Rate (in hundredths)	0.00%	2.75%
Callable Amount	$ 0	$ 0
Weighted Average Rate Callable portion	0.00%	0.00%

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Goodwill and other Intangible Assets (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Goodwill [Roll Forward]
Beginning Balance	$ 132,029,000	$ 114,841,000
Goodwill acquired	20,344,000	17,188,000
Ending Balance	152,373,000	132,029,000	114,841,000
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	34,983,000	32,885,000
Less: accumulated amortization	18,021,000	14,691,000
Net carrying amount	16,962,000	18,194,000
Amortization Expense
Amortization of intangible assets	3,394,000	3,046,000	3,072,000
Future Amortization Expense
2013	3,300,000
2014	3,100,000
2015	2,900,000
2016	1,800,000
2017	1,400,000
Thereafter	2,400,000
Indefinite-lived intangible assets (Excluding goodwill)	2,000,000
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life (in years)	1
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life (in years)	12
Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	13,240,000	11,966,000
Less: accumulated amortization	7,794,000	6,401,000
Net carrying amount	5,446,000	5,565,000
Other Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	21,743,000	20,919,000
Less: accumulated amortization	10,227,000	8,290,000
Net carrying amount	$ 11,516,000	$ 12,629,000

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Securities (Tables)

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

Amortized cost, estimated fair value, and unrealized gains and losses of securities available for sale

The amortized cost, estimated fair value, and unrealized gains and losses of securities available for sale are as follows:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses		Estimated fair value
December 31, 2012
U.S. Treasury	$	63,668	$	757	$	-	$	64,425
Federal Agency		281,398		1,507		91		282,814
State & municipal		82,675		4,127		-		86,802
Mortgage-backed		237,461		12,820		-		250,281
Collateralized mortgage obligations		443,972		5,751		-		449,723
Corporate		-		-		-		-
Other securities		11,210		2,832		88		13,954
Total securities available for sale	$	1,120,384	$	27,794	$	179	$	1,147,999
December 31, 2011
U.S. Treasury	$	81,006	$	1,228	$	-	$	82,234
Federal Agency		254,983		879		16		255,846
State & municipal		99,176		5,624		11		104,789
Mortgage-backed		310,767		14,629		-		325,396
Collateralized mortgage obligations		459,067		6,458		51		465,474
Corporate		-		-		-		-
Other securities		8,935		2,021		76		10,880
Total securities available for sale	$	1,213,934	$	30,839	$	154	$	1,244,619

Schedule of sales transactions of securities available for sale

The following table sets forth information with regard to sales transactions of securities available for sale:

	Years ended December 31
(In thousands)	2012		2011			2010
Proceeds from sales	$	1,790	$	2,437		$	103,253
Gross realized gains	$	442	$	7		$	3,170
Gross realized losses		-		(165	)		(25	)
Net securities gains (losses)	$	442	$	(158	)	$	3,145

Amortized cost, estimated fair value, and unrealized gains and losses of securities held to maturity

The amortized cost, estimated fair value, and unrealized gains and losses of securities held to maturity are as follows:

	Amortized		Unrealized		Unrealized		Estimated
(In thousands)	cost		gains		losses		fair value
December 31, 2012
Mortgage-backed	$	1,168	$	184	$	-	$	1,352
State & municipal		59,395		788		-		60,183
Total securities held to maturity	$	60,563	$	972	$	-	$	61,535
December 31, 2011
Mortgage-backed	$	1,447	$	213	$	-	$	1,660
State & municipal		69,364		1,174		-		70,538
Total securities held to maturity	$	70,811	$	1,387	$	-	$	72,198

Investment securities with unrealized losses

The following table sets forth information with regard to investment securities with unrealized losses at December 31, 2012 and 2011, segregated according to the length of time the securities had been in a continuous unrealized loss position:

	Less than 12 months							12 months or longer							Total
Security Type:	Fair Value		Unrealized losses			Number of Positions		Fair Value		Unrealized losses			Number of Positions		Fair Value		Unrealized losses			Number of Positions
December 31, 2012
U.S. Treasury	$	-	$	-			-	$	-	$	-			-	$	-	$	-			-
Federal agency		39,906		(91	)		4		-		-			-		39,906		(91	)		4
State & municipal		-		-			-		-		-			-		-		-			-
Mortgage-backed		-		-			-		-		-			-		-		-			-
Collateralized mortgage obligations		23		-			2		-		-			-		23		-			2
Other securities		468		(6	)		1		167		(82	)		1		635		(88	)		2
Total securities with unrealized losses	$	40,397	$	(97	)		7	$	167	$	(82	)		1	$	40,564	$	(179	)		8
December 31, 2011
U.S. Treasury	$	-	$	-			-	$	-	$	-			-	$	-	$	-			-
Federal agency		34,996		(16	)		3		-		-			-		34,996		(16	)		3
State & municipal		957		(10	)		3		377		(1	)		2		1,334		(11	)		5
Mortgage-backed		-		-			-		-		-			-		-		-			-
Collateralized mortgage obligations		27,368		(51	)		3		-		-			-		27,368		(51	)		3
Other securities		645		(76	)		2		-		-			-		645		(76	)		2
Total securities with unrealized losses	$	63,966	$	(153	)		11	$	377	$	(1	)		2	$	64,343	$	(154	)		13

Contractual maturities of debt securities

The following tables set forth information with regard to contractual maturities of debt securities at December 31, 2012:

(In thousands)	Amortized cost		Estimated fair value
Debt securities classified as available for sale
Within one year	$	26,678	$	26,788
From one to five years		193,142		195,953
From five to ten years		311,575		319,229
After ten years		577,779		592,075
	$	1,109,174	$	1,134,045
Debt securities classified as held to maturity
Within one year	$	25,184	$	25,258
From one to five years		27,413		28,118
From five to ten years		5,425		5,434
After ten years		2,541		2,725
	$	60,563	$	61,535

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Merger and Acquisition Activity (Details) (USD $)	12 Months Ended					12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Alliance Financial Corporation [Member]	Dec. 31, 2012 Hampshire First Bank [Member]	Jun. 08, 2012 Hampshire First Bank [Member]	Dec. 31, 2012 Other Acquisitions [Member]
Business Acquisition [Line Items]
Date of acquisition				2012-06-08
Date of acquisition agreement			2012-10-07
Assets of entity to be acquired			$ 1,400,000,000
Number of banking centers operated by acquiree			26	5
Cost of entity to be acquired contracted purchase price			233,400,000
Number of shares of common stock issued to acquiree shareholders (in shares)				1,300,000
Cash paid					17,200,000
Outstanding common shares on acquisition date (in shares)					2,800,000
Share price of outstanding common shares paid for in cash (in dollars per share)				$ 15.00
Percentage of outstanding common shares paid for in cash (in hundredths)				35.00%
Percentage of outstanding common shares exchanged for Company's common stock (in hundredths)				65.00%
Exchange ratio of Company's stock for each share of acquiree's stock (in shares)					0.7019
Stock price of shares issued in exchange (in dollars per share)					$ 20.34
Goodwill acquired during period	20,344,000	17,188,000				1,900,000
Other intangible assets acquired during period						1,400,000
Consideration Paid [Abstract]
NBT Bancorp common stock issued to Hampshire First common stockholders					25,824,000
Cash consideration paid to Hampshire First common stockholders					14,616,000
Cash consideration paid for Hampshire First employee stock options and warrants					2,583,000
Total consideration paid					43,023,000
Recognized Amounts of Identifiable Assets Acquired and (Liabilities Assumed), At Fair Value [Abstract]
Cash and short term investments					22,149,000
Loans					218,801,000
Federal Home Loan Bank common stock					1,014,000
Core deposit intangibles					797,000
Other assets					12,926,000
Deposits					(228,198,000)
Borrowings					(41,000)
Other liabilities					(2,848,000)
Total identifiable net assets					24,600,000
Goodwill					18,423,000
Information about acquired loan portfolio [Abstract]
Contractually required principal and interest at acquisition					226,631,000
Contractual cash flows not expected to be collected					(7,985,000)
Expected cash flows at acquisition					218,646,000
Interest component of expected cash flows (accretable premium)					155,000
Fair value of acquired loans					218,801,000
Loans acquired during period fair value discount					$ 5,700,000

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Short-Term Borrowings

12 Months Ended

Dec. 31, 2012

Short-Term Borrowings [Abstract]

Short-Term Borrowings

(12) Short-Term Borrowings

Short-term borrowings totaled $162.9 million and $181.6 million at December 31, 2012 and 2011, respectively, and consist of Federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions, and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less.

The Company had unused lines of credit with the FHLB available for short-term financing of approximately $418 million and $323 million at December 31, 2012 and 2011, respectively. Borrowings on these lines are secured by FHLB stock, certain securities and one-to-four family first lien mortgage loans. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company's control.

Information related to short-term borrowings is summarized as follows:

(Dollars In thousands)	2012			2011			2010
Federal funds purchased
Balance at year-end	$	10,000		$	27,000			-
Average during the year		12,658			3,017			-
Maximum month end balance		60,000			28,000			-
Weighted average rate during the year		0.27	%		0.11	%		-
Weighted average rate at December 31		0.27	%		0.13	%		-
Securities sold under repurchase agreements
Balance at year-end	$	152,941		$	154,592		$	159,184
Average during the year		153,084			150,663			157,964
Maximum month end balance		165,977			178,414			169,278
Weighted average rate during the year		0.10	%		0.13	%		0.25	%
Weighted average rate at December 31		0.10	%		0.10	%		0.15	%
Other short-term borrowings
Balance at year-end		-			-		$	250
Average during the year		-			249			250
Maximum month end balance		-			250			250
Weighted average rate during the year		-			-			-
Weighted average rate at December 31		-			-			-

See Note 5 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2012

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements

(17) Regulatory Capital Requirements

The Company and NBT 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, NBT Bank must meet specific capital guidelines that involve quantitative measures of NBT Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and NBT Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 Capital to risk-weighted assets and of Tier 1 capital to average assets. As of December 31, 2012 and 2011, the Company and NBT Bank meet all capital adequacy requirements to which they were subject.

Under their prompt corrective action regulations, regulatory authorities are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution's financial statements. The regulations establish a framework for the classification of banks into five categories: well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under capitalized. As of December 31, 2012, the most recent notification from NBT Bank's regulators categorized NBT Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized NBT Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 capital to average asset ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed NBT Bank's category.

The Company and NBT Bank's actual capital amounts and ratios are presented as follows:

	Actual					Regulatory ratio requirements
(Dollars in thousands)	Amount		Ratio			Minimum capital adequacy			For classification as well capitalized
As of December 31, 2012
Total Capital (to risk weighted assets):
Company	$	560,745		12.25	%		8.00	%		10.00	%
NBT Bank		505,027		11.08	%		8.00	%		10.00	%
Tier I Capital (to risk weighted assets)
Company		503,359		11.00	%		4.00	%		6.00	%
NBT Bank		447,909		9.83	%		4.00	%		6.00	%
Tier I Capital (to average assets)
Company		503,359		8.54	%		4.00	%		5.00	%
NBT Bank		447,909		7.62	%		4.00	%		5.00	%
As of December 31, 2011
Total Capital (to risk weighted assets):
Company	$	528,674		12.81	%		8.00	%		10.00	%
NBT Bank		506,246		12.28	%		8.00	%		10.00	%
Tier I Capital (to risk weighted assets)
Company		476,837		11.56	%		4.00	%		6.00	%
NBT Bank		454,476		11.03	%		4.00	%		6.00	%
Tier I Capital (to average assets)
Company		476,837		8.74	%		4.00	%		5.00	%
NBT Bank		454,476		8.35	%		4.00	%		5.00	%

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Fair Values of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2012

Fair Values of Financial Instruments [Abstract]

Fair Value of Financial Instruments By Balance Sheet Grouping

The following table sets forth information with regard to estimated fair values of financial instruments at December 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, securities available for sale, trading securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable, and interest rate swaps.

			December 31, 2012				December 31, 2011
(In thousands)	Fair Value Hierarchy		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets
Securities held to maturity		2	$	60,563	$	61,535	$	70,811	$	72,198
Net loans		3		4,208,282		4,313,244		3,728,869		3,821,640
Financial liabilities
Time deposits		2	$	983,261	$	994,376	$	933,127	$	942,437
Long-term debt		2		367,492		407,404		370,344		427,107
Trust preferred debentures		2		75,422		74,147		75,422		75,422

Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company's financial assets and liabilities measured on a recurring basis that were accounted for at fair value as of December 31, 2012 and December 31, 2011. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2012
Assets:
Securities Available for Sale:
U.S. Treasury	$	64,425	$	-	$	-	$	64,425
Federal Agency		-		282,814		-		282,814
State & municipal		-		86,802		-		86,802
Mortgage-backed		-		250,281		-		250,281
Collateralized mortgage obligations		-		449,723		-		449,723
Other securities		11,866		2,088		-		13,954
Total Securities Available for Sale	$	76,291	$	1,071,708	$	-	$	1,147,999
Trading Securities		3,918		-		-		3,918
Interest Rate Swaps		-		1,490		-		1,490
Total	$	80,208	$	1,073,198	$	-	$	1,153,407
Liabilities:
Interest Rate Swaps	$	-	$	1,490	$	-	$	1,490
Total	$	-	$	1,490	$	-	$	1,490

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2011
Assets:
Securities Available for Sale:
U.S. Treasury	$	82,233	$	-	$	-	$	82,233
Federal Agency		-		255,846		-		255,846
State & municipal		-		104,789		-		104,789
Mortgage-backed		-		325,397		-		325,397
Collateralized mortgage obligations		-		465,475		-		465,475
Other securities		8,825		2,054		-		10,879
Total Securities Available for Sale	$	91,058	$	1,153,561	$	-	$	1,244,619
Trading Securities		3,062		-		-		3,062
Total	$	94,120	$	1,153,561	$	-	$	1,247,681

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Short-Term Borrowings (Tables)

12 Months Ended

Dec. 31, 2012

Short-Term Borrowings [Abstract]

Information related to short-term borrowings

Information related to short-term borrowings is summarized as follows:

(Dollars In thousands)	2012			2011			2010
Federal funds purchased
Balance at year-end	$	10,000		$	27,000			-
Average during the year		12,658			3,017			-
Maximum month end balance		60,000			28,000			-
Weighted average rate during the year		0.27	%		0.11	%		-
Weighted average rate at December 31		0.27	%		0.13	%		-
Securities sold under repurchase agreements
Balance at year-end	$	152,941		$	154,592		$	159,184
Average during the year		153,084			150,663			157,964
Maximum month end balance		165,977			178,414			169,278
Weighted average rate during the year		0.10	%		0.13	%		0.25	%
Weighted average rate at December 31		0.10	%		0.10	%		0.15	%
Other short-term borrowings
Balance at year-end		-			-		$	250
Average during the year		-			249			250
Maximum month end balance		-			250			250
Weighted average rate during the year		-			-			-
Weighted average rate at December 31		-			-			-

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 54,558	$ 57,901	$ 57,404
Other comprehensive (loss) income, net of tax
Unrealized net holding (losses) gains arising during the year (pre-tax amounts of $(2,471), $12,757, and $(6,660))	(1,492)	7,703	(4,021)
Reclassification adjustment for net gains related to securities available for sale included in net income (pre-tax amounts of $599, $150, and $3,274)	(362)	(90)	(1,977)
Amortization of prior service cost and actuarial gains (pre-tax amounts of $3,593, $1,665, and $1,768)	2,092	999	1,060
Increase in unrecognized actuarial loss and prior service cost (pre-tax amounts of $(24), $(15,546), and $(2,596))	(14)	(9,381)	(1,560)
Total other comprehensive income (loss)	224	(769)	(6,498)
Comprehensive income	$ 54,782	$ 57,132	$ 50,906

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

(1) Summary of Significant Accounting Policies

The accounting and reporting policies of NBT Bancorp Inc. ("NBT Bancorp") and its subsidiaries, NBT Bank, National Association ("NBT Bank"), NBT Holdings, Inc., and NBT Financial Services, Inc., conform, in all material respects, to accounting principles generally accepted in the United States of America ("GAAP") and to general practices within the banking industry. Collectively, NBT Bancorp and its subsidiaries are referred to herein as "the Company."

The preparation of financial statements in conformity with GAAP 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 these estimates.

Estimates associated with the allowance for loan losses, other real estate owned (OREO), income taxes, pension expense, fair values of financial instruments and status of contingencies and other-than-temporary impairment on investments are particularly susceptible to material change in the near term.

The following is a description of significant policies and practices:

Consolidation

The accompanying consolidated financial statements include the accounts of NBT Bancorp and its wholly owned subsidiaries mentioned above. All material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to the current year's presentation. In the "Parent Company Financial Information," the investment in subsidiaries is recorded using the equity method of accounting.

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity's activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, variable interest entities ("VIEs") are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in an entity is present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. The Company's wholly owned subsidiaries CNBF Capital Trust I, NBT Statutory Trust I and NBT Statutory Trust II are VIEs for which the Company is not the primary beneficiary. Accordingly, the accounts of these entities are not included in the Company's consolidated financial statements.

Segment Report

The Company's operations are primarily in the community banking industry and include the provision of traditional banking services. The Company also provides other services through its subsidiaries such as insurance, retirement plan administration, and trust administration. The Company operates solely in the geographical regions of central and upstate New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire and Burlington, Vermont. The Company has no reportable operating segments.

Cash Equivalents

The Company considers amounts due from correspondent banks, cash items in process of collection, and institutional money market mutual funds to be cash equivalents for purposes of the consolidated statements of cash flows.

Securities

The Company classifies its securities at date of purchase as either available for sale, held to maturity or trading. Held to maturity debt securities are those that the Company has the ability and intent to hold until maturity. Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported in stockholders' equity and the statement of comprehensive income as a component of accumulated other comprehensive income or loss. Held to maturity securities are recorded at amortized cost. Trading securities are recorded at fair value, with net unrealized gains and losses recognized in income. Transfers of securities between categories are recorded at fair value at the date of transfer. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses or in other comprehensive income, depending on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be separated into (a) the amount representing the credit loss and (b) the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss shall be recognized in earnings. The amount of the total other-than-temporary impairment related to other factors shall be recognized in other comprehensive income, net of applicable taxes.

In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the historical and implied volatility of the fair value of the security.

Non-marketable equity securities are carried at cost.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividend and interest income are recognized when earned. Realized gains and losses on securities sold are derived using the specific identification method for determining the cost of securities sold.

Investments in Federal Reserve and Federal Home Loan Bank ("FHLB") stock are required for membership in those organizations and are carried at cost since there is no market value available.

Loans

Loans are recorded at their current unpaid principal balance, net of unearned income and unamortized loan fees and expenses, which are amortized under the effective interest method over the estimated lives of the loans. Interest income on loans is accrued based on the principal amount outstanding.

Lease receivables primarily represent automobile financing to customers through direct financing leases and are carried at the aggregate of the lease payments receivable and the estimated residual values, net of unearned income and net deferred lease origination fees and costs. Net deferred lease origination fees and costs are amortized under the effective interest method over the estimated lives of the leases. The estimated residual value related to the total lease portfolio is reviewed and if there has been a decline in the estimated fair value of the total residual value that is judged by management to be other-than-temporary a loss is recognized. Adjustments related to such other-than-temporary declines in estimated fair value are recorded in noninterest expense in the consolidated statements of income.

For all loan classes within the Company's loan portfolio, loans are placed on nonaccrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. Loans are transferred to nonaccrual status generally when principal or interest payments become ninety days delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes circumstances indicate that borrowers may be unable to meet contractual principal or interest payments. When a loan is transferred to a nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for loan losses.

If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected. For all loan classes within the Company's loan portfolio, nonaccrual loans are returned to accrual status when they become current as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest. For loans in all portfolios, the principal amount is charged off in full or in part as soon as management determines, based on available facts, that the collection of principal in full is improbable. For commercial loans, management considers specific facts and circumstances relative to individual credits in making such a determination. For consumer and residential loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council's Uniform Retail Credit Classification and Account Management Policy.

Commercial type loans are considered impaired when it is probable that the borrower will not repay the loan according to the original contractual terms of the loan agreement, and all loan types are considered impaired if the loan is restructured in a troubled debt restructuring ("TDR"). In determining that we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, we consider factors such as payment history and changes in the financial condition of individual borrowers, local economic conditions, historical loss experience and the conditions of the various markets in which the collateral may be liquidated.

A loan is considered to be a TDR when the Company grants a concession to the borrower because of the borrower's financial condition that the Company would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of all or a portion of principal or interest, or other modifications at interest rates that are less than the current market rate for new obligations with similar risk. TDR loans are nonaccrual loans; however, they can be returned to accrual status after a period of performance, generally evidenced by six months of compliance with their modified terms.

Allowance for Loan Losses

The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb probable losses inherent in the loan portfolio. The allowance is determined based upon numerous considerations, including local and regional conditions, the growth and composition of the loan portfolio with respect to the mix between the various types of loans and their related risk characteristics, a review of the value of collateral supporting the loans, comprehensive reviews of the loan portfolio by the independent loan review staff and management, as well as consideration of volume and trends of delinquencies, nonperforming loans, and loan charge-offs. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. As a result of tests of adequacy, required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses.

The allowance for loan losses related to impaired loans is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral (collateral dependent loans). The Company's impaired loans are generally collateral dependent. The Company considers the estimated cost to sell, on a discounted basis, when determining the fair value of collateral in the measurement of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loans.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions or changes in the values of properties securing loans in the process of foreclosure. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination which may not be currently available to management.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation of premises and equipment is determined using the straight-line method over the estimated useful lives of the respective assets. Expenditures for maintenance, repairs, and minor replacements are charged to expense as incurred.

Other Real Estate Owned

OREO consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or "cost" (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of OREO are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of OREO at December 31, 2012 and 2011 was approximately $2.3 million and $2.2 million, respectively.

Acquired Loans

Acquired loans are initially measured at fair value as of the acquisition date without carryover of historical allowance for loan losses.

For loans that meet the criteria stipulated in ASC 310-30, the Company shall recognize the accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan's contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference shall not be recognized as an adjustment of yield, a loss accrual, or a valuation allowance. Decreases in the expected cash flows in subsequent periods require the establishment of an allowance for loan losses. Improvements in expected cash flows in future periods result in a reduction of the nonaccretable discount, with such amount reclassified as part of the accretable yield and subsequently recognized in interest income over the remaining lives of the acquired loans on a level-yield basis if the amount and timing of future cash flows is reasonably estimable.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan losses recognized subsequent to acquisition.

For loans that meet the criteria stipulated in ASC 310-20, the Company shall amortize/accrete into interest income the premium/discount determined at the date of purchase on a level-yield basis over the life of the loan. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses are similar to originated loans. Loans accounted for under ASC 310-20 are placed on nonaccrual status when past due in accordance with the Company's nonaccrual policy.

Subsequent to acquisition the estimate of cash flows expected to be collected on loans accounted for in accordance with ASC 310-20 is periodically re-assessed. These re-assessments involve the use of key assumptions and estimates, similar to those used in the initial estimate of fair value. A decrease in expected cash flows in subsequent periods may indicate that the loan pool is impaired, which would require the establishment of an allowance for loan losses by a charge to the provision for credit losses.

An acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale is recognized and reported within noninterest income based on the difference between the sales proceeds and the carrying amount of the loan. In other cases, individual loans are removed from the pool based on comparing the amount received from its resolution (fair value of the underlying collateral less costs to sell in the case of a foreclosure) with its outstanding balance. Any difference between these amounts is recorded as a charge-off through the allowance for loan losses. Acquired loans subject to modification are not removed from the pool even if those loans would otherwise be deemed troubled debt restructurings as the pool, and not the individual loan, represents the unit of account.

Goodwill and Other Intangible Assets

Goodwill and intangible assets that have indefinite useful lives are not amortized, but are tested at least annually for impairment. Intangible assets that have finite useful lives are amortized over their useful lives. Core deposit intangibles at the Company are amortized using the sum-of-the-years'-digits method. Covenants not to compete are amortized on a straight-line basis. Customer lists are amortized using an accelerated method.

When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the asset carrying value, using estimates of undiscounted future cash flows over the remaining asset life. Any impairment loss is measured by the excess of carrying value over fair value. Goodwill impairment tests are performed on an annual basis or when events or circumstances dictate. In these tests, the fair values of each reporting unit, or segment, is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated. If so, the implied fair value of the reporting unit's goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value.

Treasury Stock

Treasury stock acquisitions are recorded at cost. Subsequent sales of treasury stock are recorded on an average cost basis. Gains on the sale of treasury stock are credited to additional paid-in-capital. Losses on the sale of treasury stock are charged to additional paid-in-capital to the extent of previous gains, otherwise charged to retained earnings.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

We maintain various long-term incentive stock benefit plans under which we grant stock options, restricted stock awards, and restricted stock units to certain directors and key employees. We recognize compensation expense in our income statement over the requisite service period, based on the grant-date fair value of the award. The fair values of options are estimated using the Black-Scholes option pricing model. For restricted stock awards and units, we recognize compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date.

The Company's stock-based employee compensation plan is described in Note 18 "Employee Benefit Plans," of this Report.

Interest Rate Swaps

Beginning in June 2012 with the acquisition of Hampshire First Bank, the Bank offers interest rate swap agreements to its customers. These agreements allow the Bank's customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement. Simultaneous with the execution of such an agreement with a customer, the Bank enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Bank to continue to receive the historical variable rate under the loan agreement with the customer. The agreement with the third party is not a hedge contract therefore changes in fair value are recorded through earnings. Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet. Gains and losses are recorded as other noninterest income. The Bank is not subject to any fee or penalty should the customer elect to terminate the interest rate swap agreement prior to maturity. The Bank is exposed to credit loss equal to the fair value of the derivatives (not the notional amount of the derivatives) in the event of nonperformance by the counterparty to the interest rate swap agreements. Additionally, the Bank receives a fee from the customer that is recognized when the Bank has fulfilled its obligations under each agreement, which is generally upon execution of the agreement with the Bank's customer. Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Bank is limited to the fees it receives from the customer.

Other Financial Instuments

The Company is a party to certain other financial instruments with off-balance-sheet risk such as commitments to extend credit, unused lines of credit, as well as certain mortgage loans sold to investors with recourse. The Company's policy is to record such instruments when funded.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Under the standby letters of credit, the Company is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer's failure to perform under the terms of the underlying contract with the beneficiary. Standby letters of credit typically have one year expirations with an option to renew upon annual review. The Company typically receives a fee for these transactions. The fair value of stand-by letters of credit is recorded upon inception.

Loan Sales and Loan Servicing

The Company originates and services residential mortgage loans for consumers and sells 15-year, 20-year and 30-year residential real estate mortgages in the secondary market when the interest rate environment is determined to be favorable by management, while retaining servicing rights on the sold loans. Loan sales are recorded when the sales are funded. Mortgage servicing rights are recorded at fair value upon sale of the loan. Loans held for sale are recorded at the lower of cost or market.

Repurchase Agreements

Repurchase agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets the other criteria for such accounting. Obligations to repurchase securities sold are reflected as a liability in the Consolidated Balance Sheets. The securities underlying the agreements are delivered to a custodial account for the benefit of the dealer or bank with whom each transaction is executed. The dealers or banks, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agree to resell to the Company the same securities at the maturities of the agreements.

Earnings Per Share

Basic earnings per share ("EPS") excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company's dilutive stock options and restricted stock).

Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.

Comprehensive Income

At the Company, comprehensive income represents net income plus other comprehensive income (loss), which consists primarily of the net change in unrealized gains or losses on securities available for sale for the period and changes in the funded status of employee benefit plans. Accumulated other comprehensive (loss) income represents the net unrealized gains or losses on securities available for sale and the previously unrecognized portion of the funded status of employee benefit plans, net of income taxes, as of the consolidated balance sheet dates.

Pension Costs

The Company maintains a noncontributory, defined benefit pension plan covering substantially all employees, as well as supplemental employee retirement plans covering certain executives and a defined benefit postretirement healthcare plan that covers certain employees. Costs associated with these plans, based on actuarial computations of current and future benefits for employees, are charged to current operating expenses.

Trust Operations

Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Company. Trust income is recognized on the accrual method based on contractual rates applied to the balances of trust accounts.

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within level 1 or level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations, and certain physical commodities. Such instruments are generally classified within level 2 of the fair value hierarchy.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate will be used. Management's best estimate consists of both internal and external support on certain Level 3 investments. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

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Allowance for Loan Losses and Credit Quality of Loans, Impaired Loans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Allowance for Loan Losses and Credit Quality of Loans and Leases [Abstract]
Impaired loans modified in TDR	$ 26,000,000	$ 22,400,000
Minimum balance for classified loans to be evaluated individually for impairment	500,000
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	8,400,000
With No Allowance Recorded [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	17,598,000	21,971,000
Unpaid Principal Balance (Legal)	21,940,000	29,546,000
Average Recorded Investment	21,429,000	20,798,000	16,127,000
Interest Income Recognized Accrual	915,000	914,000	902,000
Interest Income Recognized Cash	915,000	914,000	902,000
With No Allowance Recorded [Member] | Commercial Loans [Member] | Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	650,000	1,243,000
Unpaid Principal Balance (Legal)	709,000	2,723,000
Average Recorded Investment	1,421,000	2,322,000	1,898,000
Interest Income Recognized Accrual	25,000	94,000	113,000
Interest Income Recognized Cash	25,000	94,000	113,000
With No Allowance Recorded [Member] | Commercial Loans [Member] | Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	3,909,000	4,868,000
Unpaid Principal Balance (Legal)	4,753,000	7,165,000
Average Recorded Investment	6,167,000	4,794,000	4,219,000
Interest Income Recognized Accrual	70,000	163,000	317,000
Interest Income Recognized Cash	70,000	163,000	317,000
With No Allowance Recorded [Member] | Commercial Loans [Member] | Agricultural [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	699,000	3,307,000
Unpaid Principal Balance (Legal)	1,019,000	4,166,000
Average Recorded Investment	2,611,000	3,013,000	2,990,000
Interest Income Recognized Accrual	368,000	133,000	82,000
Interest Income Recognized Cash	368,000	133,000	82,000
With No Allowance Recorded [Member] | Commercial Loans [Member] | Agricultural Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	1,038,000	2,067,000
Unpaid Principal Balance (Legal)	1,225,000	2,288,000
Average Recorded Investment	1,575,000	1,719,000	1,929,000
Interest Income Recognized Accrual	86,000	109,000	150,000
Interest Income Recognized Cash	86,000	109,000	150,000
With No Allowance Recorded [Member] | Commercial Loans [Member] | Business Banking [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	6,738,000	7,446,000
Unpaid Principal Balance (Legal)	9,269,000	9,976,000
Average Recorded Investment	6,636,000	6,121,000	4,959,000
Interest Income Recognized Accrual	227,000	266,000	234,000
Interest Income Recognized Cash	227,000	266,000	234,000
With No Allowance Recorded [Member] | Commercial Loans [Member] | Total Commercial Loans [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	13,034,000	18,931,000
Unpaid Principal Balance (Legal)	16,975,000	26,318,000
With No Allowance Recorded [Member] | Consumer Loans [Member] | Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	2,553,000	2,000,000
Unpaid Principal Balance (Legal)	2,657,000	2,103,000
Average Recorded Investment	1,877,000	1,904,000	0
Interest Income Recognized Accrual	66,000	91,000	0
Interest Income Recognized Cash	66,000	91,000	0
With No Allowance Recorded [Member] | Residential Real Estate Mortgages [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	2,011,000	1,040,000
Unpaid Principal Balance (Legal)	2,308,000	1,125,000
Average Recorded Investment	1,143,000	926,000	132,000
Interest Income Recognized Accrual	73,000	58,000	6,000
Interest Income Recognized Cash	73,000	58,000	6,000
With An Allowance Recorded [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	26,001,000	22,427,000
Unpaid Principal Balance (Legal)	31,969,000	30,354,000
Related Allowance	2,848,000	175,000
Average Recorded Investment	25,985,000	23,094,000	21,929,000
Interest Income Recognized Accrual	958,000	1,086,000	1,237,000
Interest Income Recognized Cash	958,000	1,086,000	1,237,000
With An Allowance Recorded [Member] | Commercial Loans [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	8,403,000	456,000
Unpaid Principal Balance (Legal)	10,029,000	808,000
Related Allowance	2,848,000	175,000
Average Recorded Investment	4,556,000	2,295,000	5,802,000
Interest Income Recognized Accrual	43,000	172,000	335,000
Interest Income Recognized Cash	43,000	172,000	335,000
With An Allowance Recorded [Member] | Commercial Loans [Member] | Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	4,335,000	456,000
Unpaid Principal Balance (Legal)	4,340,000	808,000
Related Allowance	2,241,000	175,000
Average Recorded Investment	4,217,000	861,000	2,366,000
Interest Income Recognized Accrual	43,000	86,000	118,000
Interest Income Recognized Cash	43,000	86,000	118,000
With An Allowance Recorded [Member] | Commercial Loans [Member] | Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	4,068,000	0
Unpaid Principal Balance (Legal)	5,689,000	0
Related Allowance	607,000	0
Average Recorded Investment	339,000	287,000	1,234,000
Interest Income Recognized Accrual	0	0	0
Interest Income Recognized Cash	0	0	0
With An Allowance Recorded [Member] | Commercial Loans [Member] | Agricultural [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	0	0
Unpaid Principal Balance (Legal)	0	0
Related Allowance	0	0
Average Recorded Investment	0	791,000	1,386,000
Interest Income Recognized Accrual	0	68,000	150,000
Interest Income Recognized Cash	0	68,000	150,000
With An Allowance Recorded [Member] | Commercial Loans [Member] | Agricultural Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment Balance (Book)	0	0
Unpaid Principal Balance (Legal)	0	0
Related Allowance	0	0
Average Recorded Investment	0	357,000	816,000
Interest Income Recognized Accrual	0	18,000	67,000
Interest Income Recognized Cash	$ 0	$ 18,000	$ 67,000

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Stockholders Equity (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stockholders Equity [Abstract]
Unrecognized prior service cost and net actuarial loss on pension plans	$ (22,555,000)	$ (24,633,000)
Unrealized net holding gains on available for sale securities	16,675,000	18,529,000
Accumulated other comprehensive income (loss)	(5,880,000)	(6,104,000)
Class of Warrant or Right [Line Items]
Future dividend payment restrictions	The approval of the Office of Comptroller of the Currency (OCC) is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank's earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations.
Statutory amount available for dividend payments	$ 21,300,000
Series A Junior Participating Preferred Stock [Member]
Class of Warrant or Right [Line Items]
Purchase entitlement (in shares)	0.01
Stated value of purchase entitlement (in dollars per share)	$ 0.01
Exercise price (in dollars per share)	$ 70.00
Stockholder Rights Plan [Member]
Class of Warrant or Right [Line Items]
Preferred share purchase right dividend per common share (in shares)	1
Beneficial ownership of outstanding common stock basis for right exercise, minimum (in hundredths)	15.00%
Tender or exchange offer of outstanding common stock rights to exercise, minimum (in hundredths)	15.00%
Market value of additional equity interests rights, description	two times the Right's exercise price of $70
Preferred Share Purchase Right exercise price (in dollars per right)	$ 0.001

XML

Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(18) Employee Benefit Plans

Defined Benefit Postretirement Plans

The Company has a qualified, noncontributory, defined benefit pension plan covering substantially all of its employees at December 31, 2012. Benefits paid from the plan are based on age, years of service, compensation, social security benefits, and are determined in accordance with defined formulas. The Company's policy is to fund the pension plan in accordance with ERISA standards. Assets of the plan are invested in publicly traded stocks and bonds. Prior to January 1, 2000, the Company's plan was a traditional defined benefit plan based on final average compensation. On January 1, 2000, the plan was converted to a cash balance plan with grandfathering provisions for existing participants.

In addition to the pension plan, the Company also provides supplemental employee retirement plans to certain current and former executives. These supplemental employee retirement plans and the defined benefit pension plan are collectively referred to herein as "Pension Benefits."

Also, the Company provides certain health care benefits for retired employees. Benefits are accrued over the employees' active service period. Only employees that were employed by NBT Bank on or before January 1, 2000 are eligible to receive postretirement health care benefits. The plan is contributory for participating retirees, requiring participants to absorb certain deductibles and coinsurance amounts with contributions adjusted annually to reflect cost sharing provisions and benefit limitations called for in the plan. Employees become eligible for these benefits if they reach normal retirement age while working for the Company. For eligible employees described above, the Company funds the cost of postretirement health care as benefits are paid. The Company elected to recognize the transition obligation on a delayed basis over twenty years. These postretirement benefits are referred to herein as "Other Benefits."

Accounting standards require an employer to: (1) recognize the overfunded or underfunded status of defined benefit postretirement plans, which is measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its balance sheet; (2) recognize changes in that funded status in the year in which the changes occur through comprehensive income; and (3) measure the defined benefit plan assets and obligations as of the date of its year-end balance sheet.

The components of accumulated other comprehensive loss, which have not yet been recognized as components of net periodic benefit cost, related to pensions and other postretirement benefits at December 31, 2012 are summarized below. The Company expects that $3.0 million in net actuarial loss and $0.2 million in prior service credit will be recognized as components of net periodic benefit cost in 2013.

	Pension Benefits				Other Benefits
(In thousands)	2012		2011		2012			2011
Net actuarial loss	$	35,478	$	37,914	$	2,277		$	2,323
Prior service cost		141		1,430		(672	)		(874	)
Total amounts recognized in accumulated other comprehensive loss (pre-tax)	$	35,619	$	39,344	$	1,605		$	1,449

A December 31 measurement date is used for the pension, supplemental pension and postretirement benefit plans. The following table sets forth changes in benefit obligations, changes in plan assets, and the funded status of the pension plans and other postretirement benefits:

	Pension Benefits						Other Benefits
(In thousands)	2012			2011			2012			2011
Change in benefit obligation
Benefit obligation at beginning of year	$	78,024		$	70,229		$	3,985		$	4,554
Service cost		3,122			2,589			20			17
Interest cost		3,145			3,544			155			202
Plan participants' contributions		-			-			233			263
Actuarial loss (gain)		5,941			5,935			136			(562	)
Amendments		(1,006	)		-			-			-
Benefits paid		(4,097	)		(4,273	)		(458	)		(489	)
Projected benefit obligation at end of year		85,129			78,024			4,071			3,985
Change in plan assets
Fair value of plan assets at beginning of year		91,575			97,821			-			-
Actual return (loss) on plan assets		11,733			(2,452	)		-			-
Employer contributions		493			479			225			226
Plan participants' contributions		-			-			233			263
Benefits paid		(4,097	)		(4,273	)		(458	)		(489	)
Fair value of plan assets at end of year		99,704			91,575			-			-
Funded status at year end	$	14,575		$	13,551		$	(4,071	)	$	(3,985	)

Effective March 1, 2013, the pension plan was amended. Benefit accruals for participants who, as of January 1, 2000, elected to continue participating in the traditional defined benefit plan design were frozen as of March 1, 2013. This amendment resulted in a reduction to the projected benefit obligation as of December 31, 2012 as noted in the table above.

The funded status of the pension and other postretirement benefit plans has been recognized as follows in the consolidated balance sheets at December 31, 2012 and 2011. An asset is recognized for an overfunded plan and a liability is recognized for an underfunded plan. The accumulated benefit obligation for pension benefits was $84.5 million and $76.5 million at December 31, 2012 and 2011, respectively. The accumulated benefit obligation for other postretirement benefits was $4.1 million and $4.0 million at December 31, 2012 and 2011, respectively.

	Pension Benefits						Other Benefits
(In thousands)	2012			2011			2012			2011
Other assets	$	27,062		$	23,972		$	-		$	-
Other liabilities		(12,487	)		(10,421	)		(4,071	)		(3,985	)
Funded status	$	14,575		$	13,551		$	(4,071	)	$	(3,985	)

The following assumptions were used to determine the benefit obligation and the net periodic pension cost for the years indicated:

	Years ended December 31,
(In thousands)	2012			2011			2010
Weighted average assumptions:
The following assumptions were used to determine benefit obligations:
Discount rate		3.50	%		4.10	%		5.15	%
Expected long-term return on plan assets		7.50	%		7.50	%		8.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%
The following assumptions were used to determine net periodic pension cost:
Discount rate		4.10	%		5.15	%		5.70	%
Expected long-term return on plan assets		7.50	%		8.00	%		8.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%

Net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the years ended December 31 included the following components:

	Pension Benefits									Other Benefits
(In thousands)	2012			2011			2010			2012			2011			2010
Components of net periodic benefit cost
Service cost	$	3,122		$	2,589		$	2,254		$	20		$	17		$	17
Interest cost		3,145			3,544			3,613			155			202			228
Expected return on plan assets		(6,686	)		(7,720	)		(7,166	)		-			-			-
Amortization of prior service cost		283			309			322			(202	)		(202	)		(202	)
Amortization of unrecognized net loss		3,330			1,353			1,447			182			205			201
Net periodic pension cost	$	3,194		$	75		$	470		$	155		$	222		$	244
Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax)
Net loss (gain)	$	894		$	16,108		$	1,620		$	136		$	(562	)	$	955
Prior service cost		(1,006	)		-			21			-			-			-
Amortization of prior service cost		(283	)		(309	)		(322	)		202			202			202
Amortization of unrecognized net gain		(3,330	)		(1,353	)		(1,447	)		(182	)		(205	)		(201	)
Total recognized in other comprehensive loss (income)		(3,725	)		14,446			(128	)		156			(565	)		956
Total recognized in net periodic benefit cost and other comprehensive income (loss) - pre-tax	$	(531	)	$	14,521		$	342		$	311		$	(343	)	$	1,200

The following table sets forth estimated future benefit payments for the pension plans and other postretirement benefit plans:

	Pension		Other
	Benefits		Benefits
2013		5,247		215
2014		5,243		224
2015		5,285		234
2016		7,767		242
2017		5,942		250
2018 - 2022		29,180		1,311

The Company is not required to make contributions to the defined benefit plan in 2013.

For measurement purposes, the annual rates of increase in the per capita cost of covered medical and prescription drug benefits for fiscal year 2012 were assumed to be 6.0 to 6.5 percent. The rates were assumed to decrease gradually to 5.0 percent for fiscal year 2018 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on amounts reported for health care plans. A one-percentage point change in the health care trend rates would have the following effects as of and for the year ended December 31, 2012:

(In thousands)	One Percentage point increase		One Percentage point decrease
Increase (decrease) on total service and interest cost components	$	24	$	(20	)
Increase (decrease) on postretirement accumulated benefit obligation		503		(426	)

Plan Investment Policy

The Company's key investment objectives in managing its defined benefit plan assets are to ensure that present and future benefit obligations to all participants and beneficiaries are met as they become due; to provide a total return that, over the long-term, maximizes the ratio of the plan assets to liabilities, while minimizing the present value of required Company contributions, at the appropriate levels of risk; to meet statutory requirements and regulatory agencies' requirements; and to satisfy applicable accounting standards. The Company periodically evaluates the asset allocations, funded status, rate of return assumption and contribution strategy for satisfaction of our investment objectives. The target and actual allocations expressed as a percentage of the defined benefit pension plan's assets are as follows:

	Target 2013			2012			2011
Cash and cash equivalents		0 - 20	%		5	%		2	%
Fixed income securities		20 - 40	%		29	%		34	%
Equities		40 - 80	%		66	%		64	%
Total					100	%		100	%

Only high-quality bonds are to be included in the portfolio. All issues that are rated lower than A by Standard and Poor's are to be excluded. Equity securities at December 31, 2012 and 2011 do not include any Company common stock. The following table presents the financial instruments recorded at fair value on a recurring basis by the Plan as of December 31, 2012 and 2011:

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2012
Cash and Cash Equivalents	$	5,464	$	-	$	-	$	5,464
Foreign Equity Mutual Funds		9,763		-		-		9,763
Equity Mutual Funds		13,110		-		-		13,110
US Government Bonds		-		12,744		-		12,744
Corporate Bonds		-		13,604		-		13,604
Common Stock		40,430		-		-		40,430
Municipal bonds and Notes		-		1,805		-		1,805
Foreign Bonds and Notes		-		1,137		-		1,137
Foreign Equity		1,647		-		-		1,647
Totals	$	70,414	$	29,290	$	-	$	99,704

	Quoted Prices in		Significant		Significant
	Active Markets for		Other		Unobservable		Balance
	Identical Assets		Observable Inputs		Inputs		as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2011
Cash and Cash Equivalents	$	1,503	$	-	$	-	$	1,503
Foreign Equity Mutual Funds		6,577		-		-		6,577
Equity Mutual Funds		9,902		-		-		9,902
US Government Bonds		-		15,683		-		15,683
Corporate Bonds		-		12,954		-		12,954
Common Stock		33,850		-		-		33,850
Municipal bonds and Notes		-		1,799		-		1,799
Foreign Bonds and Notes		-		1,096		-		1,096
Foreign Equity		8,211		-		-		8,211
Totals	$	60,043	$	31,532	$	-	$	91,575

The plan had no financial instruments recorded at fair value on a nonrecurring basis as of December 31, 2012.

Determination of Assumed Rate of Return

The expected long-term rate-of-return on assets is 7.5% at December 31, 2012. This assumption represents the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The assumption has been determined by reflecting expectations regarding future rates of return for the portfolio considering the asset distribution and related historical rates of return. The appropriateness of the assumption is reviewed annually.

Employee 401(k) and Employee Stock Ownership Plans

The Company maintains a 401(k) and employee stock ownership plan (the "401(k) Plan"). The Company contributes to the 401(k) Plan based on employees' contributions out of their annual salaries. In addition, the Company may also make discretionary contributions to the 401(k) Plan based on profitability. Participation in the 401(k) Plan is contingent upon certain age and service requirements. The employer contributions associated with the 401(k) Plan were $1.8 million in 2012, $3.7 million in 2011, and $3.5 million in 2010.

Omnibus Incentive Plan

In April 2008, the Company adopted the NBT Bancorp Inc. 2008 Omnibus Incentive Plan (the "Plan"). Under the terms of the Plan, options and other equity-based awards are granted to directors and employees to increase their direct proprietary interest in the operations and success of the Company. The Plan assumed all prior equity-based incentive plans and any new equity-based awards are granted under the terms of the Plan. Under terms of the Plan, stock options are granted to purchase shares of the Company's common stock at a price equal to the fair market value of the common stock on the date of the grant. Options granted have a vesting period of four years and terminate ten years from the date of the grant. Shares issued as a result of stock option exercises and vesting of restricted shares and stock unit awards are funded from the Company's treasury stock. Restricted shares granted under the Plan vest after five years for employees and three years for non-employee directors. Restricted stock units granted under the Plan may have different terms and conditions. Performance shares and units granted under the Plan for executives may have different terms and conditions.

The per share weighted average fair value of stock options granted during 2012, 2011, and 2010 was $4.57, $5.45, and $5.03, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the years ended December 31. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued:

	Years ended December 31,
	2012			2011			2010
Dividend yield		3.94	%		3.31%–3.82	%		3.27%–3.96	%
Expected volatility		34.64	%		33.75%–34.36	%		33.00%–33.86	%
Risk-free interest rates		1.24	%		1.48%–2.81	%		1.90%–3.17	%
Expected life		7 years			7 years			7 years

The following table summarizes information concerning stock options outstanding at December 31, 2012:

	Number of Shares			Weighted average exercise price		Weighted Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		1,863,590		$	22.41
Granted		150			20.30
Exercised		(108,817	)		17.53
Forfeited		(11,150	)		21.92
Expired		(48,211	)		22.50
Outstanding at December 31, 2012		1,695,562		$	22.72		4.58	$	51,236
Exercisable at December 31, 2012		1,480,737		$	22.83		4.21	$	43,043
Expected to Vest		205,476		$	21.97		7.01	$	7,752

Total stock-based compensation expense for stock option awards totaled $0.5 million for the year ended December 31, 2012, $0.9 million for the year ended December 31, 2011, and $1.8 million for the year ended December 31, 2010. Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:

	Years ended
(dollars in thousands)	2012		2011		2010
Proceeds from stock options exercised	$	1,908	$	2,255	$	1,778
Tax benefits related to stock options exercised		8		341		140
Intrinsic value of stock options exercised		498		897		574
Fair value of shares vested during the year		1,656		1,597		1,800

The Company has outstanding restricted and deferred stock awards granted from various plans at December 31, 2012. The Company recognized $3.7 million in stock-based compensation expense related to these stock awards for the year ended December 31, 2012, $3.2 million for the year ended December 31, 2011, and $2.0 million for the year ended December 31, 2010. Tax benefits recognized with respect to restricted stock awards and stock units were $1.5 million, $1.2 million and $0.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Unrecognized compensation cost related to restricted stock awards and stock units totaled $4.7 million at December 31, 2012 and will be recognized over 2.5 years on a weighted average basis. Shares issued are funded from the Company's treasury stock. The following table summarizes information for unvested restricted stock awards outstanding as of December 31, 2012:

	Number			Weighted-Average
	of			Grant Date Fair
	Shares			Value
Unvested Restricted Stock Awards
Unvested at January 1, 2012		155,376		$	23.92
Forfeited		(3,500	)	$	21.96
Vested		(34,726	)	$	22.61
Unvested at December 31, 2012		117,150		$	24.36

The following table summarizes information for unvested restricted stock units outstanding as of December 31, 2012:

	Number			Weighted-Average
	of			Grant Date Fair
	Shares			Value
Unvested Restricted Stock Units
Unvested at January 1, 2012		241,907		$	23.95
Forfeited		(5,103	)		-
Vested		(37,068	)		-
Granted		206,322			22.38
Unvested at December 31, 2012		406,058		$	25.64

The Company has 4.4 million securities remaining available to be granted as part of the Plan at December 31, 2012.

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Fair Values of Financial Instruments (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Financial liabilities [Abstract]
Time deposits	$ 983,261,000	$ 933,127,000
Long-term debt	367,492,000	370,344,000
Trust preferred debentures	75,422,000	75,422,000
Securities Available for Sale [Abstract]
Total Securities Available for Sale	1,147,999,000	1,244,619,000
Trading Securities	3,918,000	3,062,000
Liabilities [Abstract]
Collateral dependent impaired loans with no specific reserve	8,400,000
Reserves on collateral dependent impaired loans	2,800,000
Liquidation expense ratio on impaired collateral minimum (in hundredths)	10.00%
Liquidation expense ratio on impaired collateral maximum (in hundredths)	35.00%
Fair Value, Measurements, Recurring [Member]
Securities Available for Sale [Abstract]
U.S. Treasury	64,425,000	82,233,000
Federal Agency	282,814,000	255,846,000
State & municipal	86,802,000	104,789,000
Mortgage-backed	250,281,000	325,397,000
Collateralized mortgage obligations	449,723,000	465,475,000
Other securities	13,954,000	10,879,000
Total Securities Available for Sale	1,147,999,000	1,244,619,000
Trading Securities	3,918,000	3,062,000
Interest Rate Swaps	1,490,000
Total	1,153,407,000	1,247,681,000
Liabilities [Abstract]
Interest Rate Swaps	1,490,000
Total	1,490,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Securities Available for Sale [Abstract]
U.S. Treasury	64,425,000	82,233,000
Federal Agency	0	0
State & municipal	0	0
Mortgage-backed	0	0
Collateralized mortgage obligations	0	0
Other securities	11,866,000	8,825,000
Total Securities Available for Sale	76,291,000	91,058,000
Trading Securities	3,918,000	3,062,000
Interest Rate Swaps	0
Total	80,208,000	94,120,000
Liabilities [Abstract]
Interest Rate Swaps	0
Total	0
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Securities Available for Sale [Abstract]
U.S. Treasury	0	0
Federal Agency	282,814,000	255,846,000
State & municipal	86,802,000	104,789,000
Mortgage-backed	250,281,000	325,397,000
Collateralized mortgage obligations	449,723,000	465,475,000
Other securities	2,088,000	2,054,000
Total Securities Available for Sale	1,071,708,000	1,153,561,000
Trading Securities	0	0
Interest Rate Swaps	1,490,000
Total	1,073,198,000	1,153,561,000
Liabilities [Abstract]
Interest Rate Swaps	1,490,000
Total	1,490,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Securities Available for Sale [Abstract]
U.S. Treasury	0	0
Federal Agency	0	0
State & municipal	0	0
Mortgage-backed	0	0
Collateralized mortgage obligations	0	0
Other securities	0	0
Total Securities Available for Sale	0	0
Trading Securities	0	0
Interest Rate Swaps	0
Total	0	0
Liabilities [Abstract]
Interest Rate Swaps	0
Total	0
Carrying Amount [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets [Abstract]
Securities held to maturity	60,563,000	70,811,000
Financial liabilities [Abstract]
Time deposits	983,261,000	933,127,000
Long-term debt	367,492,000	370,344,000
Trust preferred debentures	75,422,000	75,422,000
Carrying Amount [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets [Abstract]
Net Loans	4,208,282,000	3,728,869,000
Estimated Fair Value [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets [Abstract]
Securities held to maturity	61,535,000	72,198,000
Financial liabilities [Abstract]
Time deposits	994,376,000	942,437,000
Long-term debt	407,404,000	427,107,000
Trust preferred debentures	74,147,000	75,422,000
Estimated Fair Value [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets [Abstract]
Net Loans	$ 4,313,244,000	$ 3,821,640,000

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Premises and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2012

Premises and Equipment, Net [Abstract]

Summary of premises and equipment

A summary of premises and equipment follows:

	December 31,
(In thousands)	2012		2011
Land, buildings, and improvements	$	109,601	$	103,399
Equipment		51,321		47,646
Construction in progress		-		75
Premises and equipment before accumulated depreciation		160,922		151,120
Accumulated depreciation		83,047		76,579
Total premises and equipment	$	77,875	$	74,541

Future minimum rental payments related to noncancelable operating leases

Rental expense included in occupancy expense amounted to $6.4 million in 2012, $5.6 million in 2011, and $5.3 million in 2010. The future minimum rental payments related to noncancelable operating leases with original terms of one year or more are as follows at December 31, 2012 (in thousands):

Future Minimum Rental Payments
2013	$	5,727
2014		5,453
2015		4,714
2016		4,309
2017		4,063
Thereafter		28,314
Total	$	52,580

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Deposits

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Deposits

(11) Deposits

The following table sets forth the maturity distribution of time deposits at December 31, 2012 (in thousands):

Time deposits
Within one year	$	454,235
After one but within two years		326,502
After two but within three years		109,348
After three but within four years		49,222
After four but within five years		35,972
After five years		7,982
Total	$	983,261

Time deposits of $100,000 or more aggregated $352.3 million and $305.7 million December 31, 2012 and 2011, respectively.