[NBT BANCORP LETTERHEAD]
September 26, 2005
BY EDGAR AND OVERNIGHT DELIVERY
Mr. Donald Walker
Senior Assistant Chief Accountant
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
RE: NBT BANCORP INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
FILED MARCH 16, 2005
FILE NO. 000-14703
Dear Mr. Walker:
I am writing in response to the Staff's letter of comment dated September
15, 2005 (the "Comment Letter") to Mr. Daryl R. Forsythe of NBT Bancorp Inc.
(the "Company"). The responses to the Comment Letter set forth below are keyed
to the sequence of the comments in the Comment Letter.
ITEM 1. BUSINESS
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NONPERFORMING ASSETS
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1. We note your disclosures regarding the determination of your allowance
for loan losses. Please tell us:
- the amount of the specific allowance attributable to your
non-performing loans, if any;
- why your provision for loan losses has remained constant
over the past several years in veiw of your net charge-off
history; and
- how you have considered the $48.0 million in potential
problem loans as of December 31, 2004 in determining your
allowance.
RESPONSE:
a) Specific allocations are established in compliance with Financial
Accounting Standard Board (FASB) Statement of Financial Accounting
Standards (FAS) No. 114, " Accounting by Creditors for Impairment of a
Loan". At December 31, 2004, and 2003 the Company had $10.5 million and
$8.7 million, respectively, in nonaccrual commercial and agricultural loans
and real estate loans, that were considered impaired with a specific
allocation of $0.2 million for both periods.
b) The following represents Tables 7 (Nonperforming Assets) and 8 (Allowance
for Loan and Lease Losses) from the Company's Form 10-K for the fiscal year
ended December 31, 2004 ("Form 10-K"):
TABLE 7. NONPERFORMING ASSETS
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As of December 31,
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(Dollars in thousands) 2004 2003 2002 2001 2000
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NONACCRUAL LOANS
Commercial and agricultural loans and real estate $10,550 $ 8,693 $16,980 $31,372 $14,054
Real estate mortgages 2,553 2,483 5,522 5,119 647
Consumer 1,888 2,685 1,507 3,719 2,402
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Total nonaccrual loans 14,991 13,861 24,009 40,210 17,103
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LOANS 90 DAYS OR MORE PAST DUE AND STILL
ACCRUING
Commercial and agricultural loans and real estate - 242 237 198 4,523
Real estate mortgages 737 244 1,325 1,844 3,042
Consumer 449 482 414 933 865
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Total loans 90 days or more past due and still
accruing 1,186 968 1,976 2,975 8,430
Restructured loans - - 409 603 656
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Total nonperforming loans 16,177 14,829 26,394 43,788 26,189
Other real estate owned 428 1,157 2,947 1,577 1,856
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Total nonperforming loans and other real estate
owned 16,605 15,986 29,341 45,365 28,045
Nonperforming securities - 395 1,122 4,500 1,354
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Total nonperforming loans, securities, and other
real estate owned $16,605 $16,381 $30,463 $49,865 $29,399
================================================
Total nonperforming loans to loans and leases 0.56% 0.56% 1.12% 1.87% 1.17%
Total nonperforming loans and other real estate
owned to total assets 0.39% 0.40% 0.79% 1.25% 0.78%
Total nonperforming loans, securities, and other
real estate owned to total assets 0.39% 0.40% 0.82% 1.37% 0.82%
Total allowance for loan and lease losses to
nonperforming loans 277.75% 287.62% 152.18% 102.19% 124.07%
TABLE 8. ALLOWANCE FOR LOAN AND LEASE LOSSES
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(Dollars in thousands) 2004 2003 2002 2001 2000
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Balance at January 1 $42,651 $40,167 $44,746 $32,494 $28,240
LOANS AND LEASES CHARGED-OFF
Commercial and agricultural 4,595 5,619 9,970 17,097 3,949
Real estate mortgages 772 362 2,547 783 1,007
Consumer* 6,239 5,862 5,805 4,491 2,841
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Total loans and leases charged-off 11,606 11,843 18,322 22,371 7,797
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RECOVERIES
Commercial and agricultural 2,547 3,185 3,394 1,063 503
Real estate mortgages 215 430 104 122 141
Consumer* 1,510 1,601 1,172 1,004 739
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Total recoveries 4,272 5,216 4,670 2,189 1,383
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Net loans and leases charged-off 7,334 6,627 13,652 20,182 6,414
Allowance related to purchase acquisitions - - - 505 525
Provision for loan and lease losses 9,615 9,111 9,073 31,929 10,143
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Balance at December 31 $44,932 $42,651 $40,167 $44,746 $32,494
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Allowance for loan and lease losses to
loans and leases outstanding at end of
year 1.57% 1.62% 1.70% 1.91% 1.45%
Net charge-offs to average loans and
leases outstanding 0.27% 0.27% 0.58% 0.87% 0.31%
<FN>
* Consumer charge-off and recoveries include consumer, home equity, and lease financing.
Our provision for loan losses, net charge-offs, loan growth, and
nonperforming loans, have remained relatively consistent over the past
several years, with the exception of 2001 and 2002. During 2001, the
provision for loan losses was increased to $31.9 million from $10.1 million
in 2000 in consideration of following: the significant increase in
non-performing loans and net charge-offs that occurred in 2001; the growth
in higher credit risk loan types in 2001, as the Company's strategic focus
on loan growth, particularly commercial lending, was also the focus of the
banks acquired by the Company in 2001 and 2000 (commercial loans grew from
$755.4 million at December 31, 1999 to $958.1 million at December 31,
2001); the fact that recently acquired banks appeared to have used
generally less conservative underwriting and monitoring standards than the
Company (the Company acquired CNB Bank in 2001 and LA Bank, NA and Pioneer
American Bank in 2000); and the significant downturn in economic conditions
in the Company's market areas during 2001. Non-performing loans increased
from $26.2 million at December 31, 2000 to $43.8 million at December 31,
2001. Net charge-offs increased from $6.4 million in 2000 to $20.2 million
in 2001. During 2002, the provision decreased to $9.1 million. Net
charge-offs decreased to $13.7 million during 2002. Net charge-offs in 2002
exceeded the 2002 provision for loan and lease losses because the Company
had provided for certain of the 2002 charge-offs in previous years. Since
2002, both the provision for loan losses and net charge-offs have returned
to more normalized levels and have remained relatively consistent. The
levels of provisions in recent years reflect in large part loan growth, as
loans grew at a 12% rate in 2003 and a 9% rate in 2004. Although 2004 loan
growth was somewhat less than 2003, that loan growth was significantly in
higher credit risk type loans.
c) As disclosed under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Nonperforming Assets" in
the Form 10-K, potential problem loans are performing loans, but known
information exists about possible credit problems of the related borrowers
that causes management to have doubts as to the ability of such borrowers
to comply with the present loan repayment terms and which may result in
disclosure of such loans as nonperforming at some time in the future.
Potential problem loans are loans that are performing but are classified by
the Company's loan rating system as "substandard." Loans so classified must
have a well-defined weakness, or weaknesses, that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility
that the bank will sustain some loss if the deficiencies are not corrected.
These criticized loans are assigned a loss factor by the severity of
classification utilizing the bank's allowance methodology that is
established based upon consideration of historical charge-off experience
among other relevant factors.
* * * *
The Company hereby acknowledges that:
- the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
- staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
- the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have any questions or would like further information concerning the
foregoing please do not hesitate to contact me at (607) 337-6520.
Sincerely,
Michael J. Chewens
Senior Executive Vice President
Chief Financial Officer and
Corporate Secretary
cc: Daryl R. Forsythe
NBT Bancorp Inc.