##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-23975
 
 FIRST NIAGARA FINANCIAL GROUP, INC.
  
 Delaware
    
    42-1556195(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)726 Exchange Street, Suite 618, Buffalo, NY
    
    14210(Address of principal executive offices)
    
    (Zip Code)
 (716) 819-5500
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
 o o




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##### 



FIRST NIAGARA FINANCIAL GROUP, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2010
TABLE OF CONTENTS
 Item Number
    
    Page NumberPART I  FINANCIAL INFORMATION1. Financial StatementsConsolidated Statements of Condition at March 31, 2010 (unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Income for the
three months ended March 31, 2010 and 2009 (unaudited)
    
    
    4Consolidated Statements of Comprehensive Income for the
three months ended March 31, 2010 and 2009 (unaudited)
    
    
    5Consolidated Statements of Changes in Stockholders Equity for the
three months ended March 31, 2010 and 2009 (unaudited)
    
    
    6Consolidated Statements of Cash Flows for the
three months ended March 31, 2010 and 2009 (unaudited)
    
    
    7Notes to Consolidated Financial Statements (unaudited)
    
    
    82. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    243. Quantitative and Qualitative Disclosures about Market Risk
    
    
    364. Controls and Procedures
    
    
    37PART II  OTHER INFORMATION1. Legal Proceedings
    
    
    371A. Risk Factors
    
    
    382. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    383. Defaults Upon Senior Securities
    
    
    384. Submission of Matters to a Vote of Security Holders
    
    
    385. Other Information
    
    
    386. Exhibits
    
    
    38Signatures
    
    
    39Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Condition (unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009AssetsCash and cash equivalents
    
    $
    186,832
    
    
    $
    232,268Restricted cash
    
    
    
    
    
    
    4,000Investment securities:Available for sale, at fair value (amortized cost of $4,805,771
and $4,393,199 in 2010 and 2009)
    
    
    4,876,925
    
    
    
    4,421,678Held to maturity, at amortized cost (fair value of $1,063,131 and
$1,106,650 in 2010 and 2009)
    
    
    1,038,566
    
    
    
    1,093,552Loans held for sale
    
    
    35,168
    
    
    
    32,270Loans and leases, net of allowance for credit losses of $89,488
and $88,303 in 2010 and 2009
    
    
    7,283,550
    
    
    
    7,208,883Bank owned life insurance
    
    
    133,629
    
    
    
    132,414Premises and equipment, net
    
    
    163,573
    
    
    
    156,213Goodwill
    
    
    878,602
    
    
    
    879,107Core deposit and other intangibles, net
    
    
    52,745
    
    
    
    56,277Other assets
    
    
    318,488
    
    
    
    368,171Total assets
    
    $
    14,968,078
    
    
    $
    14,584,833Liabilities and Stockholders EquityLiabilities:Deposits
    
    $
    9,794,461
    
    
    $
    9,729,524Short-term borrowings
    
    
    1,034,236
    
    
    
    1,674,761Long-term borrowings
    
    
    1,447,392
    
    
    
    627,519Other liabilities
    
    
    285,367
    
    
    
    179,368Total liabilities
    
    
    12,561,456
    
    
    
    12,211,172Stockholders equity:Common stock, $0.01 par value, 250,000,000 shares authorized;
194,810,261 shares issued
    
    
    1,948
    
    
    
    1,948Additional paid-in capital
    
    
    2,126,938
    
    
    
    2,128,196Retained earnings
    
    
    353,997
    
    
    
    352,948Accumulated other comprehensive income
    
    
    28,443
    
    
    
    2,514Common stock held by ESOP; 2,802,168 and 2,874,196 shares
in 2010 and 2009
    
    
    (21,930
    )
    
    
    (22,382
    )Treasury stock, at cost; 6,091,564 and 6,595,500 shares
in 2010 and 2009
    
    
    (82,774
    )
    
    
    (89,563
    )Total stockholders equity
    
    
    2,406,622
    
    
    
    2,373,661Total liabilities and stockholders equity
    
    $
    14,968,078
    
    
    $
    14,584,833
   3




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income (unaudited)
 Three months endedMarch 31,2010
    
    
    2009Interest income:Loans and leases
    
    $
    96,580
    
    
    $
    87,059Investment securities and other
    
    
    47,923
    
    
    
    18,760Total interest income
    
    
    144,503
    
    
    
    105,819Interest expense:Deposits
    
    
    14,383
    
    
    
    20,913Borrowings
    
    
    15,951
    
    
    
    12,276Total interest expense
    
    
    30,334
    
    
    
    33,189Net interest income
    
    
    114,169
    
    
    
    72,630Provision for credit losses
    
    
    13,131
    
    
    
    8,750Net interest income after provision for credit losses
    
    
    101,038
    
    
    
    63,880Noninterest income:Banking services
    
    
    16,007
    
    
    
    9,970Insurance and benefits consulting
    
    
    12,163
    
    
    
    12,548Wealth management services
    
    
    3,248
    
    
    
    2,218Lending and leasing
    
    
    3,276
    
    
    
    1,984Bank owned life insurance
    
    
    1,224
    
    
    
    1,309Other
    
    
    1,030
    
    
    
    431Total noninterest income
    
    
    36,948
    
    
    
    28,460Noninterest expense:Salaries and employee benefits
    
    
    48,237
    
    
    
    33,237Occupancy and equipment
    
    
    9,907
    
    
    
    6,466Technology and communications
    
    
    8,649
    
    
    
    5,053Marketing and advertising
    
    
    1,532
    
    
    
    2,532Professional services
    
    
    2,510
    
    
    
    1,209Amortization of intangibles
    
    
    3,247
    
    
    
    1,891Federal deposit insurance premiums
    
    
    3,463
    
    
    
    1,499Merger and acquisition integration expenses
    
    
    6,232
    
    
    
    1,762Other
    
    
    9,405
    
    
    
    9,498Total noninterest expense
    
    
    93,182
    
    
    
    63,147Income before income taxes
    
    
    44,804
    
    
    
    29,193Income taxes
    
    
    15,905
    
    
    
    10,451Net income
    
    
    28,899
    
    
    
    18,742Preferred stock dividend and discount accretion
    
    
    
    
    
    
    2,668Net income available to common stockholders
    
    $
    28,899
    
    
    $
    16,074Earnings per share:Basic
    
    $
    0.16
    
    
    $
    0.14Diluted
    
    $
    0.16
    
    
    $
    0.14Weighted average common shares outstanding:Basic
    
    
    185,121
    
    
    
    115,055Diluted
    
    
    185,585
    
    
    
    115,433Dividends per common share
    
    $
    0.14
    
    
    $
    0.14
   4




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Comprehensive Income (unaudited)
 Three months endedMarch 31,2010
    
    
    2009Net income
    
    $
    28,899
    
    
    $
    18,742Other comprehensive income, net of income taxes:Net unrealized gains on securities available for sale
arising during the period
    
    
    25,764
    
    
    
    13,567Net
unrealized gains (losses) on interest rate swaps designated as
cash flow hedges
arising during the period
    
    
    9
    
    
    
    (25
    )Amortization of net loss related to pension and
post-retirement plans
    
    
    156
    
    
    
    190Total other comprehensive income
    
    
    25,929
    
    
    
    13,732Total comprehensive income
    
    $
    54,828
    
    
    $
    32,474
   5




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 Consolidated Statements Changes in Stockholders Equity unaudited)
 Accumulated
    
    
    CommonAdditional
    
    
    
    
    
    
    other
    
    
    stockPreferred
    
    
    Common
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    held by
    
    
    Treasurystock
    
    
    stock
    
    
    capital
    
    
    earnings
    
    
    income
    
    
    ESOP
    
    
    stock
    
    
    TotalBalances at January 1, 2010
    
    $
    
    
    
    $
    1,948
    
    
    $
    2,128,196
    
    
    $
    352,948
    
    
    $
    2,514
    
    
    $
    (22,382
    )
    
    $
    (89,563
    )
    
    $
    2,373,661Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,899Total other comprehensive income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,929
    
    
    
    
    
    
    
    
    
    
    
    25,929ESOP shares committed to be released
(72,028 shares)
    
    
    
    
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    452
    
    
    
    
    
    
    
    838Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,299Excess tax benefit from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    906
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    906Exercise of stock options and
restricted stock activity (503,936 shares)
    
    
    
    
    
    
    
    
    
    
    (3,849
    )
    
    
    (1,867
    )
    
    
    
    
    
    
    
    
    
    
    6,789
    
    
    
    1,073Common stock dividend of
$0.14 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,983
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,983
    )Balances at March 31, 2010
    
    $
    
    
    
    $
    1,948
    
    
    $
    2,126,938
    
    
    $
    353,997
    
    
    $
    28,443
    
    
    $
    (21,930
    )
    
    $
    (82,774
    )
    
    $
    2,406,622
 Accumulated
    
    
    CommonAdditional
    
    
    
    
    
    
    other
    
    
    stockPreferred
    
    
    Common
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    held by
    
    
    Treasurystock
    
    
    stock
    
    
    capital
    
    
    earnings
    
    
    (loss) income
    
    
    ESOP
    
    
    stock
    
    
    TotalBalances at January 1, 2009
    
    $
    176,719
    
    
    $
    1,254
    
    
    $
    1,326,159
    
    
    $
    369,671
    
    
    $
    (29,429
    )
    
    $
    (23,843
    )
    
    $
    (93,268
    )
    
    $
    1,727,263Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,742Total other comprehensive income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,732
    
    
    
    
    
    
    
    
    
    
    
    13,732ESOP shares committed to be released
(57,683 shares)
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    591Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,259Excess tax expense from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (119
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119
    )Exercise of stock options and
restricted stock activity (125,661 shares)
    
    
    
    
    
    
    
    
    
    
    (2,318
    )
    
    
    (280
    )
    
    
    
    
    
    
    
    
    
    
    1,840
    
    
    
    (758
    )Accretion of preferred stock discount
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    (368
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative preferred stock dividend
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    (2,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,147
    )Common stock dividend of
$0.14 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,172
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,172
    )Balances at March 31, 2009
    
    $
    177,240
    
    
    $
    1,254
    
    
    $
    1,325,193
    
    
    $
    369,293
    
    
    $
    (15,697
    )
    
    $
    (23,464
    )
    
    $
    (91,428
    )
    
    $
    1,742,391
   6




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows (unaudited)
 Three months ended March 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    28,899
    
    
    $
    18,742Adjustments to reconcile net income to net cash provided
by operating activities:Amortization of fees and discounts, net
    
    
    12,292
    
    
    
    2,490Provision for credit losses
    
    
    13,131
    
    
    
    8,750Depreciation of premises and equipment
    
    
    4,276
    
    
    
    3,145Amortization of intangibles
    
    
    3,247
    
    
    
    1,891Originations of loans held for sale
    
    
    (85,254
    )
    
    
    (92,851
    )Proceeds from sales of loans held for sale
    
    
    87,393
    
    
    
    90,833ESOP and stock-based compensation expense
    
    
    2,137
    
    
    
    1,850Deferred income tax expense (benefit)
    
    
    1,635
    
    
    
    (672
    )Income from bank owned life insurance
    
    
    (1,224
    )
    
    
    (1,309
    )Other, net
    
    
    (13,452
    )
    
    
    12,522Net cash provided by operating activities
    
    
    53,080
    
    
    
    45,391Cash flows from investing activities:Proceeds from maturities of securities available for sale
    
    
    66,126
    
    
    
    40,307Proceeds from sale of securities available for sale
    
    
    16,881
    
    
    
    995Principal payments received on securities available for sale
    
    
    174,267
    
    
    
    90,064Purchases of securities available for sale
    
    
    (560,239
    )
    
    
    (313,436
    )Principal payments received on securities held to maturity
    
    
    51,531
    
    
    
    Net (increase) decrease in loans and leases
    
    
    (92,265
    )
    
    
    6,659Other, net
    
    
    10,542
    
    
    
    8,307Net cash used in investing activities
    
    
    (333,157
    )
    
    
    (167,104
    )Cash flows from financing activities:Net increase in deposits
    
    
    64,903
    
    
    
    284,341Repayments of short-term borrowings, net
    
    
    (680,846
    )
    
    
    (90,426
    )Proceeds from long-term borrowings
    
    
    872,720
    
    
    
    Repayments of long-term borrowings
    
    
    (2,206
    )
    
    
    (2,407
    )Proceeds from exercise of stock options
    
    
    1,144
    
    
    
    Excess tax benefit (expense) from stock-based compensation
    
    
    906
    
    
    
    (119
    )Dividends paid on cumulative preferred stock
    
    
    
    
    
    
    (2,147
    )Dividends paid on common stock
    
    
    (25,980
    )
    
    
    (16,172
    )Net cash provided by financing activities
    
    
    230,641
    
    
    
    173,070Net (decrease) increase in cash and cash equivalents
    
    
    (49,436
    )
    
    
    51,357Cash and cash equivalents at beginning of period
    
    
    236,268
    
    
    
    114,551Cash and cash equivalents at end of period
    
    $
    186,832
    
    
    $
    165,908Cash paid during the period for:Income taxes
    
    $
    6,539
    
    
    $
    633Interest expense
    
    
    29,064
    
    
    
    33,639Securities available for sale purchased not settled
    
    
    115,215
    
    
    
    23,526Capital lease obligation
    
    
    
    
    
    
    11,928
   7




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements (unaudited)
   Note 1. Acquisition
 Harleysville National Corporation
   8




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##### Table of Contents



Note 2. Investment Securities
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAt March 31, 2010:
    
    cost
    
    
    gains
    
    
    losses
    
    
    valueInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    388,619
    
    
    $
    4,751
    
    
    $
    (45
    )
    
    $
    393,325U.S. government agencies and government sponsored enterprises
    
    
    306,154
    
    
    
    711
    
    
    
    (123
    )
    
    
    306,742Corporate
    
    
    3,152
    
    
    
    64
    
    
    
    (1,133
    )
    
    
    2,083Total debt securities
    
    
    697,925
    
    
    
    5,526
    
    
    
    (1,301
    )
    
    
    702,150Residential mortgage-backed securities:Government National Mortgage Association
    
    
    30,218
    
    
    
    232
    
    
    
    (182
    )
    
    
    30,268Federal National Mortgage Association
    
    
    93,869
    
    
    
    4,039
    
    
    
    
    
    
    
    97,908Federal Home Loan Mortgage Corporation
    
    
    56,457
    
    
    
    3,162
    
    
    
    
    
    
    
    59,619Collateralized mortgage obligations:Government National Mortgage Association
    
    
    2,595,541
    
    
    
    39,284
    
    
    
    (4,251
    )
    
    
    2,630,574Federal National Mortgage Association
    
    
    650,231
    
    
    
    16,659
    
    
    
    (942
    )
    
    
    665,948Federal Home Loan Mortgage Corporation
    
    
    516,628
    
    
    
    13,629
    
    
    
    (651
    )
    
    
    529,606Non-agency issued
    
    
    158,649
    
    
    
    1,520
    
    
    
    (5,515
    )
    
    
    154,654Total collateralized mortgage obligations
    
    
    3,921,049
    
    
    
    71,092
    
    
    
    (11,359
    )
    
    
    3,980,782Total mortgage-backed securities
    
    
    4,101,593
    
    
    
    78,525
    
    
    
    (11,541
    )
    
    
    4,168,577Asset-backed securities
    
    
    3,098
    
    
    
    
    
    
    
    (78
    )
    
    
    3,020Other
    
    
    3,155
    
    
    
    23
    
    
    
    
    
    
    
    3,178Total securities available for sale
    
    $
    4,805,771
    
    
    $
    84,074
    
    
    $
    (12,920
    )
    
    $
    4,876,925Investment securities held to maturity:Residential mortgage-backed securities:Collateralized mortgage obligations:Government National Mortgage Association
    
    $
    443,059
    
    
    $
    10,980
    
    
    $
    
    
    
    $
    454,039Federal National Mortgage Association
    
    
    301,289
    
    
    
    6,410
    
    
    
    (67
    )
    
    
    307,632Federal Home Loan Mortgage Corporation
    
    
    294,218
    
    
    
    7,242
    
    
    
    
    
    
    
    301,460Total securities held to maturity
    
    $
    1,038,566
    
    
    $
    24,632
    
    
    $
    (67
    )
    
    $
    1,063,131
  9




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##### Table of Contents



Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAt December 31, 2009:
    
    cost
    
    
    gains
    
    
    losses
    
    
    valueInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    416,847
    
    
    $
    6,037
    
    
    $
    (40
    )
    
    $
    422,844U.S. government agencies and government sponsored enterprises
    
    
    340,806
    
    
    
    190
    
    
    
    (1,164
    )
    
    
    339,832Corporate
    
    
    3,395
    
    
    
    40
    
    
    
    (1,222
    )
    
    
    2,213Total debt securities
    
    
    761,048
    
    
    
    6,267
    
    
    
    (2,426
    )
    
    
    764,889Residential mortgage-backed securities:Government National Mortgage Association
    
    
    30,906
    
    
    
    170
    
    
    
    (243
    )
    
    
    30,833Federal National Mortgage Association
    
    
    101,578
    
    
    
    3,471
    
    
    
    (10
    )
    
    
    105,039Federal Home Loan Mortgage Corporation
    
    
    59,527
    
    
    
    3,229
    
    
    
    (10
    )
    
    
    62,746Collateralized mortgage obligations:Government National Mortgage Association
    
    
    1,977,458
    
    
    
    15,319
    
    
    
    (15,896
    )
    
    
    1,976,881Federal National Mortgage Association
    
    
    692,614
    
    
    
    14,290
    
    
    
    (1,647
    )
    
    
    705,257Federal Home Loan Mortgage Corporation
    
    
    590,172
    
    
    
    12,604
    
    
    
    (753
    )
    
    
    602,023Non-agency issued
    
    
    173,080
    
    
    
    1,344
    
    
    
    (7,145
    )
    
    
    167,279Total collateralized mortgage obligations
    
    
    3,433,324
    
    
    
    43,557
    
    
    
    (25,441
    )
    
    
    3,451,440Total mortgage-backed securities
    
    
    3,625,335
    
    
    
    50,427
    
    
    
    (25,704
    )
    
    
    3,650,058Asset-backed securities
    
    
    3,165
    
    
    
    
    
    
    
    (98
    )
    
    
    3,067Other
    
    
    3,651
    
    
    
    13
    
    
    
    
    
    
    
    3,664Total securities available for sale
    
    $
    4,393,199
    
    
    $
    56,707
    
    
    $
    (28,228
    )
    
    $
    4,421,678Investment securities held to maturity:Residential mortgage-backed securities:Collateralized mortgage obligations:Government National Mortgage Association
    
    $
    467,473
    
    
    $
    4,792
    
    
    $
    (455
    )
    
    $
    471,810Federal National Mortgage Association
    
    
    319,190
    
    
    
    4,195
    
    
    
    (107
    )
    
    
    323,278Federal Home Loan Mortgage Corporation
    
    
    306,889
    
    
    
    4,673
    
    
    
    
    
    
    
    311,562Total securities held to maturity
    
    $
    1,093,552
    
    
    $
    13,660
    
    
    $
    (562
    )
    
    $
    1,106,650
  10




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##### Table of Contents



Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAt March 31, 2010:
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    value
    
    
    lossesInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    8,833
    
    
    $
    34
    
    
    $
    1,034
    
    
    $
    11
    
    
    $
    9,867
    
    
    $
    45U.S. government agencies and government sponsored enterprises
    
    
    125,768
    
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    125,768
    
    
    
    123Corporate
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    1,133
    
    
    
    500
    
    
    
    1,133Total debt securities
    
    
    134,601
    
    
    
    157
    
    
    
    1,534
    
    
    
    1,144
    
    
    
    136,135
    
    
    
    1,301Residential mortgage-backed securities:Government National Mortgage Association
    
    
    19,623
    
    
    
    7
    
    
    
    8,106
    
    
    
    175
    
    
    
    27,729
    
    
    
    182Collateralized mortgage obligations:Government National Mortgage Association
    
    
    316,094
    
    
    
    4,251
    
    
    
    
    
    
    
    
    
    
    
    316,094
    
    
    
    4,251Federal National Mortgage Association
    
    
    43,673
    
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    43,673
    
    
    
    942Federal Home Loan Mortgage Corporation
    
    
    38,093
    
    
    
    651
    
    
    
    
    
    
    
    
    
    
    
    38,093
    
    
    
    651Non-agency issued
    
    
    30,752
    
    
    
    414
    
    
    
    68,182
    
    
    
    5,101
    
    
    
    98,934
    
    
    
    5,515Total collateralized mortgage obligations
    
    
    428,612
    
    
    
    6,258
    
    
    
    68,182
    
    
    
    5,101
    
    
    
    496,794
    
    
    
    11,359Total mortgage-backed securities
    
    
    448,235
    
    
    
    6,265
    
    
    
    76,288
    
    
    
    5,276
    
    
    
    524,523
    
    
    
    11,541Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    3,020
    
    
    
    78
    
    
    
    3,020
    
    
    
    78Total securities available for sale in an unrealized loss position
    
    $
    582,836
    
    
    $
    6,422
    
    
    $
    80,842
    
    
    $
    6,498
    
    
    $
    663,678
    
    
    $
    12,920Investment securities held to maturity:Residential mortgage-backed securities:Collateralized mortgage obligations:Federal National Mortgage Association
    
    $
    35,762
    
    
    $
    67
    
    
    $
    
    
    
    $
    
    
    
    $
    35,762
    
    
    $
    67
  11




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##### Table of Contents



Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAt December 31, 2009:
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    value
    
    
    lossesInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    11,268
    
    
    $
    26
    
    
    $
    1,260
    
    
    $
    14
    
    
    $
    12,528
    
    
    $
    40U.S. government agencies and government sponsored enterprises
    
    
    261,543
    
    
    
    1,164
    
    
    
    
    
    
    
    
    
    
    
    261,543
    
    
    
    1,164Corporate
    
    
    70
    
    
    
    2
    
    
    
    410
    
    
    
    1,220
    
    
    
    480
    
    
    
    1,222Total debt securities
    
    
    272,881
    
    
    
    1,192
    
    
    
    1,670
    
    
    
    1,234
    
    
    
    274,551
    
    
    
    2,426Residential mortgage-backed securities:Government National Mortgage Association
    
    
    19,987
    
    
    
    86
    
    
    
    8,269
    
    
    
    157
    
    
    
    28,256
    
    
    
    243Federal National Mortgage Association
    
    
    116
    
    
    
    1
    
    
    
    551
    
    
    
    9
    
    
    
    667
    
    
    
    10Federal Home Loan Mortgage Corporation
    
    
    87
    
    
    
    1
    
    
    
    412
    
    
    
    9
    
    
    
    499
    
    
    
    10Collateralized mortgage obligations:Government National Mortgage Association
    
    
    875,059
    
    
    
    15,896
    
    
    
    
    
    
    
    
    
    
    
    875,059
    
    
    
    15,896Federal National Mortgage Association
    
    
    47,705
    
    
    
    1,647
    
    
    
    
    
    
    
    
    
    
    
    47,705
    
    
    
    1,647Federal Home Loan Mortgage Corporation
    
    
    69,198
    
    
    
    753
    
    
    
    
    
    
    
    
    
    
    
    69,198
    
    
    
    753Non-agency issued
    
    
    46,294
    
    
    
    772
    
    
    
    73,607
    
    
    
    6,373
    
    
    
    119,901
    
    
    
    7,145Total collateralized mortgage obligations
    
    
    1,038,256
    
    
    
    19,068
    
    
    
    73,607
    
    
    
    6,373
    
    
    
    1,111,863
    
    
    
    25,441Total mortgage-backed securities
    
    
    1,058,446
    
    
    
    19,156
    
    
    
    82,839
    
    
    
    6,548
    
    
    
    1,141,285
    
    
    
    25,704Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    3,067
    
    
    
    98
    
    
    
    3,067
    
    
    
    98Total securities available for sale in an unrealized loss position
    
    $
    1,331,327
    
    
    $
    20,348
    
    
    $
    87,576
    
    
    $
    7,880
    
    
    $
    1,418,903
    
    
    $
    28,228Investment securities held to maturity:Residential mortgage-backed securities:Collateralized mortgage obligations:Government National Mortgage Association
    
    $
    51,389
    
    
    $
    455
    
    
    $
    
    
    
    $
    
    
    
    $
    51,389
    
    
    $
    455Federal National Mortgage Association
    
    
    38,216
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    38,216
    
    
    
    107Total securities held to maturity in an unrealized loss position
    
    $
    89,605
    
    
    $
    562
    
    
    $
    
    
    
    $
    
    
    
    $
    89,605
    
    
    $
    562
 Agency Mortgage-Backed Securities and Collateralized Mortgage Obligations
   Non-Agency Collateralized Mortgage Obligations
   12




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##### Table of Contents



Municipal, Corporate Debt and Other Securities
   Amortized
    
    
    Faircost
    
    
    valueDebt securities:Within one year
    
    $
    260,246
    
    
    $
    261,611After one year through five years
    
    
    411,259
    
    
    
    414,795After five years through ten years
    
    
    23,758
    
    
    
    24,138After ten years
    
    
    2,662
    
    
    
    1,606Total debt securities
    
    
    697,925
    
    
    
    702,150Asset-backed securities
    
    
    3,098
    
    
    
    3,020Mortgage-backed securities
    
    
    5,140,159
    
    
    
    5,231,708Other
    
    
    3,155
    
    
    
    3,178$
    5,844,337
    
    
    $
    5,940,056
   13




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##### Table of Contents



Note 3. Loans and Leases
  March 31,
    
    
    December 31,2010
    
    
    2009Commercial:Real estate
    
    $
    2,785,830
    
    
    $
    2,713,542Construction
    
    
    347,752
    
    
    
    348,040Business(1)
    
    
    1,543,253
    
    
    
    1,481,845Specialized lending(2)
    
    
    202,485
    
    
    
    207,749Total commercial
    
    
    4,879,320
    
    
    
    4,751,176Residential real estate(3)
    
    
    1,618,007
    
    
    
    1,674,961Home equity
    
    
    702,735
    
    
    
    691,069Other consumer
    
    
    182,790
    
    
    
    186,341Total loans and leases
    
    
    7,382,852
    
    
    
    7,303,547Net deferred costs and unearned discounts
    
    
    25,354
    
    
    
    25,909Allowance for credit losses
    
    
    (89,488
    )
    
    
    (88,303
    )Total loans and leases, net
    
    $
    7,318,718
    
    
    $
    7,241,153
 (1)
    
    Includes $4.9 million of loans held for sale at March 31, 2010.(2)
    
    Includes commercial leases and financed insurance premiums.(3)
    
    Includes $30.3 million and $32.3 million of loans held for sale at March 31,
2010 and December 31, 2009, respectively.  Three months ended March 31,2010
    
    
    2009Balance at beginning of period
    
    $
    88,303
    
    
    $
    77,793Charge-offs
    
    
    (12,674
    )
    
    
    (7,305
    )Recoveries
    
    
    728
    
    
    
    375Provision for credit losses
    
    
    13,131
    
    
    
    8,750Balance at end of period
    
    $
    89,488
    
    
    $
    79,613
  2010
    
    
    2009Nonaccrual loans
    
    $
    77,920
    
    
    $
    51,918Year to date interest income that would have been recorded if
loans had been performing in accordance with original terms
    
    
    1,394
    
    
    
    104Balance of impaired loans
    
    
    74,762
    
    
    
    47,319Allowance relating to impaired loans included in allowance
for credit losses
    
    
    8,146
    
    
    
    1,732Recorded
investment of impaired loans for which there is no related allowance
for credit losses
    
    
    8,305
    
    
    
    33,963Aggregate recorded investment of impaired loans with terms
modified through a troubled debt restructuring
    
    
    37,478
    
    
    
    17,463
   14




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##### Table of Contents



Note 4. Senior Notes
  Note 5. Derivative Financial Instruments
     15




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##### Table of Contents



Asset Derivatives
    
    
    Liability DerivativesNotional
    
    
    
    
    
    
    Notionalamount
    
    
    Fair value(1)
    
    
    amount
    
    
    Fair value(2)March 31, 2010Derivatives designated as hedging instruments:Interest rate swap agreements
    
    $
    
    
    
    $
    
    
    
    $
    57,668
    
    
    $
    2,351Derivatives not designated as hedging instruments:Interest rate swap agreements
    
    
    206,967
    
    
    
    10,936
    
    
    
    206,967
    
    
    
    11,006Total derivatives
    
    $
    206,967
    
    
    $
    10,936
    
    
    $
    264,635
    
    
    $
    13,357December 31, 2009Derivatives designated as hedging instruments:Interest rate swap agreements
    
    $
    
    
    
    $
    
    
    
    $
    57,687
    
    
    $
    2,218Derivatives not designated as hedging instruments:Interest rate swap agreements
    
    
    206,247
    
    
    
    9,629
    
    
    
    206,247
    
    
    
    9,831Total derivatives
    
    $
    206,247
    
    
    $
    9,629
    
    
    $
    263,934
    
    
    $
    12,049
 (1)
    
    Included in other assets in our Consolidated Statements of Condition.(2)
    
    Included in other liabilities in our Consolidated Statements of Condition.  (Loss) gain(1)Three months endedMarch 31,2010
    
    
    2009Derivatives in fair value hedging relationships:Interest rate swap agreements
    
    $
    (148
    )
    
    $
    Derivatives not designated as hedging instruments:Interest rate swap agreements
    
    
    132
    
    
    
    370$
    (16
    )
    
    $
    370
 (1)
    
    Included in noninterest income, other in our Consolidated Statements of Income Gain (loss)
    
    
    Loss reclassified fromrecognized in other
    
    
    accumulated othercomprehensive
    
    
    comprehensiveincome, net of tax
    
    
    income into income(1)Three months ended March 31, 2010Derivatives in cash flow hedging relationships:Interest rate swap agreements
    
    $
    9
    
    
    $
    (393
    )Three months ended March 31, 2009Derivatives in cash flow hedging relationships:Interest rate swap agreements
    
    $
    (25
    )
    
    $
    (29
    )
 (1)
    
    Included in interest expense, borrowings in our Consolidated Statements of Income.  16




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##### Table of Contents



Note 6. Earnings Per Share
  Three months endedMarch 31,2010
    
    
    2009Net income available to common stockholders
    
    $
    28,899
    
    
    $
    16,074Less income allocable to unvested restricted stock awards
    
    
    73
    
    
    
    63Net income allocable to common stockholders
    
    $
    28,826
    
    
    $
    16,011Weighted average common shares outstanding:Total shares issued
    
    
    194,810
    
    
    
    125,419Unallocated ESOP shares
    
    
    (2,861
    )
    
    
    (3,094
    )Unvested restricted stock awards
    
    
    (475
    )
    
    
    (461
    )Treasury shares
    
    
    (6,353
    )
    
    
    (6,809
    )Total basic weighted average common shares outstanding
    
    
    185,121
    
    
    
    115,055Incremental shares from assumed exercise of stock options
    
    
    307
    
    
    
    150Incremental shares from assumed vesting of restricted stock awards
    
    
    157
    
    
    
    228Total diluted weighted average common shares outstanding
    
    
    185,585
    
    
    
    115,433Basic earnings per common share
    
    $
    0.16
    
    
    $
    0.14Diluted earnings per common share
    
    $
    0.16
    
    
    $
    0.14Anti-dilutive stock options and restricted stock awards excluded from the diluted weighted average common share calculations
    
    
    1,259
    
    
    
    2,992
 Note 7. Pension and Other Postretirement Plans
   Three months endedMarch 31,2010
    
    
    2009Pension plans:Service cost
    
    $
    25
    
    
    $
    48Interest cost
    
    
    1,016
    
    
    
    1,007Expected return on plan assets
    
    
    (790
    )
    
    
    (739
    )Amortization of unrecognized loss
    
    
    266
    
    
    
    315Net pension cost
    
    $
    517
    
    
    $
    631Other postretirement plans:Interest cost
    
    
    112
    
    
    
    127Amortization of unrecognized loss
    
    
    
    
    
    
    6Amortization of unrecognized prior service liability
    
    
    (16
    )
    
    
    (16
    )Net postretirement cost
    
    $
    96
    
    
    $
    117
  17




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##### Table of Contents



Note 8. Fair Value of Financial Instruments
  Level 1 Inputs
 Level 2 Inputs
 Level 3 Inputs
   Assets and Liabilities Measured at Fair Value on a Recurring Basis
 Securities Available for Sale
   Interest Rate Swaps
    18




---



##### Table of Contents



Fair Value MeasurementsTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3March 31, 2010Assets:Investment securities available for sale:Debt securities:States and political subdivisions
    
    $
    393,325
    
    
    $
    
    
    
    $
    393,325
    
    
    $
    U.S. government agencies and government sponsored enterprises
    
    
    306,742
    
    
    
    
    
    
    
    306,742
    
    
    
    Corporate
    
    
    2,083
    
    
    
    
    
    
    
    1,477
    
    
    
    606Total debt securities
    
    
    702,150
    
    
    
    
    
    
    
    701,544
    
    
    
    606Residential mortgage-backed securities:Government National Mortgage Association
    
    
    30,268
    
    
    
    
    
    
    
    30,268
    
    
    
    Federal National Mortgage Association
    
    
    97,908
    
    
    
    
    
    
    
    97,908
    
    
    
    Federal Home Loan Mortgage Corporation
    
    
    59,619
    
    
    
    
    
    
    
    59,619
    
    
    
    Collateralized mortgage obligations:Government National Mortgage Association
    
    
    2,630,574
    
    
    
    
    
    
    
    2,630,574
    
    
    
    Federal National Mortgage Association
    
    
    665,948
    
    
    
    
    
    
    
    665,948
    
    
    
    Federal Home Loan Mortgage Corporation
    
    
    529,606
    
    
    
    
    
    
    
    529,606
    
    
    
    Non-agency issued
    
    
    154,654
    
    
    
    
    
    
    
    154,654
    
    
    
    Total collateralized mortgage obligations
    
    
    3,980,782
    
    
    
    
    
    
    
    3,980,782
    
    
    
    Total mortgage-backed securities
    
    
    4,168,577
    
    
    
    
    
    
    
    4,168,577
    
    
    
    Asset-backed securities
    
    
    3,020
    
    
    
    
    
    
    
    3,020
    
    
    
    Other
    
    
    3,178
    
    
    
    
    
    
    
    3,178
    
    
    
    Total securities available for sale
    
    
    4,876,925
    
    
    
    
    
    
    
    4,876,319
    
    
    
    606Interest rate swaps
    
    
    10,936
    
    
    
    
    
    
    
    10,936
    
    
    
    Total assets
    
    $
    4,887,861
    
    
    $
    
    
    
    $
    4,887,255
    
    
    $
    606Liabilities:Interest rate swaps
    
    $
    13,357
    
    
    $
    
    
    
    $
    13,357
    
    
    $
    
   19




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##### Table of Contents



Fair Value MeasurementsTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3December 31, 2009Assets:Investment securities available for sale:Debt securities:States and political subdivisions
    
    $
    422,844
    
    
    $
    
    
    
    $
    422,844
    
    
    $
    U.S. government agencies and government sponsored enterprises
    
    
    339,832
    
    
    
    
    
    
    
    339,832
    
    
    
    Corporate
    
    
    2,213
    
    
    
    
    
    
    
    1,733
    
    
    
    480Total debt securities
    
    
    764,889
    
    
    
    
    
    
    
    764,409
    
    
    
    480Residential mortgage-backed securities:Government National Mortgage Association
    
    
    30,833
    
    
    
    
    
    
    
    30,833
    
    
    
    Federal National Mortgage Association
    
    
    105,039
    
    
    
    
    
    
    
    105,039
    
    
    
    Federal Home Loan Mortgage Corporation
    
    
    62,746
    
    
    
    
    
    
    
    62,746
    
    
    
    Collateralized mortgage obligations:Government National Mortgage Association
    
    
    1,976,881
    
    
    
    
    
    
    
    1,976,881
    
    
    
    Federal National Mortgage Association
    
    
    705,257
    
    
    
    
    
    
    
    705,257
    
    
    
    Federal Home Loan Mortgage Corporation
    
    
    602,023
    
    
    
    
    
    
    
    602,023
    
    
    
    Non-agency issued
    
    
    167,279
    
    
    
    
    
    
    
    167,279
    
    
    
    Total collateralized mortgage obligations
    
    
    3,451,440
    
    
    
    
    
    
    
    3,451,440
    
    
    
    Total mortgage-backed securities
    
    
    3,650,058
    
    
    
    
    
    
    
    3,650,058
    
    
    
    Asset-backed securities
    
    
    3,067
    
    
    
    
    
    
    
    3,067
    
    
    
    Other
    
    
    3,664
    
    
    
    
    
    
    
    3,664
    
    
    
    Total securities available for sale
    
    
    4,421,678
    
    
    
    
    
    
    
    4,421,198
    
    
    
    480Interest rate swaps
    
    
    9,629
    
    
    
    
    
    
    
    9,629
    
    
    
    Total assets
    
    $
    4,431,307
    
    
    $
    
    
    
    $
    4,430,827
    
    
    $
    480Liabilities:Interest rate swaps
    
    $
    12,049
    
    
    $
    
    
    
    $
    12,049
    
    
    $
    
  Corporate DebtSecuritiesBalance at January 1, 2010
    
    $
    480Total gains:Included in earnings
    
    
    Included in other comprehensive income
    
    
    126Purchases, issuances, and settlements, net
    
    
    Transfers in and/or out of Level 3
    
    
    Balance at March 31, 2010
    
    $
    606Total gains or losses for the period included in earnings
attributable to the change in unrealized gains or losses
relating to assets still held at the reporting date
    
    $
    
 Corporate DebtSecuritiesBalance at January 1, 2009
    
    $
    564Total losses:Included in earnings
    
    
    Included in other comprehensive income
    
    
    (171
    )Purchases, issuances, and settlements, net
    
    
    Transfers in and/or out of Level 3
    
    
    Balance at March 31, 2009
    
    $
    393Total gains or losses for the period included in earnings
attributable to the change in unrealized gains or losses
relating to assets still held at the reporting date
    
    $
    
  20




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##### Table of Contents



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 Impaired Loans
  Mortgage Servicing Rights
   March 31, 2010
    
    
    December 31, 2009Estimated fair
    
    
    
    
    
    
    Estimated fairCarrying value
    
    
    value
    
    
    Carrying value
    
    
    valueFinancial assets:Cash and cash equivalents
    
    $
    186,832
    
    
    $
    186,832
    
    
    $
    236,268
    
    
    $
    236,268Investment securities available for sale
    
    
    4,876,925
    
    
    
    4,876,925
    
    
    
    4,421,678
    
    
    
    4,421,678Investment securities held to maturity
    
    
    1,038,566
    
    
    
    1,063,131
    
    
    
    1,093,552
    
    
    
    1,106,650Loans and leases, net(1)
    
    
    7,318,718
    
    
    
    7,540,382
    
    
    
    7,241,153
    
    
    
    7,444,034FHLB stock
    
    
    55,650
    
    
    
    55,650
    
    
    
    79,014
    
    
    
    79,014Mortgage servicing rights
    
    
    7,135
    
    
    
    7,613
    
    
    
    6,596
    
    
    
    6,699Interest rate swap agreements
    
    
    10,936
    
    
    
    10,936
    
    
    
    9,629
    
    
    
    9,629Accrued interest receivable
    
    
    52,095
    
    
    
    52,095
    
    
    
    50,455
    
    
    
    50,455Financial liabilities:Deposits
    
    $
    9,794,461
    
    
    $
    9,816,723
    
    
    $
    9,729,524
    
    
    $
    9,763,604Borrowings
    
    
    2,481,628
    
    
    
    2,474,230
    
    
    
    2,302,280
    
    
    
    2,309,330Interest rate swap agreements
    
    
    13,357
    
    
    
    13,357
    
    
    
    12,049
    
    
    
    12,049Accrued interest payable
    
    
    6,814
    
    
    
    6,814
    
    
    
    5,498
    
    
    
    5,498
 (1)
    
    Included in loans and leases, net are loans held for sale with a carrying value of
$35.2 million and a fair value of $36.0 million at March 31, 2010 and a carrying value of $32.3
million and a fair value of $35.8 million at December 31, 2009.   Cash and Cash Equivalents
   21




---



##### Table of Contents



Loans and Leases
  Investment Securities
  FHLB Stock
  Accrued Interest Receivable
  Deposits
  Borrowings
  Accrued Interest Payable
  Commitments
   22




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##### Table of Contents



Note 9. Segment Information
   Financial
    
    
    ConsolidatedFor the three months ended:
    
    Banking
    
    
    services
    
    
    totalMarch 31, 2010Net interest income
    
    $
    114,169
    
    
    $
    
    
    
    $
    114,169Provision for credit losses
    
    
    13,131
    
    
    
    
    
    
    
    13,131Net interest income after provision for credit losses
    
    
    101,038
    
    
    
    
    
    
    
    101,038Noninterest income
    
    
    24,585
    
    
    
    12,363
    
    
    
    36,948Amortization of intangibles
    
    
    2,565
    
    
    
    682
    
    
    
    3,247Other noninterest expense
    
    
    79,955
    
    
    
    9,980
    
    
    
    89,935Income before income taxes
    
    
    43,103
    
    
    
    1,701
    
    
    
    44,804Income tax expense
    
    
    15,225
    
    
    
    680
    
    
    
    15,905Net income
    
    $
    27,878
    
    
    $
    1,021
    
    
    $
    28,899March 31, 2009Net interest income
    
    $
    72,630
    
    
    $
    
    
    
    $
    72,630Provision for credit losses
    
    
    8,750
    
    
    
    
    
    
    
    8,750Net interest income after provision for credit losses
    
    
    63,880
    
    
    
    
    
    
    
    63,880Noninterest income
    
    
    15,894
    
    
    
    12,566
    
    
    
    28,460Amortization of intangibles
    
    
    1,087
    
    
    
    804
    
    
    
    1,891Other noninterest expense
    
    
    51,161
    
    
    
    10,095
    
    
    
    61,256Income before income taxes
    
    
    27,526
    
    
    
    1,667
    
    
    
    29,193Income tax expense
    
    
    9,784
    
    
    
    667
    
    
    
    10,451Net income
    
    $
    17,742
    
    
    $
    1,000
    
    
    $
    18,742
 Note 10. Recently Issued Accounting Pronouncements
    23




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##### Table of Contents



ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The following discussion and analysis is intended to provide greater details of our results of
operations and financial condition and should be read in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in this document. Certain statements
under this caption constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which involve risks and uncertainties. These forward-looking statements relate to, among
other things, expectations of the business environment in which First Niagara Financial Group, Inc.
and its subsidiaries operate, projections of future performance and perceived opportunities in the
market. Our actual results may differ significantly from the results, performance, and
achievements expressed or implied in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, economic conditions, competition in the
geographic and business areas in which we conduct our operations, fluctuation in interest rates,
credit quality and government regulation, and other factors discussed in our Annual Report on Form
10-K for the year ended December 31, 2009 under Item 1A. Risk Factors. First Niagara Financial
Group, Inc. does not undertake, and specifically disclaims, any obligation to update any
forward-looking statements to reflect the occurrence of events or circumstances after the date of
such statements.
 OVERVIEW
    BUSINESS AND INDUSTRY
    MARKET AREAS AND COMPETITION
   24




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Allowance for Credit Losses
   Investment Securities
   Acquired Loans
   25




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##### Table of Contents



Goodwill
   RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2010
 Overview
    Analysis of Financial Condition at March 31, 2010
  
    
    Commercial loans increased in both Upstate New York and Western
Pennsylvania by a total of $128 million, or 11% annualized, since December 31, 2009.
 
    
    Core deposits increased $345 million, or 21% annualized, across retail,
commercial, and municipal customers.
 
    
    Higher cost certificate of deposit account balances decreased $280 million, or
38% annualized, as we continued to execute our strategy of letting higher priced
certificate of deposits run off and focused on building our lower cost relationship
based deposit customers.
 
    
    Investment securities increased by $400 million, with new investments
made primarily in collateralized mortgage obligations guaranteed by the Government
National Mortgage Association.
 
    
    Total borrowings increased $179 million as we replaced a
portion of our short-term borrowings with long-term borrowings, including
$300 million of 6.75% senior notes.
  26




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##### Table of Contents



Lending Activities
     March 31, 2010
    
    
    December 31, 2009Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial:Real estate
    
    $
    2,785,830
    
    
    
    37.7
    %
    
    $
    2,713,542
    
    
    
    37.2
    %Construction
    
    
    347,752
    
    
    
    4.7
    
    
    
    348,040
    
    
    
    4.8Business (1)
    
    
    1,543,253
    
    
    
    20.9
    
    
    
    1,481,845
    
    
    
    20.3Specialized lending
    
    
    202,485
    
    
    
    2.8
    
    
    
    207,749
    
    
    
    2.8Total commercial loans
    
    
    4,879,320
    
    
    
    66.1
    
    
    
    4,751,176
    
    
    
    65.1Residential real estate(2)
    
    
    1,618,007
    
    
    
    21.9
    
    
    
    1,674,961
    
    
    
    22.9Home equity
    
    
    702,735
    
    
    
    9.5
    
    
    
    691,069
    
    
    
    9.5Other consumer
    
    
    182,790
    
    
    
    2.5
    
    
    
    186,341
    
    
    
    2.5Total loans and leases
    
    
    7,382,852
    
    
    
    100.0
    %
    
    
    7,303,547
    
    
    
    100.0
    %Net deferred costs and unearned discounts
    
    
    25,354
    
    
    
    
    
    
    
    25,909Allowance for credit losses
    
    
    (89,488
    )
    
    
    
    
    
    
    (88,303
    )Total loans and leases, net
    
    $
    7,318,718
    
    
    
    
    
    
    $
    7,241,153
 (1)
    
    Includes $4.9 million of loans held for sale at March 31, 2010.(2)
    
    Includes $30.3 million and $32.3 million of loans held for sale at March 31,
2010 and December 31, 2009, respectively.  27




---



##### Table of Contents



Upstate New
    
    
    Western
    
    
    Total loansYork
    
    
    Pennsylvania(1)
    
    
    and leasesMarch 31, 2010:Commercial:Real estate
    
    $
    2,448,642
    
    
    $
    337,188
    
    
    $
    2,785,830Construction
    
    
    344,737
    
    
    
    3,015
    
    
    
    347,752Business
    
    
    1,086,034
    
    
    
    457,219
    
    
    
    1,543,253Specialized lending
    
    
    200,727
    
    
    
    1,758
    
    
    
    202,485Total commercial
    
    
    4,080,140
    
    
    
    799,180
    
    
    
    4,879,320Residential real estate
    
    
    1,594,607
    
    
    
    23,400
    
    
    
    1,618,007Home equity
    
    
    676,750
    
    
    
    25,985
    
    
    
    702,735Other consumer
    
    
    124,592
    
    
    
    58,198
    
    
    
    182,790Total loans and leases
    
    $
    6,476,089
    
    
    $
    906,763
    
    
    $
    7,382,852December 31, 2009:Commercial:Real estate
    
    $
    2,414,478
    
    
    $
    299,064
    
    
    $
    2,713,542Construction
    
    
    348,040
    
    
    
    
    
    
    
    348,040Business
    
    
    1,013,995
    
    
    
    467,850
    
    
    
    1,481,845Specialized lending
    
    
    207,749
    
    
    
    
    
    
    
    207,749Total commercial
    
    
    3,984,262
    
    
    
    766,914
    
    
    
    4,751,176Residential real estate
    
    
    1,655,627
    
    
    
    19,334
    
    
    
    1,674,961Home equity
    
    
    674,047
    
    
    
    17,022
    
    
    
    691,069Other consumer
    
    
    120,293
    
    
    
    66,048
    
    
    
    186,341Total loans and leases
    
    $
    6,434,229
    
    
    $
    869,318
    
    
    $
    7,303,547
 (1)
    
    Commercial loans in Western Pennsylvania include $35 million of
performing commercial real estate loans at March 31, 2010 and December 31, 2009 and $25
million of performing business loans at March 31, 2010 and
December 31, 2009 which were purchased from Harleysville in December 2009.   Allowance for Credit Losses and Nonperforming Assets
   28




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##### Table of Contents



Three months ended March 31,2010
    
    
    2009Balance at beginning of period
    
    $
    88,303
    
    
    $
    77,793Charge-offs
    
    
    (12,674
    )
    
    
    (7,305
    )Recoveries
    
    
    728
    
    
    
    375Net charge-offs
    
    
    (11,946
    )
    
    
    (6,930
    )Provision for credit losses
    
    
    13,131
    
    
    
    8,750Balance at end of period
    
    $
    89,488
    
    
    $
    79,613Ratio of annualized net charge-offs to average loans
outstanding during the period
    
    
    0.66
    %
    
    
    0.44
    %Ratio of annualized provision for credit losses to average
loans outstanding during the period
    
    
    0.73
    %
    
    
    0.55
    %
   March 31,
    
    
    December 31,2010
    
    
    2009Nonaccruing loans:Commercial real estate
    
    $
    44,149
    
    
    $
    37,129Commercial business
    
    
    10,793
    
    
    
    4,759Specialized lending
    
    
    1,777
    
    
    
    1,962Shared national credits
    
    
    5,440
    
    
    
    11,403Residential real estate
    
    
    10,811
    
    
    
    9,468Home equity
    
    
    3,558
    
    
    
    2,330Other consumer
    
    
    1,392
    
    
    
    1,510Total nonaccruing loans
    
    
    77,920
    
    
    
    68,561Real estate owned
    
    
    6,774
    
    
    
    7,057Total nonperforming assets
    
    $
    84,694
    
    
    $
    75,618Total nonaccruing loans as a percentage of total loans
    
    
    1.05
    %
    
    
    0.94
    %Total nonperforming assets as a percentage of total assets
    
    
    0.57
    %
    
    
    0.52
    %Allowance for credit losses to total loans
    
    
    1.21
    %
    
    
    1.20
    %Allowance for credit losses to nonaccruing loans
    
    
    115
    %
    
    
    129
    %
  Three months endedMarch 31,2010
    
    
    2009Commercial:Real estate
    
    $
    4,275
    
    
    $
    4,552Business
    
    
    507
    
    
    
    729Specialized lending
    
    
    683
    
    
    
    1,059Shared national credits
    
    
    5,945
    
    
    
    Total commercial
    
    
    11,410
    
    
    
    6,340Residential real estate
    
    
    56
    
    
    
    13Home equity
    
    
    162
    
    
    
    110Other consumer
    
    
    318
    
    
    
    467$
    11,946
    
    
    $
    6,930
  29




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##### Table of Contents



Investment Securities Portfolio
     Deposits
  March 31, 2010
    
    
    December 31, 2009
    
    
    IncreaseAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    (Decrease)Core Deposits:Savings
    
    $
    932,698
    
    
    
    9.5
    %
    
    $
    916,854
    
    
    
    9.4
    %
    
    $
    15,844Interest-bearing checking
    
    
    1,057,349
    
    
    
    10.8
    
    
    
    1,063,065
    
    
    
    10.9
    
    
    
    (5,716
    )Money market deposit accounts
    
    
    3,825,794
    
    
    
    39.1
    
    
    
    3,535,736
    
    
    
    36.4
    
    
    
    290,058Noninterest-bearing
    
    
    1,301,730
    
    
    
    13.3
    
    
    
    1,256,537
    
    
    
    12.9
    
    
    
    45,193Total core deposits
    
    
    7,117,571
    
    
    
    72.7
    
    
    
    6,772,192
    
    
    
    69.6
    
    
    
    345,379Certificates
    
    
    2,676,890
    
    
    
    27.3
    
    
    
    2,957,332
    
    
    
    30.4
    
    
    
    (280,442
    )Total deposits
    
    $
    9,794,461
    
    
    
    100.0
    %
    
    $
    9,729,524
    
    
    
    100.0
    %
    
    $
    64,937
  30




---



##### Table of Contents



Upstate New
    
    
    WesternYork
    
    
    Pennsylvania
    
    
    Total depositsMarch 31, 2010:Core deposits:Savings
    
    $
    804,832
    
    
    $
    127,866
    
    
    $
    932,698Interest-bearing checking
    
    
    554,234
    
    
    
    503,115
    
    
    
    1,057,349Money market deposit
    
    
    2,896,162
    
    
    
    929,632
    
    
    
    3,825,794Noninterest-bearing
    
    
    836,551
    
    
    
    465,179
    
    
    
    1,301,730Total core deposits
    
    
    5,091,779
    
    
    
    2,025,792
    
    
    
    7,117,571Certificates
    
    
    1,290,426
    
    
    
    1,386,464
    
    
    
    2,676,890Total deposits
    
    $
    6,382,205
    
    
    $
    3,412,256
    
    
    $
    9,794,461December 31, 2009:Core deposits:Savings
    
    $
    796,845
    
    
    $
    120,009
    
    
    $
    916,854Interest-bearing checking
    
    
    537,767
    
    
    
    525,298
    
    
    
    1,063,065Money market deposit
    
    
    2,654,865
    
    
    
    880,871
    
    
    
    3,535,736Noninterest-bearing
    
    
    795,322
    
    
    
    461,215
    
    
    
    1,256,537Total core deposits
    
    
    4,784,799
    
    
    
    1,987,393
    
    
    
    6,772,192Certificates
    
    
    1,385,402
    
    
    
    1,571,930
    
    
    
    2,957,332Total deposits
    
    $
    6,170,201
    
    
    $
    3,559,323
    
    
    $
    9,729,524
   Borrowings
    31




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
 Net Interest Income
  Three months ended March 31,2010

    
    
    2009Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rateInterest-earning assets:Loans and leases(1)Commercial:Real estate
    
    $
    3,084,272
    
    
    $
    43,774
    
    
    
    5.71
    %
    
    $
    2,563,165
    
    
    $
    36,778
    
    
    
    5.77
    %Business
    
    
    1,502,544
    
    
    
    15,934
    
    
    
    4.30
    
    
    
    956,523
    
    
    
    10,439
    
    
    
    4.43Specialized lending
    
    
    208,884
    
    
    
    3,398
    
    
    
    6.51
    
    
    
    182,305
    
    
    
    3,022
    
    
    
    6.63Total commercial loans
    
    
    4,795,700
    
    
    
    63,106
    
    
    
    5.30
    
    
    
    3,701,993
    
    
    
    50,239
    
    
    
    5.47Residential
    
    
    1,645,693
    
    
    
    21,451
    
    
    
    5.24
    
    
    
    1,967,570
    
    
    
    26,300
    
    
    
    5.37Home equity
    
    
    704,450
    
    
    
    8,494
    
    
    
    4.89
    
    
    
    636,325
    
    
    
    8,076
    
    
    
    5.14Other consumer
    
    
    187,272
    
    
    
    3,917
    
    
    
    8.48
    
    
    
    144,349
    
    
    
    2,697
    
    
    
    7.58Total loans
    
    
    7,333,115
    
    
    
    96,968
    
    
    
    5.33
    
    
    
    6,450,237
    
    
    
    87,312
    
    
    
    5.45Securities and other investments(2)
    
    
    5,540,217
    
    
    
    49,259
    
    
    
    3.56
    
    
    
    1,774,559
    
    
    
    19,917
    
    
    
    4.49Total interest-earning assets
    
    
    12,873,332
    
    
    $
    146,227
    
    
    
    4.57
    %
    
    
    8,224,796
    
    
    $
    107,229
    
    
    
    5.24
    %Noninterest-earning assets(3)(4)
    
    
    1,671,238
    
    
    
    
    
    
    
    
    
    
    
    1,212,191Total assets
    
    $
    14,544,570
    
    
    
    
    
    
    
    
    
    
    $
    9,436,987Interest-bearing liabilities:Savings deposits
    
    $
    917,397
    
    
    $
    308
    
    
    
    0.14
    %
    
    $
    774,262
    
    
    $
    452
    
    
    
    0.24
    %Checking deposits
    
    
    1,034,659
    
    
    
    320
    
    
    
    0.13
    
    
    
    486,663
    
    
    
    191
    
    
    
    0.16Money market deposits
    
    
    3,689,294
    
    
    
    6,279
    
    
    
    0.69
    
    
    
    2,083,102
    
    
    
    6,969
    
    
    
    1.36Certificates of deposit
    
    
    2,823,804
    
    
    
    7,476
    
    
    
    1.07
    
    
    
    2,012,120
    
    
    
    13,301
    
    
    
    2.68Borrowed funds
    
    
    2,233,362
    
    
    
    15,951
    
    
    
    2.89
    
    
    
    1,507,374
    
    
    
    12,276
    
    
    
    3.29Total interest-bearing liabilities
    
    
    10,698,516
    
    
    $
    30,334
    
    
    
    1.15
    %
    
    
    6,863,521
    
    
    $
    33,189
    
    
    
    1.96
    %Noninterest-bearing deposits
    
    
    1,245,565
    
    
    
    
    
    
    
    
    
    
    
    689,596Other noninterest-bearing liabilities
    
    
    198,857
    
    
    
    
    
    
    
    
    
    
    
    147,734Total liabilities
    
    
    12,142,938
    
    
    
    
    
    
    
    
    
    
    
    7,700,851Stockholders equity(3)
    
    
    2,401,632
    
    
    
    
    
    
    
    
    
    
    
    1,736,136Total liabilities and stockholders equity
    
    $
    14,544,570
    
    
    
    
    
    
    
    
    
    
    $
    9,436,987Net interest income (taxable equivalent)
    
    
    
    
    
    $
    115,893
    
    
    
    
    
    
    
    
    
    
    $
    74,040Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    3.28
    %Net earning assets
    
    $
    2,174,816
    
    
    
    
    
    
    
    
    
    
    $
    1,361,275Net interest rate margin
    
    
    
    
    
    
    
    
    
    
    3.61
    %
    
    
    
    
    
    
    
    
    
    
    3.61
    %Ratio of average interest-earning assests
to average interest-bearing liabilities
    
    
    120.33
    %
    
    
    
    
    
    
    
    
    
    
    119.83
    %
 (1)
    
    Average outstanding balances are net of deferred costs and net premiums and
include nonperforming loans and loans held for sale.(2)
    
    Average outstanding balances are at amortized cost.(3)
    
    Average outstanding balances include unrealized gains/losses on securities available
for sale.(4)
    
    Average outstanding balances include allowance for credit losses and bank owned life
insurance, earnings from which are reflected in noninterest income.  32




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##### Table of Contents




    
    Lower yields earned on earning assets due to the continued low interest rate
environment.
 
    
    More favorable funding mix, resulting in an 81 basis point decrease in the interest rate
paid on liabilities, due to a shift from certificates of deposit accounts to lower rate
money market and other core deposit accounts.
 
    
    An increase in average borrowings at a rate 40 basis points lower than the same period
in the prior year.
 Provision for Credit Losses
  Noninterest Income
   Noninterest Expense
    Income Taxes
   33




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##### Table of Contents



CAPITAL RESOURCES
     To be well capitalizedMinimum
    
    
    under prompt correctiveActual

    
    
    capital adequacy
    
    
    action provisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTangible capital
    
    $
    1,047,747
    
    
    
    7.55
    %
    
    $
    208,226
    
    
    
    1.50
    %
    
    
    N/A
    
    
    
    N/ATier 1 (core) capital
    
    
    1,047,747
    
    
    
    7.55
    
    
    
    555,269
    
    
    
    4.00
    
    
    $
    694,087
    
    
    
    5.00
    %Tier 1 risk based capital
    
    
    1,047,747
    
    
    
    13.08
    
    
    
    320,360
    
    
    
    4.00
    
    
    
    480,540
    
    
    
    6.00Total risk based capital
    
    
    1,137,235
    
    
    
    14.20
    
    
    
    640,720
    
    
    
    8.00
    
    
    
    800,900
    
    
    
    10.00
   LIQUIDITY
  
    
    Support our operating and investing activities.
 
    
    Meet increases in demand for loans and other assets.
 
    
    Provide for decreases in deposits.
 
    
    Minimize excess balances in lower yielding asset accounts.
    34




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35




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##### Table of Contents



Loan Maturity and Repricing Schedule
  Within one
    
    
    One throughyear
    
    
    five years
    
    
    After five years
    
    
    TotalCommercial:Real estate
    
    $
    1,147,698
    
    
    $
    1,488,736
    
    
    $
    110,790
    
    
    $
    2,747,224Construction
    
    
    366,343
    
    
    
    19,639
    
    
    
    234
    
    
    
    386,216Business
    
    
    1,235,435
    
    
    
    275,654
    
    
    
    58,559
    
    
    
    1,569,648Specialized lending
    
    
    89,990
    
    
    
    116,036
    
    
    
    
    
    
    
    206,026Total commercial
    
    
    2,839,466
    
    
    
    1,900,065
    
    
    
    169,583
    
    
    
    4,909,114Residential real estate
    
    
    424,549
    
    
    
    761,082
    
    
    
    422,359
    
    
    
    1,607,990Home equity
    
    
    444,361
    
    
    
    142,234
    
    
    
    115,880
    
    
    
    702,475Other consumer
    
    
    88,376
    
    
    
    49,726
    
    
    
    50,604
    
    
    
    188,706Total loans and leases
    
    $
    3,796,752
    
    
    $
    2,853,107
    
    
    $
    758,426
    
    
    $
    7,408,285
  Fixed
    
    
    Adjustable
    
    
    TotalCommercial:Real estate
    
    $
    746,296
    
    
    $
    853,230
    
    
    $
    1,599,526Construction
    
    
    19,873
    
    
    
    
    
    
    
    19,873Business
    
    
    306,029
    
    
    
    28,184
    
    
    
    334,213Specialized lending
    
    
    116,036
    
    
    
    
    
    
    
    116,036Total commercial
    
    
    1,188,234
    
    
    
    881,414
    
    
    
    2,069,648Residential real estate
    
    
    1,117,402
    
    
    
    66,039
    
    
    
    1,183,441Home equity
    
    
    258,114
    
    
    
    
    
    
    
    258,114Other consumer
    
    
    100,330
    
    
    
    
    
    
    
    100,330Total loans and leases
    
    $
    2,664,080
    
    
    $
    947,453
    
    
    $
    3,611,533
 
 ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
      36




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Calculated decrease at March 31, 2010Changes in interest rates(1)
    
    Net interest income
    
    
    % Change(in thousands)+200 basis points
    
    $
    (4,349
    )
    
    
    (0.92)
    %+100 basis points
    
    
    (2,650
    )
    
    
    (0.56
    )
 (1)
    
    The Federal Reserve benchmark overnight federal funds rate was 0.25% at
March 31, 2010, therefore,
the calculation of the effect of a decrease in interest rates is not measurable. 
 ITEM 4.
    
    Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 ITEM 1.
    
    Legal Proceedings
       37




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##### Table of Contents



ITEM 1A.
    
    Risk Factors
  
 ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 a)
    
    Not applicable.
 b)
    
    Not applicable.
 c)
    
    We did not repurchase any shares of our common stock during the first quarter of 2010.
 
 ITEM 3.
    
    Defaults Upon Senior Securities
  
 ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
  
 ITEM 5.
    
    Other Information
 (a)
    
    Not applicable.(b)
    
    Not applicable.
 
 ITEM 6.
    
    Exhibits
  Exhibits31.1
    
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  38




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##### Table of Contents



SIGNATURES
  FIRST NIAGARA FINANCIAL GROUP, INC.Date:  May 3, 2010
    By:
    /s/ John R. KoelmelJohn R. KoelmelPresident and Chief Executive OfficerDate:  May 3, 2010
    By:
    /s/ Michael W. HarringtonMichael W. HarringtonChief Financial Officer  39