##### 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 September 30, 2009
 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.)6950 South Transit Road, P.O. Box 514, Lockport, NY
    
    14095-0514(Address of principal executive offices)
    
    (Zip Code)
 (716) 625-7500
 (Registrants telephone number, including area code)
 
 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 September 30, 2009
TABLE OF CONTENTS
 Item Number
    
    Page NumberPART I  FINANCIAL INFORMATION1. Financial StatementsConsolidated Statements of Condition as of 
September 30, 2009 (unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Income for the 
three and nine months ended September 30, 2009 and 2008 (unaudited)
    
    
    4Consolidated Statements of Comprehensive Income for the 
three and nine months ended September 30, 2009 and 2008 (unaudited)
    
    
    5Consolidated Statements of Changes in Stockholders Equity for the 
nine months ended September 30, 2009 and 2008 (unaudited)
    
    
    6Consolidated Statements of Cash Flows for the 
nine months ended September 30, 2009 and 2008 (unaudited)
    
    
    7Notes to Consolidated Financial Statements (unaudited)
    
    
    82. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    223. Quantitative and Qualitative Disclosures about Market Risk
    
    
    344. Controls and Procedures
    
    
    34PART II  OTHER INFORMATION1. Legal Proceedings
    
    
    341A. Risk Factors
    
    
    352. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    353. Defaults Upon Senior Securities
    
    
    354. Submission of Matters to a Vote of Security Holders
    
    
    355. Other Information
    
    
    356. Exhibits
    
    
    36Signatures
    
    
    37Exhibit 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 SUBSIDIARY
 
 Consolidated Statements of Condition (unaudited)
 September 30,
    
    
    December 31,2009
    
    
    2008AssetsCash and cash equivalents
    
    $
    819,243
    
    
    
    110,552Restricted cash
    
    
    4,000
    
    
    
    3,999Investment securities:Available for sale, at estimated fair value
    
    
    3,652,261
    
    
    
    1,573,101Held to maturity, at amortized cost (estimated fair value of $1,100,600)
    
    
    1,085,258
    
    
    
    Loans held for sale
    
    
    22,830
    
    
    
    1,698Loans and leases, net of allowance for credit losses of $83,077
and $77,793 in 2009 and 2008
    
    
    7,109,855
    
    
    
    6,384,284Bank owned life insurance
    
    
    131,094
    
    
    
    127,151Premises and equipment, net
    
    
    145,245
    
    
    
    95,978Goodwill
    
    
    879,107
    
    
    
    748,971Core deposit and other intangibles, net
    
    
    59,580
    
    
    
    35,578Other assets
    
    
    229,031
    
    
    
    250,060Total assets
    
    $
    14,137,504
    
    
    
    9,331,372Liabilities and Stockholders EquityLiabilities:Deposits
    
    $
    9,923,368
    
    
    
    5,943,613Short-term borrowings
    
    
    750,437
    
    
    
    717,464Long-term borrowings
    
    
    764,711
    
    
    
    822,763Other liabilities
    
    
    315,384
    
    
    
    120,269Total liabilities
    
    
    11,753,900
    
    
    
    7,604,109Stockholders equity:Preferred stock, $0.01 par value, 50,000,000 shares authorized;
Series A, cumulative perpetual preferred stock, $1,000 liquidation
value, 184,011 shares issued and outstanding in 2008
    
    
    
    
    
    
    176,719Common stock, $0.01 par value, 250,000,000 shares authorized;
194,810,261 and 125,419,261 shares issued in 2009 and 2008
    
    
    1,948
    
    
    
    1,254Additional paid-in capital
    
    
    2,126,719
    
    
    
    1,326,159Retained earnings
    
    
    350,092
    
    
    
    369,671Accumulated other comprehensive income (loss )
    
    
    17,989
    
    
    
    (29,429
    )Common stock held by ESOP; 2,921,266 and 3,094,365 shares
in 2009 and 2008
    
    
    (22,707
    )
    
    
    (23,843
    )Treasury stock, at cost; 6,659,394 and 6,857,554 shares
in 2009 and 2008
    
    
    (90,437
    )
    
    
    (93,268
    )Total stockholders equity
    
    
    2,383,604
    
    
    
    1,727,263Total liabilities and stockholders equity
    
    $
    14,137,504
    
    
    
    9,331,372
   3




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARY
 
 Consolidated Statements of Income (unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loans and leases
    
    $
    89,856
    
    
    
    94,459
    
    
    
    263,742
    
    
    
    283,253Investment securities and other
    
    
    38,932
    
    
    
    15,492
    
    
    
    81,659
    
    
    
    48,087Total interest income
    
    
    128,788
    
    
    
    109,951
    
    
    
    345,401
    
    
    
    331,340Interest expense:Deposits
    
    
    16,266
    
    
    
    25,959
    
    
    
    56,159
    
    
    
    94,722Borrowings
    
    
    13,600
    
    
    
    13,792
    
    
    
    37,745
    
    
    
    39,747Total interest expense
    
    
    29,866
    
    
    
    39,751
    
    
    
    93,904
    
    
    
    134,469Net interest income
    
    
    98,922
    
    
    
    70,200
    
    
    
    251,497
    
    
    
    196,871Provision for credit losses
    
    
    15,000
    
    
    
    6,500
    
    
    
    32,650
    
    
    
    14,500Net interest income after provision for credit losses
    
    
    83,922
    
    
    
    63,700
    
    
    
    218,847
    
    
    
    182,371Noninterest income:Banking services
    
    
    12,499
    
    
    
    10,390
    
    
    
    32,522
    
    
    
    29,655Insurance and benefits consulting
    
    
    12,172
    
    
    
    12,302
    
    
    
    37,884
    
    
    
    38,193Wealth management services
    
    
    1,848
    
    
    
    2,686
    
    
    
    5,900
    
    
    
    7,763Lending and leasing
    
    
    2,950
    
    
    
    2,224
    
    
    
    7,174
    
    
    
    6,704Bank owned life insurance
    
    
    1,301
    
    
    
    1,294
    
    
    
    3,931
    
    
    
    3,726Gain on sale of customer list
    
    
    2,500
    
    
    
    
    
    
    
    2,500
    
    
    
    Other
    
    
    (46
    )
    
    
    293
    
    
    
    547
    
    
    
    2,051Total noninterest income
    
    
    33,224
    
    
    
    29,189
    
    
    
    90,458
    
    
    
    88,092Noninterest expense:Salaries and employee benefits
    
    
    42,223
    
    
    
    33,914
    
    
    
    110,629
    
    
    
    100,767Occupancy and equipment
    
    
    7,620
    
    
    
    5,744
    
    
    
    19,987
    
    
    
    17,624Technology and communications
    
    
    6,095
    
    
    
    4,971
    
    
    
    16,499
    
    
    
    14,661Marketing and advertising
    
    
    2,550
    
    
    
    2,639
    
    
    
    7,663
    
    
    
    7,420Professional services
    
    
    1,481
    
    
    
    1,061
    
    
    
    3,990
    
    
    
    2,981Amortization of core deposit and other intangibles
    
    
    2,266
    
    
    
    2,146
    
    
    
    6,004
    
    
    
    6,606Federal deposit insurance premiums
    
    
    3,854
    
    
    
    383
    
    
    
    12,333
    
    
    
    874Litigation settlement, net
    
    
    
    
    
    
    
    
    
    
    2,845
    
    
    
    Charitable contributions
    
    
    5,169
    
    
    
    90
    
    
    
    5,525
    
    
    
    304Merger and acquisition integration expenses
    
    
    23,354
    
    
    
    
    
    
    
    27,458
    
    
    
    2,186Other
    
    
    6,108
    
    
    
    5,806
    
    
    
    19,019
    
    
    
    17,432Total noninterest expense
    
    
    100,720
    
    
    
    56,754
    
    
    
    231,952
    
    
    
    170,855Income before income taxes
    
    
    16,426
    
    
    
    36,135
    
    
    
    77,353
    
    
    
    99,608Income taxes
    
    
    5,495
    
    
    
    12,395
    
    
    
    26,880
    
    
    
    33,976Net income
    
    
    10,931
    
    
    
    23,740
    
    
    
    50,473
    
    
    
    65,632Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    3,731
    
    
    
    Accretion of preferred stock discount
    
    
    
    
    
    
    
    
    
    
    8,315
    
    
    
    Net income available to common stockholders
    
    $
    10,931
    
    
    
    23,740
    
    
    
    38,427
    
    
    
    65,632Earnings per share:Basic
    
    $
    0.07
    
    
    
    0.22
    
    
    
    0.29
    
    
    
    0.62Diluted
    
    $
    0.07
    
    
    
    0.22
    
    
    
    0.29
    
    
    
    0.62Weighted average common shares outstanding:Basic
    
    
    146,834
    
    
    
    106,075
    
    
    
    134,022
    
    
    
    105,067Diluted
    
    
    147,184
    
    
    
    106,795
    
    
    
    134,386
    
    
    
    105,671
   4




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARY
 
 Consolidated Statements of Comprehensive Income (unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    10,931
    
    
    
    23,740
    
    
    
    50,473
    
    
    
    65,632Other comprehensive income (loss), net of income taxes:Net unrealized gains (losses) on securities available for sale
arising during the period
    
    
    30,994
    
    
    
    (5,122
    )
    
    
    46,773
    
    
    
    (11,109
    )Net unrealized (losses) gains on interest rate swaps
arising during the period
    
    
    (116
    )
    
    
    152
    
    
    
    77
    
    
    
    152Amortization of net loss related to pension and
post-retirement plans
    
    
    190
    
    
    
    8
    
    
    
    568
    
    
    
    32Total other comprehensive income (loss)
    
    
    31,068
    
    
    
    (4,962
    )
    
    
    47,418
    
    
    
    (10,925
    )Total comprehensive income
    
    $
    41,999
    
    
    
    18,778
    
    
    
    97,891
    
    
    
    54,707
   5




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARY
 
 Consolidated Statements of Changes in Stockholders Equity (unaudited)
 Accumulated
    
    
    CommonAdditional
    
    
    
    
    
    
    other
    
    
    stockPreferred
    
    
    Common
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    held by
    
    
    Treasurystock
    
    
    stock
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,473Total other comprehensive income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,418
    
    
    
    
    
    
    
    
    
    
    
    47,418Proceeds from follow-on stock offerings, net of related expenses
    
    
    
    
    
    
    694
    
    
    
    801,521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    802,215Preferred stock redemption
    
    
    (184,011
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (184,011
    )Repurchase of common stock warrant
    
    
    
    
    
    
    
    
    
    
    (2,700
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,700
    )ESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    
    
    
    
    
    
    
    
    1,136
    
    
    
    
    
    
    
    1,776Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    3,735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,735Excess tax expense from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )Exercise of stock options and restricted stock activity
    
    
    
    
    
    
    
    
    
    
    (2,571
    )
    
    
    (763
    )
    
    
    
    
    
    
    
    
    
    
    2,831
    
    
    
    (503
    )Accretion of preferred stock discount
    
    
    8,315
    
    
    
    
    
    
    
    
    
    
    
    (8,315
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative preferred stock dividend
    
    
    (1,023
    )
    
    
    
    
    
    
    
    
    
    
    (3,731
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,754
    )Common stock dividend of $0.42 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,243
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,243
    )Balances at September 30, 2009
    
    $
    
    
    
    
    1,948
    
    
    
    2,126,719
    
    
    
    350,092
    
    
    
    17,989
    
    
    
    (22,707
    )
    
    
    (90,437
    )
    
    
    2,383,604
 Accumulated
    
    
    CommonAdditional
    
    
    
    
    
    
    other
    
    
    stockPreferred
    
    
    Common
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    held by
    
    
    Treasurystock
    
    
    stock
    
    
    capital
    
    
    earnings
    
    
    loss
    
    
    ESOP
    
    
    stock
    
    
    TotalBalances at January 1, 2008
    
    $
    
    
    
    
    1,200
    
    
    
    1,244,766
    
    
    
    344,656
    
    
    
    (2,604
    )
    
    
    (25,350
    )
    
    
    (209,489
    )
    
    
    1,353,179Change in accounting for defined
benefit plans, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Balances at January 1, 2008,
as adjusted
    
    
    
    
    
    
    1,200
    
    
    
    1,244,766
    
    
    
    344,539
    
    
    
    (2,604
    )
    
    
    (25,350
    )
    
    
    (209,489
    )
    
    
    1,353,062Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,632
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,632Common stock issued for the acquisition
of Great Lakes Bancorp, Inc.
    
    
    
    
    
    
    54
    
    
    
    73,728
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,782Total other comprehensive loss, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,925
    )
    
    
    
    
    
    
    
    
    
    
    (10,925
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,795
    )
    
    
    (6,795
    )ESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    
    
    
    
    1,219
    
    
    
    
    
    
    
    2,204Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,507Excess tax benefit from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    603Exercise of stock options and
restricted stock activity
    
    
    
    
    
    
    
    
    
    
    (1,827
    )
    
    
    (1,750
    )
    
    
    
    
    
    
    
    
    
    
    6,459
    
    
    
    2,882Common stock dividend of
$0.42 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,930
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,930
    )Balances at September 30, 2008
    
    $
    
    
    
    
    1,254
    
    
    
    1,322,762
    
    
    
    364,491
    
    
    
    (13,529
    )
    
    
    (24,131
    )
    
    
    (209,825
    )
    
    
    1,441,022
   6




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows (unaudited)
 Nine months ended September 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    50,473
    
    
    
    65,632Adjustments to reconcile net income to net cash provided by operating activities:Amortization of fees and discounts, net
    
    
    15,963
    
    
    
    5,048Provision for credit losses
    
    
    32,650
    
    
    
    14,500Depreciation of premises and equipment
    
    
    9,451
    
    
    
    8,177Asset writedowns
    
    
    1,390
    
    
    
    890Amortization of core deposit and other intangibles
    
    
    6,004
    
    
    
    6,606Originations of loans held for sale
    
    
    (364,602
    )
    
    
    (75,358
    )Proceeds from sales of loans held for sale
    
    
    342,926
    
    
    
    76,728Loss (gain) on sale of loans
    
    
    544
    
    
    
    (199
    )ESOP and stock-based compensation expense
    
    
    5,511
    
    
    
    6,711Deferred income tax expense
    
    
    3,625
    
    
    
    648Income from bank owned life insurance
    
    
    (3,931
    )
    
    
    (3,726
    )Net increase in other assets
    
    
    (21,989
    )
    
    
    (4,942
    )Net increase in other liabilities
    
    
    49,690
    
    
    
    28,122Net cash provided by operating activities
    
    
    127,705
    
    
    
    128,837Cash flows from investing activities:Proceeds from maturities of securities available for sale
    
    
    1,043,918
    
    
    
    248,536Proceeds from sale of securities available for sale
    
    
    995
    
    
    
    Principal payments received on securities available for sale
    
    
    400,635
    
    
    
    154,884Purchases of securities available for sale
    
    
    (3,354,707
    )
    
    
    (236,041
    )Principal payments received on securities held to maturity
    
    
    18,384
    
    
    
    Purchases of securities held to maturity
    
    
    (1,105,937
    )
    
    
    Net increase in loans and leases
    
    
    (47,869
    )
    
    
    (159,792
    )Acquisitions, net of cash and cash equivalents
    
    
    3,083,547
    
    
    
    (84,719
    )Other, net
    
    
    (5,790
    )
    
    
    (23,342
    )Net cash provided by (used in) investing activities
    
    
    33,176
    
    
    
    (100,474
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    17,646
    
    
    
    (325,699
    )(Repayments of) proceeds from short-term borrowings, net
    
    
    (166,451
    )
    
    
    120,777Proceeds from long-term borrowings
    
    
    150,000
    
    
    
    265,000Repayments of long-term borrowings
    
    
    (7,135
    )
    
    
    (12,285
    )Proceeds from exercise of stock options
    
    
    305
    
    
    
    3,229Excess tax (expense) benefit from stock-based compensation
    
    
    (65
    )
    
    
    603Issuance of common stock in follow-on stock offerings, net
    
    
    802,215
    
    
    
    Repurchase of common stock warrant
    
    
    (2,700
    )
    
    
    Redemption of preferred stock
    
    
    (184,011
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (6,795
    )Dividends paid on cumulative preferred stock
    
    
    (4,754
    )
    
    
    Dividends paid on common stock
    
    
    (57,239
    )
    
    
    (43,930
    )Net cash provided by financing activities
    
    
    547,811
    
    
    
    900Net increase in cash and cash equivalents
    
    
    708,692
    
    
    
    29,263Cash and cash equivalents at beginning of period
    
    
    114,551
    
    
    
    114,991Cash and cash equivalents at end of period
    
    $
    823,243
    
    
    
    144,254Cash paid during the period for:Income taxes
    
    $
    28,681
    
    
    
    35,131Interest expense
    
    
    92,838
    
    
    
    134,708Acquisition of noncash assets and liabilities:Assets acquired
    
    
    911,610
    
    
    
    902,388Liabilities assumed
    
    
    3,974,134
    
    
    
    743,888Loans transferred to other real estate owned
    
    
    8,207
    
    
    
    3,784Securities available for sale purchased not settled
    
    
    99,793
    
    
    
    6,608Capital lease obligation
    
    $
    11,928
    
    
    
    
   7




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##### Table of Contents



FIRST NIAGARA FINANCIAL GROUP, INC. AND SUBSIDIARY
 
 Notes to Consolidated Financial Statements (unaudited)
  Note 1. Acquisitions
 National City Bank branches
   Cash and cash equivalents, net
    
    $
    3,083,810Loans, net
    
    
    717,328Premises and equipment
    
    
    26,731Goodwill
    
    
    130,079Core deposit intangible
    
    
    29,800Other assets
    
    
    7,407Total assets acquired
    
    $
    3,995,155Deposits
    
    $
    3,961,702Other liabilities
    
    
    33,453Total liabilities assumed
    
    $
    3,995,155
      8




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##### Table of Contents



Harleysville National Corporation
  Note 2. Investment Securities
  Amortized
    
    
    Unrealized
    
    
    UnrealizedAt September 30, 2009:
    
    cost
    
    
    gains
    
    
    losses
    
    
    Fair valueInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    394,353
    
    
    
    6,148
    
    
    
    (22
    )
    
    
    400,479U.S.
Government agencies and government sponsored enterprises
    
    
    166,079
    
    
    
    260
    
    
    
    (210
    )
    
    
    166,129Corporate
    
    
    3,383
    
    
    
    2
    
    
    
    (1,355
    )
    
    
    2,030Total debt securities
    
    
    563,815
    
    
    
    6,410
    
    
    
    (1,587
    )
    
    
    568,638Residential mortgage-backed securities:Federal National Mortgage Association
    
    
    121,932
    
    
    
    5,071
    
    
    
    (23
    )
    
    
    126,980Federal Home Loan Mortgage Corporation
    
    
    145,423
    
    
    
    8,366
    
    
    
    (10
    )
    
    
    153,779Government National Mortgage Association
    
    
    31,481
    
    
    
    260
    
    
    
    (135
    )
    
    
    31,606Collateralized mortgage obligations:Federal Home Loan Mortgage Corporation
    
    
    653,707
    
    
    
    15,469
    
    
    
    (8
    )
    
    
    669,168Federal National Mortgage Association
    
    
    731,698
    
    
    
    13,160
    
    
    
    (342
    )
    
    
    744,516Government National Mortgage Association
    
    
    1,122,549
    
    
    
    20,138
    
    
    
    (789
    )
    
    
    1,141,898Non-Agency issued
    
    
    216,673
    
    
    
    1,576
    
    
    
    (9,922
    )
    
    
    208,327Total collateralized mortgage obligations
    
    
    2,724,627
    
    
    
    50,343
    
    
    
    (11,061
    )
    
    
    2,763,909Total mortgage-backed securities
    
    
    3,023,463
    
    
    
    64,040
    
    
    
    (11,229
    )
    
    
    3,076,274Asset-backed securities
    
    
    3,276
    
    
    
    
    
    
    
    (103
    )
    
    
    3,173Other
    
    
    5,307
    
    
    
    25
    
    
    
    (1,156
    )
    
    
    4,176Total securities available for sale
    
    $
    3,595,861
    
    
    
    70,475
    
    
    
    (14,075
    )
    
    
    3,652,261Investment securities held to maturity:Residential mortgage-backed securities:Collateralized mortgage obligations:Federal Home Loan Mortgage Corporation
    
    $
    317,372
    
    
    
    4,235
    
    
    
    
    
    
    
    321,607Federal National Mortgage Association
    
    
    333,602
    
    
    
    3,733
    
    
    
    (615
    )
    
    
    336,720Government National Mortgage Association
    
    
    434,284
    
    
    
    7,989
    
    
    
    
    
    
    
    442,273Total securities held to maturity
    
    $
    1,085,258
    
    
    
    15,957
    
    
    
    (615
    )
    
    
    1,100,600
  9




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##### Table of Contents



Amortized
    
    
    Unrealized
    
    
    UnrealizedAt December 31, 2008:
    
    cost
    
    
    gains
    
    
    losses
    
    
    Fair valueInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    295,639
    
    
    
    4,160
    
    
    
    (52
    )
    
    
    299,747U.S.
Government agencies and government sponsored enterprises
    
    
    29,968
    
    
    
    50
    
    
    
    (20
    )
    
    
    29,998Corporate
    
    
    5,028
    
    
    
    1
    
    
    
    (1,589
    )
    
    
    3,440Total debt securities
    
    
    330,635
    
    
    
    4,211
    
    
    
    (1,661
    )
    
    
    333,185Residential mortgage-backed securities:Federal National Mortgage Association
    
    
    146,646
    
    
    
    2,916
    
    
    
    (300
    )
    
    
    149,262Federal Home Loan Mortgage Corporation
    
    
    182,929
    
    
    
    5,921
    
    
    
    (12
    )
    
    
    188,838Government National Mortgage Association
    
    
    11,711
    
    
    
    64
    
    
    
    (399
    )
    
    
    11,376Collateralized mortgage obligations:Federal Home Loan Mortgage Corporation
    
    
    446,086
    
    
    
    4,074
    
    
    
    (69
    )
    
    
    450,091Federal National Mortgage Association
    
    
    179,657
    
    
    
    1,398
    
    
    
    (1,194
    )
    
    
    179,861Government National Mortgage Association
    
    
    24,257
    
    
    
    87
    
    
    
    (404
    )
    
    
    23,940Non-Agency issued
    
    
    263,432
    
    
    
    106
    
    
    
    (34,523
    )
    
    
    229,015Total collateralized mortgage obligations
    
    
    913,432
    
    
    
    5,665
    
    
    
    (36,190
    )
    
    
    882,907Total mortgage-backed securities
    
    
    1,254,718
    
    
    
    14,566
    
    
    
    (36,901
    )
    
    
    1,232,383Asset-backed securities
    
    
    3,499
    
    
    
    
    
    
    
    (122
    )
    
    
    3,377Other
    
    
    5,307
    
    
    
    8
    
    
    
    (1,159
    )
    
    
    4,156Total securities available for sale
    
    $
    1,594,159
    
    
    
    18,785
    
    
    
    (39,843
    )
    
    
    1,573,101
  10




---



##### Table of Contents



Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAt September 30, 2009:
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    value
    
    
    lossesInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    7,060
    
    
    
    5
    
    
    
    1,338
    
    
    
    17
    
    
    
    8,398
    
    
    
    22U.S. Government agencies and government sponsored enterprises
    
    
    39,333
    
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    39,333
    
    
    
    210Corporate
    
    
    
    
    
    
    
    
    
    
    1,713
    
    
    
    1,355
    
    
    
    1,713
    
    
    
    1,355Total debt securities
    
    
    46,393
    
    
    
    215
    
    
    
    3,051
    
    
    
    1,372
    
    
    
    49,444
    
    
    
    1,587Residential mortgage-backed securities:Federal National Mortgage Association
    
    
    308
    
    
    
    1
    
    
    
    1,666
    
    
    
    22
    
    
    
    1,974
    
    
    
    23Federal Home Loan Mortgage Corporation
    
    
    90
    
    
    
    1
    
    
    
    427
    
    
    
    9
    
    
    
    517
    
    
    
    10Government National Mortgage Association
    
    
    31
    
    
    
    
    
    
    
    8,404
    
    
    
    135
    
    
    
    8,435
    
    
    
    135Collateralized mortgage obligations:Federal Home Loan Mortgage Corporation
    
    
    15,501
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    15,501
    
    
    
    8Federal National Mortgage Association
    
    
    75,631
    
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    75,631
    
    
    
    342Government National Mortgage Association
    
    
    79,776
    
    
    
    789
    
    
    
    
    
    
    
    
    
    
    
    79,776
    
    
    
    789Non-Agency issued
    
    
    5,527
    
    
    
    524
    
    
    
    140,436
    
    
    
    9,398
    
    
    
    145,963
    
    
    
    9,922Total collateralized mortgage obligations
    
    
    176,435
    
    
    
    1,663
    
    
    
    140,436
    
    
    
    9,398
    
    
    
    316,871
    
    
    
    11,061Total mortgage-backed securities
    
    
    176,864
    
    
    
    1,665
    
    
    
    150,933
    
    
    
    9,564
    
    
    
    327,797
    
    
    
    11,229Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    3,173
    
    
    
    103
    
    
    
    3,173
    
    
    
    103Other
    
    
    
    
    
    
    
    
    
    
    3,297
    
    
    
    1,156
    
    
    
    3,297
    
    
    
    1,156Total securities available for sale in an unrealized loss
    
    $
    223,257
    
    
    
    1,880
    
    
    
    160,454
    
    
    
    12,195
    
    
    
    383,711
    
    
    
    14,075Investment securities held to maturity:Mortgage-backed securities:Collateralized mortgage obligations:Federal National Mortgage Association
    
    $
    60,232
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    60,232
    
    
    
    615
 Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAt December 31, 2008:
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    value
    
    
    lossesInvestment securities available for sale:Debt securities:States and political subdivisions
    
    $
    6,116
    
    
    
    48
    
    
    
    379
    
    
    
    4
    
    
    
    6,495
    
    
    
    52U.S. Government agencies and government sponsored enterprises
    
    
    1,971
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    1,971
    
    
    
    20Corporate
    
    
    1,689
    
    
    
    1,589
    
    
    
    
    
    
    
    
    
    
    
    1,689
    
    
    
    1,589Total debt securities
    
    
    9,776
    
    
    
    1,657
    
    
    
    379
    
    
    
    4
    
    
    
    10,155
    
    
    
    1,661Residential mortgage-backed securities:Federal National Mortgage Association
    
    
    31,438
    
    
    
    258
    
    
    
    2,282
    
    
    
    42
    
    
    
    33,720
    
    
    
    300Federal Home Loan Mortgage Corporation
    
    
    111
    
    
    
    1
    
    
    
    976
    
    
    
    11
    
    
    
    1,087
    
    
    
    12Government National Mortgage Association
    
    
    9,550
    
    
    
    395
    
    
    
    121
    
    
    
    4
    
    
    
    9,671
    
    
    
    399Collateralized mortgage obligations:Federal Home Loan Mortgage Corporation
    
    
    23,318
    
    
    
    29
    
    
    
    3,863
    
    
    
    40
    
    
    
    27,181
    
    
    
    69Federal National Mortgage Association
    
    
    44,695
    
    
    
    1,192
    
    
    
    702
    
    
    
    2
    
    
    
    45,397
    
    
    
    1,194Government National Mortgage Association
    
    
    13,193
    
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    13,193
    
    
    
    404Non-Agency issued
    
    
    201,193
    
    
    
    33,433
    
    
    
    24,954
    
    
    
    1,090
    
    
    
    226,147
    
    
    
    34,523Total collateralized mortgage obligations
    
    
    282,399
    
    
    
    35,058
    
    
    
    29,519
    
    
    
    1,132
    
    
    
    311,918
    
    
    
    36,190Total mortgage-backed securities
    
    
    323,498
    
    
    
    35,712
    
    
    
    32,898
    
    
    
    1,189
    
    
    
    356,396
    
    
    
    36,901Asset-backed securities
    
    
    3,149
    
    
    
    79
    
    
    
    228
    
    
    
    43
    
    
    
    3,377
    
    
    
    122Other
    
    
    351
    
    
    
    3
    
    
    
    3,297
    
    
    
    1,156
    
    
    
    3,648
    
    
    
    1,159Total securities available for sale in an unrealized loss position
    
    $
    336,774
    
    
    
    37,451
    
    
    
    36,802
    
    
    
    2,392
    
    
    
    373,576
    
    
    
    39,843
  11




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##### Table of Contents



Agency Mortgage-Backed Securities and Collateralized Mortgage Obligations
   Non-Agency Collateralized Mortgage Obligations
   Municipal and Corporate Debt Securities and Other
   12




---



##### Table of Contents



Available for sale
    
    
    Held to maturityAmortized
    
    
    
    
    
    
    Amortizedcost
    
    
    Fair value
    
    
    cost
    
    
    Fair valueDebt securities:Within one year
    
    $
    296,357
    
    
    
    298,252
    
    
    
    
    
    
    
    After one year through five years
    
    
    248,114
    
    
    
    251,490
    
    
    
    
    
    
    
    After five years through ten years
    
    
    14,870
    
    
    
    15,548
    
    
    
    
    
    
    
    After ten years
    
    
    4,474
    
    
    
    3,348
    
    
    
    
    
    
    
    Total debt securities
    
    
    563,815
    
    
    
    568,638
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    3,276
    
    
    
    3,173
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    3,023,463
    
    
    
    3,076,274
    
    
    
    1,085,258
    
    
    
    1,100,600Other
    
    
    5,307
    
    
    
    4,176
    
    
    
    
    
    
    
    $
    3,595,861
    
    
    
    3,652,261
    
    
    
    1,085,258
    
    
    
    1,100,600
  Note 3. Loans and Leases
  September 30,
    
    
    December 31,2009
    
    
    2008Commercial:Real estate
    
    $
    2,647,748
    
    
    
    2,211,402Construction
    
    
    326,216
    
    
    
    340,564Business
    
    
    1,425,956
    
    
    
    940,304Specialized lending(1)
    
    
    208,574
    
    
    
    178,916Total commercial
    
    
    4,608,494
    
    
    
    3,671,186Residential real estate(2)
    
    
    1,725,943
    
    
    
    1,990,784Home equity
    
    
    662,308
    
    
    
    624,495Other consumer
    
    
    189,271
    
    
    
    143,989Total loans and leases
    
    
    7,186,016
    
    
    
    6,430,454Net deferred costs and unearned discounts
    
    
    29,746
    
    
    
    33,321Allowance for credit losses
    
    
    (83,077
    )
    
    
    (77,793
    )Total loans and leases, net
    
    $
    7,132,685
    
    
    
    6,385,982
 (1)
    
    Includes commercial leases and financed insurance premiums.(2)
    
    Includes $22.8 million and $1.7 million of loans held for sale at September 30,
2009 and December 31, 2008, respectively.  Nine months ended September 30,2009
    
    
    2008Balance at beginning of period
    
    $
    77,793
    
    
    
    70,247Charge-offs
    
    
    (28,761
    )
    
    
    (11,671
    )Recoveries
    
    
    1,395
    
    
    
    1,698Provision for credit losses
    
    
    32,650
    
    
    
    14,500Acquired at acquisition date
    
    
    
    
    
    
    2,890Balance at end of period
    
    $
    83,077
    
    
    
    77,664
  13




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##### Table of Contents



2009
    
    
    2008Nonaccrual loans
    
    $
    66,806
    
    
    
    44,698Year to date interest income that would have been recorded if
loans had been performing in accordance with original terms
    
    
    733
    
    
    
    672Balance of impaired loans
    
    
    56,157
    
    
    
    38,786Allowance relating to impaired loans included in allowance
for credit losses
    
    
    8,266
    
    
    
    4,032Aggregate recorded investment of impaired loans with terms
modified through a troubled debt restructuring
    
    
    20,392
    
    
    
    7,590
  Note 4. Mortgage Servicing Rights
  Nine months ended September 30,2009
    
    
    2008Balance at beginning of period
    
    $
    4,295
    
    
    
    4,312Additions
    
    
    3,493
    
    
    
    410Amortization
    
    
    (1,114
    )
    
    
    (450
    )Balance at end of period
    
    
    6,674
    
    
    
    4,272Valuation allowance
    
    
    (793
    )
    
    
    Mortgage servicing rights, net
    
    $
    5,881
    
    
    
    4,272
   Note 5. Deposits
  September 30,
    
    
    December 31,2009
    
    
    2008Savings
    
    $
    913,144
    
    
    
    788,767Interest-bearing checking
    
    
    1,062,681
    
    
    
    485,220Money market deposit accounts
    
    
    3,457,837
    
    
    
    1,940,136Noninterest-bearing
    
    
    1,213,978
    
    
    
    718,593Certificates
    
    
    3,275,728
    
    
    
    2,010,897Total deposits
    
    $
    9,923,368
    
    
    
    5,943,613
   14




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##### Table of Contents



Note 6. Senior Notes
  Note 7. Interest Rate Swaps
   Note 8. Common Stock
    15




---



##### Table of Contents



Note 9. Earnings Per Share
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income available to common stockholders
    
    $
    10,931
    
    
    
    23,740
    
    
    
    38,427
    
    
    
    65,632Less income
allocable to unvested restricted stock awards
    
    
    29
    
    
    
    121
    
    
    
    114
    
    
    
    354Net Income allocable to common stockholders
    
    $
    10,902
    
    
    
    23,619
    
    
    
    38,313
    
    
    
    65,278Weighted average common shares outstanding:Total shares issued
    
    
    156,886
    
    
    
    125,419
    
    
    
    144,212
    
    
    
    124,536Unallocated ESOP shares
    
    
    (2,978
    )
    
    
    (3,196
    )
    
    
    (3,035
    )
    
    
    (3,260
    )Unvested restricted stock awards
    
    
    (400
    )
    
    
    (542
    )
    
    
    (423
    )
    
    
    (558
    )Treasury shares
    
    
    (6,674
    )
    
    
    (15,606
    )
    
    
    (6,732
    )
    
    
    (15,651
    )Total basic weighted average common shares outstanding
    
    
    146,834
    
    
    
    106,075
    
    
    
    134,022
    
    
    
    105,067Incremental shares from assumed exercise of stock options
    
    
    129
    
    
    
    460
    
    
    
    136
    
    
    
    365Incremental shares from assumed vesting of restricted stock awards
    
    
    221
    
    
    
    260
    
    
    
    228
    
    
    
    239Total diluted weighted average common shares outstanding
    
    
    147,184
    
    
    
    106,795
    
    
    
    134,386
    
    
    
    105,671Basic earnings per common share
    
    $
    0.07
    
    
    
    0.22
    
    
    
    0.29
    
    
    
    0.62Diluted earnings per common share
    
    $
    0.07
    
    
    
    0.22
    
    
    
    0.29
    
    
    
    0.62Anti-dilutive stock options and restricted stock awards excluded from the diluted weighted average common share calculations
    
    
    2,303
    
    
    
    631
    
    
    
    2,681
    
    
    
    793
 Note 10. Fair Value Measurements
  Level 1 Inputs
 Level 2 Inputs
 Level 3 Inputs 
   16




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##### Table of Contents



Assets and Liabilities Measured at Fair Value on a Recurring Basis
 Securities Available for Sale
    Interest Rate Swaps
  Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 Impaired Loans
  Mortgage Servicing Rights
  Real Estate Owned
   17




---



##### Table of Contents



Note 11. Fair Value of Financial Instruments
  September 30, 2009
    
    
    December 31, 2008Estimated fair
    
    
    
    
    
    
    Estimated fairCarrying value
    
    
    value
    
    
    Carrying value
    
    
    valueFinancial assets:Cash and cash equivalents
    
    $
    823,243
    
    
    
    823,243
    
    
    
    114,551
    
    
    
    114,551Investment securities available for sale
    
    
    3,652,261
    
    
    
    3,652,261
    
    
    
    1,573,101
    
    
    
    1,573,101Investment securities held to maturity
    
    
    1,085,258
    
    
    
    1,100,600
    
    
    
    
    
    
    
    Loans and leases, net(1)
    
    
    7,132,685
    
    
    
    7,379,494
    
    
    
    6,385,982
    
    
    
    6,612,111FHLB stock
    
    
    46,032
    
    
    
    46,032
    
    
    
    62,301
    
    
    
    62,301Accrued interest receivable
    
    
    45,585
    
    
    
    45,585
    
    
    
    33,255
    
    
    
    33,255Financial liabilities:Deposits
    
    $
    9,923,368
    
    
    
    9,969,417
    
    
    
    5,943,613
    
    
    
    5,953,692Borrowings
    
    
    1,515,148
    
    
    
    1,542,045
    
    
    
    1,540,227
    
    
    
    1,589,659Accrued interest payable
    
    
    7,611
    
    
    
    7,611
    
    
    
    6,548
    
    
    
    6,548
 (1)
    
    Included in loans and leases, net are residential mortgage loans held for sale with a
carrying value of $22.8 million and a fair value of $25.1 million at September 30, 2009.   Cash and Cash Equivalents
  Investment Securities
  Loans and Leases
   FHLB Stock
  Accrued Interest Receivable
  Deposits
  Borrowings
  Accrued Interest Payable
   18




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##### Table of Contents



Commitments
  Note 12. Pension and Other Postretirement Plans
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Pension plans:Service cost
    
    $
    49
    
    
    
    
    
    
    
    145
    
    
    
    Interest cost
    
    
    1,006
    
    
    
    950
    
    
    
    3,020
    
    
    
    2,851Expected return on plan assets
    
    
    (737
    )
    
    
    (934
    )
    
    
    (2,215
    )
    
    
    (2,804
    )Amortization of unrecognized loss
    
    
    313
    
    
    
    
    
    
    
    943
    
    
    
    Net pension cost
    
    $
    631
    
    
    
    16
    
    
    
    1,893
    
    
    
    47Other postretirement plans:Interest cost
    
    $
    127
    
    
    
    141
    
    
    
    381
    
    
    
    424Amortization of unrecognized loss
    
    
    8
    
    
    
    4
    
    
    
    20
    
    
    
    10Amortization of unrecognized prior service liability
    
    
    (16
    )
    
    
    (16
    )
    
    
    (48
    )
    
    
    (48
    )Net postretirement cost
    
    $
    119
    
    
    
    129
    
    
    
    353
    
    
    
    386
  19




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##### Table of Contents



Note 13. Segment Information
   Financial
    
    
    ConsolidatedFor the three months ended:
    
    Banking
    
    
    services
    
    
    totalSeptember 30, 2009Net interest income
    
    $
    98,922
    
    
    
    
    
    
    
    98,922Provision for credit losses
    
    
    15,000
    
    
    
    
    
    
    
    15,000Net interest income after provision for credit losses
    
    
    83,922
    
    
    
    
    
    
    
    83,922Noninterest income
    
    
    21,027
    
    
    
    12,197
    
    
    
    33,224Amortization of core deposit and other intangibles
    
    
    1,520
    
    
    
    746
    
    
    
    2,266Other noninterest expense
    
    
    88,355
    
    
    
    10,099
    
    
    
    98,454Income before income taxes
    
    
    15,074
    
    
    
    1,352
    
    
    
    16,426Income tax expense
    
    
    4,954
    
    
    
    541
    
    
    
    5,495Net income
    
    $
    10,120
    
    
    
    811
    
    
    
    10,931September 30, 2008Net interest income
    
    $
    70,200
    
    
    
    
    
    
    
    70,200Provision for credit losses
    
    
    6,500
    
    
    
    
    
    
    
    6,500Net interest income after provision for credit losses
    
    
    63,700
    
    
    
    
    
    
    
    63,700Noninterest income
    
    
    16,848
    
    
    
    12,341
    
    
    
    29,189Amortization of core deposit and other intangibles
    
    
    1,273
    
    
    
    873
    
    
    
    2,146Other noninterest expense
    
    
    44,166
    
    
    
    10,442
    
    
    
    54,608Income before income taxes
    
    
    35,109
    
    
    
    1,026
    
    
    
    36,135Income tax expense
    
    
    12,043
    
    
    
    352
    
    
    
    12,395Net income
    
    $
    23,066
    
    
    
    674
    
    
    
    23,740
 Financial
    
    
    ConsolidatedFor the nine months ended:
    
    Banking
    
    
    services
    
    
    totalSeptember 30, 2009Net interest income
    
    $
    251,497
    
    
    
    
    
    
    
    251,497Provision for credit losses
    
    
    32,650
    
    
    
    
    
    
    
    32,650Net interest income after provision for credit losses
    
    
    218,847
    
    
    
    
    
    
    
    218,847Noninterest income
    
    
    52,465
    
    
    
    37,993
    
    
    
    90,458Amortization of core deposit and other intangibles
    
    
    3,654
    
    
    
    2,350
    
    
    
    6,004Other noninterest expense
    
    
    195,377
    
    
    
    30,571
    
    
    
    225,948Income before income taxes
    
    
    72,281
    
    
    
    5,072
    
    
    
    77,353Income tax expense
    
    
    24,851
    
    
    
    2,029
    
    
    
    26,880Net income
    
    $
    47,430
    
    
    
    3,043
    
    
    
    50,473September 30, 2008Net interest income
    
    $
    196,870
    
    
    
    1
    
    
    
    196,871Provision for credit losses
    
    
    14,500
    
    
    
    
    
    
    
    14,500Net interest income after provision for credit losses
    
    
    182,370
    
    
    
    1
    
    
    
    182,371Noninterest income
    
    
    49,792
    
    
    
    38,300
    
    
    
    88,092Amortization of core deposit and other intangibles
    
    
    3,858
    
    
    
    2,748
    
    
    
    6,606Other noninterest expense
    
    
    132,642
    
    
    
    31,607
    
    
    
    164,249Income before income taxes
    
    
    95,662
    
    
    
    3,946
    
    
    
    99,608Income tax expense
    
    
    32,630
    
    
    
    1,346
    
    
    
    33,976Net income
    
    $
    63,032
    
    
    
    2,600
    
    
    
    65,632
  20




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##### Table of Contents



Note 14. Recently Issued Accounting Pronouncements
     21




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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 subsidiary 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, 2008 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
    22




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Allowance for Credit Losses
  Investment Securities
    Acquired Loans
    23




---



##### Table of Contents



Goodwill
  Income Taxes
   RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 Overview
      24




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##### Table of Contents



Analysis of Financial Condition at September 30, 2009
  
    
    Higher-yielding commercial loans increased $280.0 million, or 10% annualized,
since December 31, 2008, excluding the loans acquired from NatCity.
    
    Core deposits increased $762.3 million, or 26% annualized, across retail,
commercial, and municipal customers, excluding the deposits associated with the
NatCity branch locations.
    
    Higher cost certificate of deposit account balances decreased $445.2 million, or
30% annualized, excluding the certificate of deposit accounts associated with the
NatCity branch locations, as we executed our strategy of letting higher priced
certificate of deposits run off and focused on building our lower cost relationship
based deposit customers.
    
    Higher investment securities portfolio due to investment of proceeds from the NatCity
branch acquisition.
 Lending Activities
     September 30, 2009
    
    
    December 31, 2008Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial:Real estate
    
    $
    2,647,748
    
    
    
    36.9
    %
    
    $
    2,211,402
    
    
    
    34.4
    %Construction
    
    
    326,216
    
    
    
    4.5
    
    
    
    340,564
    
    
    
    5.3Business
    
    
    1,425,956
    
    
    
    19.8
    
    
    
    940,304
    
    
    
    14.6Specialized lending
    
    
    208,574
    
    
    
    3.0
    
    
    
    178,916
    
    
    
    2.8Total commercial loans
    
    
    4,608,494
    
    
    
    64.2
    
    
    
    3,671,186
    
    
    
    57.1Residential real estate(1)
    
    
    1,725,943
    
    
    
    24.0
    
    
    
    1,990,784
    
    
    
    31.0Home equity
    
    
    662,308
    
    
    
    9.2
    
    
    
    624,495
    
    
    
    9.7Other consumer
    
    
    189,271
    
    
    
    2.6
    
    
    
    143,989
    
    
    
    2.2Total loans and leases
    
    
    7,186,016
    
    
    
    100.0
    %
    
    
    6,430,454
    
    
    
    100.0
    %Net deferred costs and unearned discounts
    
    
    29,746
    
    
    
    
    
    
    
    33,321Allowance for credit losses
    
    
    (83,077
    )
    
    
    
    
    
    
    (77,793
    )Total loans and leases, net
    
    $
    7,132,685
    
    
    
    
    
    
    $
    6,385,982
 (1)
    
    Includes $22.8 million and $1.7 million of loans held for sale at September
30, 2009 and December 31, 2008, respectively.  25




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##### Table of Contents



Allowance for Credit Losses and Nonperforming Assets
    Nine months ended September 30,2009
    
    
    2008Balance at beginning of period
    
    $
    77,793
    
    
    $
    70,247Net charge-offs:Charge-offs
    
    
    (28,761
    )
    
    
    (11,671
    )Recoveries
    
    
    1,395
    
    
    
    1,698Net charge-offs
    
    
    (27,366
    )
    
    
    (9,973
    )Provision for credit losses
    
    
    32,650
    
    
    
    14,500Acquired at acquisition date
    
    
    
    
    
    
    2,890Balance at end of period
    
    $
    83,077
    
    
    $
    77,664Ratio of annualized net charge-offs to average loans
outstanding during the period
    
    
    0.56
    %
    
    
    0.21
    %Ratio of annualized provision for credit losses to average
loans outstanding during the period
    
    
    0.67
    %
    
    
    0.31
    %
   26




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Nonaccruing loans:Commercial real estate
    
    $
    32,477
    
    
    $
    26,546Commercial business
    
    
    4,629
    
    
    
    7,411Specialized lending
    
    
    3,105
    
    
    
    4,354Shared national credits
    
    
    14,103
    
    
    
    Residential real estate
    
    
    9,140
    
    
    
    5,516Home equity
    
    
    2,979
    
    
    
    2,076Other consumer
    
    
    373
    
    
    
    514Total nonaccruing loans
    
    
    66,806
    
    
    
    46,417Real estate owned
    
    
    8,872
    
    
    
    2,001Total nonperforming assets
    
    $
    75,678
    
    
    $
    48,418Total nonaccruing loans as a percentage of total loans
    
    
    0.93
    %
    
    
    0.72
    %Total nonperforming assets as a percentage of total assets
    
    
    0.54
    %
    
    
    0.52
    %Allowance for credit losses to total loans
    
    
    1.15
    %
    
    
    1.20
    %Allowance for credit losses to nonaccruing loans
    
    
    124
    %
    
    
    168
    %
   Investment Securities Portfolio
     27




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##### Table of Contents



Deposits
  September 30, 2009
    
    
    December 31, 2008Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCore Deposits:Savings
    
    $
    913,144
    
    
    
    9.2
    %
    
    $
    788,767
    
    
    
    13.3
    %Interest-bearing checking
    
    
    1,062,681
    
    
    
    10.7
    
    
    
    485,220
    
    
    
    8.2Money market deposit accounts
    
    
    3,457,837
    
    
    
    34.9
    
    
    
    1,940,136
    
    
    
    32.6Noninterest-bearing
    
    
    1,213,978
    
    
    
    12.2
    
    
    
    718,593
    
    
    
    12.1Total core deposits
    
    
    6,647,640
    
    
    
    67.0
    
    
    
    3,932,716
    
    
    
    66.2Certificates
    
    
    3,275,728
    
    
    
    33.0
    
    
    
    2,010,897
    
    
    
    33.8Total deposits
    
    $
    9,923,368
    
    
    
    100.0
    %
    
    $
    5,943,613
    
    
    
    100.0
    %
   Borrowings
    28




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 Net Interest Income
  Three months ended September 30,2009
    
    
    2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rateInterest-earning assets:Loans and leases(1)
    
    $
    6,629,908
    
    
    $
    90,129
    
    
    
    5.41
    %
    
    $
    6,422,241
    
    
    $
    94,721
    
    
    
    5.88
    %Securities and other investments(2)
    
    
    4,325,361
    
    
    
    40,156
    
    
    
    3.71
    
    
    
    1,346,186
    
    
    
    16,678
    
    
    
    4.95Total interest-earning assets
    
    
    10,955,269
    
    
    
    130,285
    
    
    
    4.74
    
    
    
    7,768,427
    
    
    
    111,399
    
    
    
    5.72Noninterest-earning assets(3)(4)
    
    
    1,388,579
    
    
    
    
    
    
    
    
    
    
    
    1,223,472Total assets
    
    $
    12,343,848
    
    
    
    
    
    
    
    
    
    
    $
    8,991,899Interest-bearing liabilities:Savings deposits
    
    $
    837,852
    
    
    
    511
    
    
    
    0.24
    %
    
    $
    802,900
    
    
    $
    525
    
    
    
    0.26
    %Checking deposits
    
    
    676,786
    
    
    
    245
    
    
    
    0.14
    
    
    
    498,065
    
    
    
    344
    
    
    
    0.27Money market deposits
    
    
    2,783,435
    
    
    
    6,539
    
    
    
    0.93
    
    
    
    1,963,454
    
    
    
    10,386
    
    
    
    2.10Certificates of deposit
    
    
    2,113,778
    
    
    
    8,971
    
    
    
    1.68
    
    
    
    1,985,925
    
    
    
    14,704
    
    
    
    2.95Borrowed funds
    
    
    2,900,715
    
    
    
    13,600
    
    
    
    1.85
    
    
    
    1,444,923
    
    
    
    13,792
    
    
    
    3.78Total interest-bearing liabilities
    
    
    9,312,566
    
    
    
    29,866
    
    
    
    1.27
    
    
    
    6,695,267
    
    
    
    39,751
    
    
    
    2.36Noninterest-bearing deposits
    
    
    914,407
    
    
    
    
    
    
    
    
    
    
    
    726,852Other noninterest-bearing liabilities
    
    
    177,057
    
    
    
    
    
    
    
    
    
    
    
    131,998Total liabilities
    
    
    10,404,030
    
    
    
    
    
    
    
    
    
    
    
    7,554,117Stockholders equity(3)
    
    
    1,939,818
    
    
    
    
    
    
    
    
    
    
    
    1,437,782Total liabilities and stockholders equity
    
    $
    12,343,848
    
    
    
    
    
    
    
    
    
    
    $
    8,991,899Net interest income
    
    
    
    
    
    $
    100,419
    
    
    
    
    
    
    
    
    
    
    $
    71,648Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.47
    %
    
    
    
    
    
    
    
    
    
    
    3.36
    %Net earning assets
    
    $
    1,642,703
    
    
    
    
    
    
    
    
    
    
    $
    1,073,160Net interest rate margin
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.68
    %Ratio of average interest-earning assests
to average interest-bearing liabilities
    
    
    117.64
    %
    
    
    
    
    
    
    
    
    
    
    116.03
    %
  29




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##### Table of Contents



Nine months ended September 30,2009
    
    
    2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rateInterest-earning assets:Loans and leases(1)
    
    $
    6,506,269
    
    
    $
    264,519
    
    
    
    5.43
    %
    
    $
    6,287,886
    
    
    $
    284,046
    
    
    
    6.02
    %Securities and other investments(2)
    
    
    2,889,368
    
    
    
    85,179
    
    
    
    3.93
    
    
    
    1,379,217
    
    
    
    52,226
    
    
    
    5.05Total interest-earning assets
    
    
    9,395,637
    
    
    
    349,698
    
    
    
    4.97
    
    
    
    7,667,103
    
    
    
    336,272
    
    
    
    5.85Noninterest-earning assets(3)(4)
    
    
    1,294,345
    
    
    
    
    
    
    
    
    
    
    
    1,233,759Total assets
    
    $
    10,689,982
    
    
    
    
    
    
    
    
    
    
    $
    8,900,862Interest-bearing liabilities:Savings deposits
    
    $
    803,414
    
    
    
    1,441
    
    
    
    0.24
    %
    
    $
    796,868
    
    
    $
    1,717
    
    
    
    0.29
    %Checking deposits
    
    
    558,534
    
    
    
    626
    
    
    
    0.15
    
    
    
    486,998
    
    
    
    1,094
    
    
    
    0.30Money market deposits
    
    
    2,399,352
    
    
    
    20,334
    
    
    
    1.13
    
    
    
    1,883,580
    
    
    
    34,256
    
    
    
    2.43Certificates of deposit
    
    
    2,013,790
    
    
    
    33,758
    
    
    
    2.24
    
    
    
    2,156,305
    
    
    
    57,655
    
    
    
    3.57Borrowed funds
    
    
    2,089,621
    
    
    
    37,745
    
    
    
    2.41
    
    
    
    1,320,664
    
    
    
    39,747
    
    
    
    4.00Total interest-bearing liabilities
    
    
    7,864,711
    
    
    
    93,904
    
    
    
    1.59
    
    
    
    6,644,415
    
    
    
    134,469
    
    
    
    2.70Noninterest-bearing deposits
    
    
    783,192
    
    
    
    
    
    
    
    
    
    
    
    681,173Other noninterest-bearing liabilities
    
    
    160,748
    
    
    
    
    
    
    
    
    
    
    
    152,063Total liabilities
    
    
    8,808,651
    
    
    
    
    
    
    
    
    
    
    
    7,477,651Stockholders equity(3)
    
    
    1,881,331
    
    
    
    
    
    
    
    
    
    
    
    1,423,211Total liabilities and stockholders equity
    
    $
    10,689,982
    
    
    
    
    
    
    
    
    
    
    $
    8,900,862Net interest income
    
    
    
    
    
    $
    255,794
    
    
    
    
    
    
    
    
    
    
    $
    201,803Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %Net earning assets
    
    $
    1,530,926
    
    
    
    
    
    
    
    
    
    
    $
    1,022,688Net interest rate margin
    
    
    
    
    
    
    3.63
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %Ratio of average interest-earning assests
to average interest-bearing liabilities
    
    
    119.47
    %
    
    
    
    
    
    
    
    
    
    
    115.39
    %
 
 (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 and include securities held to
maturity and securities available for sale.(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.  
    
    Utilization of low cost, short-term borrowings to purchase investment securities in
anticipation of the NatCity acquisition resulting in both a 70% increase in the interest
earned on investments and a 159 basis point reduction in the rates paid on borrowings.
    
    More favorable funding mix, resulting in a $38.6 million, or 69%, decrease in interest
paid on deposits, due to shift from certificates of deposit accounts to lower rate money
market and other core deposit accounts.
    
    A 111 basis point reduction in rates on interest bearing liabilities, resulting in a 30%
decrease in interest expense for the nine months ended September 30, 2009.
    
    A 15% increase in average non-interest bearing deposits.
    
    The investment of a portion of the $911.1 million in net proceeds from our follow-on
stock offerings since September 30, 2008.
    
    Reductions in the federal funds interest rate in late 2008 resulted in funding costs at
historical lows.
 Provision for Credit Losses
   30




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Noninterest Income
    Noninterest Expense
       31




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##### Table of Contents



Income Taxes
  CAPITAL RESOURCES
     To be well capitalizedMinimum
    
    
    under prompt correctiveActual
    
    
    capital adequacy
    
    
    action provisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTangible capital
    
    $
    871,885
    
    
    
    6.67
    %
    
    
    196,200
    
    
    
    1.50
    %
    
    
    N/A
    
    
    
    N/A
    %Tier 1 (core) capital
    
    
    871,885
    
    
    
    6.67
    
    
    
    523,199
    
    
    
    4.00
    
    
    
    653,999
    
    
    
    5.00Tier 1 risk based capital
    
    
    871,885
    
    
    
    10.92
    
    
    
    319,382
    
    
    
    4.00
    
    
    
    479,074
    
    
    
    6.00Total risk based capital
    
    
    954,962
    
    
    
    11.96
    
    
    
    638,765
    
    
    
    8.00
    
    
    
    798,456
    
    
    
    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.
   32




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33




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##### Table of Contents



ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
      Calculated decrease at September 30, 2009Changes in interest rates(1)
    
    Net interest income
    
    
    % Change(in thousands)+200 basis points
    
    $
    (3,041
    )
    
    
    (0.71
    )%+100 basis points
    
    
    (809
    )
    
    
    (0.19
    )
 (1)
    
    The Federal Reserve benchmark overnight federal funds rate was 0.25% at
September 30, 2009, 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
   34




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##### Table of Contents



ITEM 1A.
    
    Risk Factors
  We Hold Certain Intangible Assets that Could Be Classified as Impaired in The Future. If These
Assets Are Considered To Be Either Partially or Fully Impaired in the Future, Our Earnings and the
Book Values of These Assets Would Decrease.
  Any Future FDIC Insurance Premiums May Adversely Affect our Financial Condition.
   
 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 third quarter of 2009.
 
 ITEM 3.
    
    Defaults Upon Senior Securities
  
 ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
  
 ITEM 5.
    
    Other Information
    35




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##### Table of Contents



ITEM 6.
    
    Exhibits
  Exhibits
 31.1
    
    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
  36




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##### Table of Contents



SIGNATURES
  FIRST NIAGARA FINANCIAL GROUP, INC.Date:  November 9, 2009
    By:
    /s/ John R. KoelmelJohn R. KoelmelPresident and Chief Executive OfficerDate:  November 9, 2009
    By:
    /s/ Michael W. HarringtonMichael W. HarringtonChief Financial Officer  37




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
 31.1
    
    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