Focused on
Credit Quality.

Exceptionally strong credit quality has been an important part of First Niagara's heritage and our success. Over the last five years, First Niagara's nonperforming assets-to-total assets ratio has consistently remained well below 1%. This track record reflects First Niagara's conservative approach to lending and the collateralized nature of our loan portfolio. Over 83% of First Niagara's loan portfolio is secured by real estate.

Continued strength in credit quality

At year-end 2001, First Niagara's nonperforming assets-to-total assets (NPAs) ratio and nonperforming loans-to-total loans (NPLs) ratio were a modest 0.42% and 0.61%, despite the continued growth in our commercial loan portfolio and the year's economic downturn. The comparable average ratios for our peer group¹ are 0.54% for NPAs and 0.95% for NPLs. First Niagara's reserve coverage also remained strong, finishing the year at 163% of nonperforming loans. At 0.17% of average loans, First Niagara's charge-offs in 2001 are comparable to the average of 0.18% for our peer group.

A secured and conservative loan portfolio

The consistency of First Niagara's credit quality is the product of our portfolio mix, conservative underwriting standards and the stability of our markets. First Niagara reduces its business loan exposure by focusing on small-to-middle market businesses and on fully collateralized loans. We also target the lower risk loan categories in commercial real estate lending, with a focus on smaller multi-family apartment properties ($1-$2 million) which limits risk and provides stronger collateral than other classes of commercial property. First Niagara's commercial lending exposure is further reduced by our status as an emerging SBA lender, a government-guaranteed loan program that protects lenders against loss.

In our residential mortgage portfolio, First Niagara's 2001 charge-offs of 0.03% - just 3/100ths of one percent - of average residential loans is indicative of the conservative nature of this portfolio and the strength of its underlying collateral. This portfolio also has an extremely low level of delinquency - 1.33% of residential mortgages were delinquent over 30 days at year-end 2001. Contributing to our low level of residential mortgage delinquency is that payments on First Niagara's bi-weekly mortgages, which make up over one-third of the residential loan portfolio, typically are pre-authorized and withdrawn from customer accounts.