Focused on
Productivity.

With the final phases of the integration of our 2000 acquisitions completed in 2001, First Niagara's operational focus has turned to improving the company's efficiency. Over the next three years, First Niagara is targeting productivity gains in excess of 10%. Our current efficiency ratio level reflects the continued growth in First Niagara's significant financial services business, which produces a higher level of noninterest income and has a lower cost of capital than our traditional banking business.

Integrating acquisitions effectively

First Niagara's business model for acquisitions continues to be centralizing back office functions and maintaining continuity and decision-making in front-line customer-facing functions. The effectiveness of this approach is reflected in First Niagara's high level of post-acquisition customer retention. Another major focus in integrating acquisitions that has kept our financial performance on track has been enhanced control and monitoring of expenses and the setting of realistic performance goals for our businesses. In 2001, a major component of our acquisition integration activities was organizing our financial services businesses under one group - First Niagara Financial Services - to provide focus and maximize synergies and efficiencies from this diverse, but complementary set of businesses.

AVA initiative launched

The foundation for First Niagara's drive to increase productivity is our AVA (Adding Value Always) initiative which was launched companywide in 2001. AVA's focus is on optimizing the financial performance of the company by seeking out opportunities to enhance revenues, by increasing our operating efficiency, and by bringing a value-added mindset to every decision we make. AVA begins with employee awareness, and is followed by basic productivity gains, process improvement and best practices, and finally systemic continuous improvement. The first two steps of the AVA initiative were taken last year and we will be focusing our efforts in the coming year to completing all the basic productivity gains, establishing benchmarks and initiating process improvement and best practices. Because AVA represents a significant culture and mindset shift, it is most effectively implemented in stages, building on individual and group successes over a multi-year timeframe.

Enhanced technological capabilities

With the increase in the company's size and expansion of our businesses, First Niagara has made significant investments in upgrading our technology in the last two years. Our purpose is twofold: to best position the company for future productivity gains and to provide customers with the higher level of convenience expected from financial institutions. With continued upgrading of our platform system and online banking capabilities, First Niagara's technology is keeping pace with the market and keeping us "in the game."