Focused on
Shareholder Value.

As a public company, First Niagara has demonstrated our focus on shareholder value through our delivery of consistent financial results, management of capital and the successful execution of our business and strategic plans. We have fully employed our 1998 IPO capital, which has produced a larger, more profitable company that is poised for continued growth.

Solid improvements in financial performance

First Niagara is making steady progress in our goal of becoming a top-performing financial services company. In 1998, our first year as a public company, First Niagara's operating results, excluding the non-recurring after-tax charge of $4.0 million to establish our charitable foundation, provided net income of $14.4 million, earnings per share of $0.50 and a return on average equity of 6.43%. In 2001, our fourth year as a public company, First Niagara reported net income of $21.2 million, earnings per diluted share of $0.85 and a return on average equity of 8.30%. Excluding the non-cash expenses for amortization of goodwill and other intangibles, First Niagara reported 2001 cash net income of $26.9 million, cash earnings per diluted share of $1.08 and a cash return on average equity of 10.52%. First Niagara plans to continue our track record of consistent and steadily increasing financial performance through a combination of conservative internal growth, accretive and strategic acquisitions, and our increased focus on productivity.

Prudent management of capital

Since our IPO, First Niagara has re-deployed over $200 million of capital to successfully complete and integrate three bank acquisitions and four acquisitions of financial services firms in insurance, investments and equipment leasing. In managing our IPO capital, we also used the opportunity of the 1999 to 2000 downturn in the stock prices of financial institutions to repurchase shares and enhance First Niagara's return on equity and earnings per share. During that period, First Niagara repurchased a total of 4.2 million shares, approximately 15% of shares outstanding, at an average price of $10.43 per share.

Delivering shareholder value

The result of First Niagara's value-focused strategy over our four years as a publicly traded company is an increase from our initial offering price of $10 per share from our April 20, 1998 IPO to $18.25 at February 28, 2002. First Niagara has also delivered additional value to shareholders through cash dividends, first declaring a dividend in September 1998 and since then raising the quarterly payout six times to the current quarterly dividend rate of $.10 per share, representing a 2.4% annualized yield based on our 2001 year-end share price. The cumulative total return on First Niagara's shares, assuming the reinvestment of all cash dividends, for those depositors who purchased and held our shares since the IPO was 81% at December 31, 2001, which exceeds the total return on both the Nasdaq Composite Index and the Mutual Holding Company Index in the same time period. In 2001, First Niagara's share price increased 56%, rising from $10.81 at year-end 2000 to $16.83 at year-end 2001.