EXHIBIT 99
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Financial Statements and Schedule
December 31, 2003 and 2002
(With Report of Independent Registered
Public Accounting Firm Thereon)
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Table of Contents
Page
Report of Independent Registered Public Accounting Firm 1
Statements of Net Assets Available for Plan Benefits as of
December 31, 2003 and 2002 2
Statements of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 2003 and 2002 3
Notes to Financial Statements 4
Schedule
1 Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
- December 31, 2003 10
Report of Independent Registered Public Accounting Firm
The Compensation Committee of
First Niagara Financial Group, Inc.:
We have audited the accompanying statements of net assets available for plan
benefits of First Niagara Financial Group, Inc. 401(k) Plan (the Plan) as of
December 31, 2003 and 2002, and the related statements of changes in net assets
available for plan benefits for the years then ended. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of First
Niagara Financial Group, Inc. 401(k) Plan as of December 31, 2003 and 2002, and
the changes in net assets available for plan benefits for the years then ended,
in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. Supplemental Schedule H, Line 4i -
Schedule of Assets (Held at End of Year) is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ KPMG LLP
June 16, 2004
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2003 and 2002
2003 2002
----------- -----------
Cash escrow account held to purchase First Niagara
Financial Group, Inc. common stock (Note 6) $ -- 2,256,569
Investments
Group annuity contract with insurance company 19,803,815 16,141,173
Mutual funds 5,786,604 3,494,307
First Niagara Financial Group, Inc. common stock 13,840,118 6,965,845
Participant loans 754,692 381,434
----------- -----------
Total investments 40,185,229 26,982,759
----------- -----------
Net assets available for plan benefits $40,185,229 29,239,328
=========== ===========
See accompanying notes to financial statements.
2
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 2003 and 2002
2003 2002
----------- -----------
Contributions:
Employer $ 1,481,046 1,390,392
Employee 3,482,987 2,550,052
----------- -----------
4,964,033 3,940,444
----------- -----------
Investment income:
Interest and dividends 305,262 282,850
Net appreciation (depreciation) in fair value of investments,
including realized gains and losses on sales 7,315,377 (414,501)
----------- -----------
7,620,639 (131,651)
----------- -----------
Total contributions and investment income 12,584,672 3,808,793
Transfer in from Cortland Savings Bank 401(k) Savings Plan
in RSI Retirement Trust 1,616,466 --
Transfer in from Savings Bank of the Finger Lakes,
FSB 401(k) Savings Plan 478,217 --
Transfer in from Costello, Dreher, & Kaiser 401(k) Plan and Trust 148,423 --
Distributions to participants (3,731,565) (3,444,396)
Administrative expenses (150,312) (116,246)
----------- -----------
Net increase 10,945,901 248,151
Net assets available for plan benefits:
Beginning of year 29,239,328 28,991,177
----------- -----------
End of year $40,185,229 29,239,328
=========== ===========
See accompanying notes to financial statements.
3
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(1) Description of Plan
The following description of the First Niagara Financial Group, Inc.
401(k) Plan (the Plan) is provided for general information purposes only.
Participants should refer to the Summary Plan Description for more
complete information.
(a) General
The Plan is a defined contribution plan covering all employees of
First Niagara Financial Group, Inc. (FNFG). As a result of the
acquisition of the sponsoring entities, the assets of Cortland
Savings Bank 401(k) Savings Plan in RSI Retirement Trust, the
Savings Bank of the Finger Lakes, FSB 401(k) Savings Plan, and the
Costello, Dreher, & Kaiser 401(k) Plan and Trust were transferred
into the Plan during 2003. The Plan is subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA).
(b) Eligibility
Employees are eligible to participate in the Plan when they reach
age 21 and have completed 3 months of service.
(c) Contributions
Participants may make contributions to the Plan in the form of
salary reductions of up to 100% of their total compensation, limited
by the maximum allowable contribution under the Internal Revenue
Code. FNFG makes matching contributions of 100% of employee
contributions up to 2% of the employee's compensation, plus 75% of
employee contributions between 2% and 6% of the employee's
compensation. FNFG's matching contribution for a plan year will not
be more than 5% of the employee's total compensation.
(d) Participants' Accounts
Each participant's account is credited with contributions and a pro
rata share of investment income.
(e) Vesting
Participants become vested in employer contributions based on a
percentage that increases each year from the beginning of year two
of service over a period of six years when the vesting percentage is
100%.
(f) Distributions
Participants or their beneficiaries are entitled to their vested
account balance upon death, retirement, or termination of
employment, payable in a single sum or in an annuity.
(g) Participant Loans
Participants may borrow up to 50% of their account balance, with a
minimum loan amount of $1,000 and a maximum of $50,000. Participants
may have only one loan outstanding at any given time.
4 (Continued)
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(h) Administrative Expenses
Costs of administering the Plan, except recordkeeping expenses, are
borne by FNFG.
(i) Forfeitures
Forfeitures of nonvested Company contributions may be used for Plan
administrative expenses or to reduce the Company's contributions.
During 2003 and 2002, forfeitures used to reduce Company
contributions amounted to $20,880 and $9,423, respectively. Unused
forfeited account balances were $0 and $7,344 at December 31, 2003
and 2002, respectively.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared on the
accrual basis of accounting.
(b) Investments
The Guaranteed Interest Account is carried at fair value, which
approximates contract value (original investment plus accrued
interest). Investments in the pooled separate accounts of the
Principal Mutual Life Insurance Company (Principal) are carried at
fair value based on the fair values of the underlying assets.
Investments in common stock and mutual funds are valued based on
quoted market prices. Investment income includes unrealized
appreciation or depreciation in the value of the investments.
Investment transactions are recorded on the trade date.
(c) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the use of estimates and assumptions that affect
the reported amounts of net assets available for plan benefits and
changes therein. Actual results could differ from those estimates.
(3) Investments
Contributions to the Plan are invested under a group annuity contract with
Principal, mutual funds, or FNFG common stock. Plan participants may
allocate their funds among one or more of the following investment
accounts:
Group Annuity Contract with Principal (party-in-interest):
o Guaranteed Interest Account - A general investment account
comprised of guaranteed interest contracts yielding a
specified rate of interest maturing at various dates through
December 31, 2006.
o Money Market Separate Account - A pooled separate account
comprised of commercial paper, U.S. government and agency
securities, and other short-term interest-bearing securities.
o Bond and Mortgage Separate Account - A pooled separate account
comprised of intermediate-term commercial mortgages and
mortgage-backed securities.
5 (Continued)
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
o Large Cap Stock Index Separate Account - A pooled separate
account comprised of the stocks included in the Standard and
Poor's 500 Stock Index.
o Small Company Blend Separate Account - A pooled separate
account comprised of equity securities of small to medium
capitalized domestic companies.
o Principal Partners Large-Capital Blend I Separate Account - A
pooled separate account comprised of equity securities of
large capitalized domestic companies.
o Medium Company Value Separate Account - Pooled separate
account comprised of common stocks of medium sized companies.
o Medium Company Blend Separate Account - Pooled separate
account comprised of common stocks of medium sized companies.
o International Stock Separate Account - A pooled separate
account comprised of common stocks of companies located
outside the United States, mainly in Europe and Asia.
o Small Company Growth Separate Account - A pooled separate
account comprised of stocks at the lower end of the market
capitalization range.
o Large Company Growth Separate Account - A pooled separate
account comprised of companies in rapidly expanding industries
or multinational companies with a high percentage of sales
coming from foreign markets.
o Stock Emphasis Balanced Separate Account - A pooled separate
account comprised of investments in other pooled separate
accounts offered by Principal whose assets are comprised of
stocks, bonds, convertibles, and cash. The fund strategy is to
maintain at least 50% of its assets in common stocks.
o Russell LifePoints Balanced Strategy Separate Account - A
separate account which invests in other Frank Russell
underlying funds seeking moderate levels of current income and
long-term capital appreciation.
o Russell LifePoints Conservative Strategy Separate Account - A
separate account which invests in other Frank Russell
underlying funds seeking high levels of current income and,
secondarily, capital appreciation.
o Russell LifePoints Aggressive Strategy Separate Account - A
separate account which invests in other Frank Russell
underlying funds seeking long-term capital appreciation and
low levels of current income.
o Russell LifePoints Moderate Strategy Separate Account - A
separate account which invests in other Frank Russell
underlying funds seeking long-term capital appreciation and,
secondarily, high levels of current income.
o Russell LifePoints Equity Aggressive Strategy Separate Account
- A separate account which invests in other Frank Russell
underlying funds seeking long-term capital appreciation.
6 (Continued)
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
Mutual Funds:
o Vanguard Growth and Income Fund - Comprised mainly of stocks
in the S&P 500, with the remaining invested in companies with
characteristics similar to S&P 500 companies.
o Putnam International Equity Fund - Comprised mainly of equity
securities of foreign companies.
o Fidelity Advisor Equity Growth Fund - Comprised of common and
preferred stocks and convertible securities of companies with
above average growth characteristics.
o Strong Opportunity Fund - Comprised of equities and
nonconvertible corporate and government intermediate to
long-term debt securities.
o INVESCO Dynamics Fund - Comprised of the common stocks of
domestic companies, invested for the short-term.
o American Century Value Fund - Comprised of primarily U.S.
equity securities.
o T. Rowe Price Spectrum Growth Fund - Comprised of a
diversified group of T. Rowe Price mutual funds that invest
mainly in equities such as traditional growth stocks, small
aggressive growth stocks, growth and income stocks, and
international securities.
o Janus Aspen Capital Appreciation Fund - Comprised primarily of
common stocks.
o Fidelity Advisor High Income Advantage I Fund - Comprised
mainly of low quality debt securities, preferred stocks,
convertible securities and zero coupon bonds.
Participants may also invest in FNFG common stock (party-in-interest).
The Plan also has an investment in the Principal Financial Group, Inc.
Stock Separate Account which includes compensation from the
demutualization of Principal from a mutual holding company to a stock
company in 2001. Upon demutualization, the Plan received 24,440.35 units
of Principal Financial Group, Inc. Stock Separate Account, that were
allocated ratably to participants in proportion to their account balances.
New contributions or transfer contributions cannot be made into this
account.
7 (Continued)
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
Net appreciation (depreciation) in fair value of investments for the years
ended December 31, 2003 and 2002 are as follows:
2003 2002
---------- ----------
Group annuity contract with insurance company $1,594,453 (1,572,725)
Mutual funds 1,190,055 (1,167,209)
FNFG common stock 4,530,869 2,325,433
---------- ----------
Net appreciation (depreciation) $7,315,377 (414,501)
========== ==========
Individual investments that comprise 5% or more of the Plan's net assets
available for plan benefits at December 31, 2003 and 2002 are as follows:
2003 2002
----------- -----------
Guaranteed Interest Account $ 2,020,342 2,485,158
Money Market Separate Account 8,175,059 5,787,587
Bond and Mortgage Separate Account 2,935,736 2,927,365
Large Cap Stock Index Separate Account 2,579,293 1,992,588
FNFG common stock 13,840,118 6,965,845
(4) Federal Income Taxes
The Plan has received a favorable determination letter as to its
tax-exempt qualified status from the Internal Revenue Service dated May 5,
2003. The Plan's management has represented that the Plan has been
operated in accordance with its terms. Accordingly, there is no provision
for income taxes in these financial statements due to the applicable
exemptions under Sections 401 and 501 of the Internal Revenue Code.
(5) Plan Termination
Although it has not expressed any intent to do so, FNFG has the right to
discontinue its matching contribution at any time or to terminate the Plan
subject to the provisions of ERISA. In the event of a termination of the
Plan, participants will be entitled to the entire amount of their account
at the date of such termination.
8 (Continued)
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(6) Stock Offering
On July 21, 2002, FNFG adopted a plan of conversion and reorganization to
convert from a mutual holding company structure to stock form ("the
Conversion"). In connection with the Conversion, the 61% ownership
interest of the mutual holding company in FNFG was sold to the public
("the Offering"). Completion of the Conversion and Offering was effective
on January 17, 2003 and resulted in the issuance of a total of 67.4
million shares of common stock.
Participants in the Plan were eligible to purchase FNFG stock in the
Conversion. As of December 31, 2002, $2,256,569 was held in cash escrow
accounts at First Niagara Bank (party-in-interest) in preparation for the
offering at the direction of Plan participants. The funds held in escrow
were used to acquire 225,592 shares of common stock at $10 per share on
January 17, 2003. In addition, 266,457 shares of common stock held by the
Plan at the Conversion date were converted to 689,274 new shares based on
an exchange ratio of 2.58681.
(7) Subsequent Event - Plan Transfer
On January 16, 2004, FNFG acquired all of the outstanding stock of Troy
Financial Corporation, the parent company of Troy Savings Bank. On March
24, 2004, the assets of the Troy Savings Bank 401(k) Plan totaling
$7,490,878 were transferred into the Plan.
9
Schedule 1
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003
Current
Identity of issue Description value
- ------------------------------------------------- -------------------------------------- -------------
Group annuity contract with Principal
Mutual Life Insurance Company:*
Guaranteed Interest Account Guaranteed interest contracts
maturing at various dates through
December 31, 2007 $ 2,020,342
Money Market Separate Account Pooled separate account investing
in money market instruments
(186,837 units) 8,175,059
Bond and Mortgage Separate Account Pooled separate account investing
in fixed income securities
(4,287 units) 2,935,736
Large Cap Stock Index Separate Account Pooled separate account investing
in corporate stocks (63,308 units) 2,579,293
Small Company Blend Separate Account Pooled separate account investing
in corporate stocks of small to
medium capitalized companies
(19,948 units)
1,057,292
Principal Partners Large Capital Blend I Pooled separate account comprised
Separate Account of equity securities of large
capitalized domestic companies
(38,851 units)
697,636
Medium Company Blend Separate Pooled separate account investing
Account in common stocks of medium
sized companies (10,044 units) 488,851
International Stock Separate Account Pooled separate account investing
in stocks of non-United States
companies (12,654 units) 415,833
Principal Financial Group Inc. Stock Pooled separate account investing
Separate Account* in the stock of Principal Financial
Group (13,493 units) 241,820
Small Company Growth Separate Pooled separate account investing
Account in stocks at lower end of market
capitalization range (22,404 units) 359,642
(Continued)
10
Schedule 1
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003
Current
Identity of issue Description value
- ------------------------------------------------- -------------------------------------- -------------
Large Company Growth Separate Pooled separate account investing
Account in stocks of rapidly expanding
industries or multinational
companies (4,210 units) $ 75,337
Medium Company Value Separate Pooled separate account investing
Account in common stocks of medium
sized companies (2,615 units) 117,401
Stock Emphasis Balanced Separate Pooled separate account investing
Account in other pooled accounts
(6,550 units) 140,340
Russell LifePoints Balanced Strategy Separate account which invests in other
Separate Account Frank Russell underlying funds
seeking moderate levels of
current income and long-term
capital appreciation (11,074 units) 137,092
Russell LifePoints Conservative Strategy Separate account which invests in other
Separate Account Frank Russell underlying funds seeking
high levels of current income and,
secondarily, capital appreciation
(12,824 units) 167,987
Russell LifePoints Aggressive Strategy Separate account which invests in other
Separate Account Frank Russell underlying funds seeking
long-term capital appreciation and
low levels of current income
(2,404 units) 27,628
Russell LifePoints Moderate Strategy Separate account which invests in other
Separate Account Frank Russell underlying funds seeking
long-term capital appreciation and,
secondarily, high levels of current
income (9,356 units) 119,136
Russell LifePoints Equity Aggressive Separate account which invests in other
Strategy Separate Account Frank Russell underlying funds seeking
long-term capital appreciation
(4,381 units) 47,390
(Continued)
11
Schedule 1
FIRST NIAGARA FINANCIAL GROUP, INC.
401(k) PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003
Current
Identity of issue Description value
- ------------------------------------------------- -------------------------------------- -------------
Mutual Funds:
Vanguard Growth and Income Fund Mutual fund (49,145 shares) $ 1,373,094
Putnam International Equity Fund Mutual fund (33,475 shares) 691,597
Fidelity Advisor Equity Growth Fund Mutual fund (16,943 shares) 788,372
Strong Opportunity Fund Mutual fund (16,957 shares) 668,961
INVESCO Dynamics Fund Mutual fund (36,194 shares) 533,493
American Century Value Fund Mutual fund (102,144 shares) 766,078
T. Rowe Price Spectrum Growth Fund Mutual fund (32,632 shares) 482,945
Janus Aspen Capital Appreciation Fund Mutual fund (9,162 shares) 190,926
Fidelity Advisor High Income
Advantage I Fund Mutual fund (31,646 shares) 291,138
First Niagara Financial Group, Inc.* Common stock (924,525 shares) 13,840,118
Participant Loans* Notes receivable, various maturities,
interest rates ranging from
5.75% to 12.00% 754,692
-------------
$ 40,185,229
=============
*Party named is a party-in-interest.
See accompanying report of independent registered public accounting firm.