Exhibit 99.1

HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		March 31,				December 31,
(Dollars in thousands)		2010				2009
		(Unaudited)
Assets
Cash and due from banks		$	55,983			$	56,235
Interest-bearing deposits in banks			1,021,821				787,722
Total cash and cash equivalents			1,077,804				843,957
Residential mortgage loans held for sale (at fair value)			7,810				37,885
Investment securities available for sale (amortized cost $947,420 and $1,068,649, respectively)			922,134				1,038,153
Investment securities held to maturity (fair value $23,287 and $25,192, respectively)			23,430				25,324
Federal Home Loan Bank stock, Federal Reserve Bank stock and other investments			46,252				44,647
Loans and leases			2,840,037				2,955,493
Less: Allowance for loan losses			(69,229	)			(66,620	)
Net loans and leases			2,770,808				2,888,873
Premises and equipment, net			45,780				47,160
Accrued interest receivable			14,916				15,150
Goodwill			21,622				21,622
Intangible assets, net			20,636				21,753
Bank-owned life insurance			90,965				90,216
Other assets			115,281				113,056
Total assets		$	5,157,438			$	5,187,796
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing		$	518,375			$	523,475
Interest-bearing:
Checking			645,900				665,039
Money market			820,741				887,423
Savings			333,831				319,293
Time deposits			1,618,528				1,549,617
Total deposits			3,937,375				3,944,847
Federal funds purchased and short-term securities sold under agreements to repurchase			68,067				71,470
Other short-term borrowings			51,471				51,390
Long-term borrowings			666,234				679,889
Accrued interest payable			36,235				38,327
Subordinated debt			93,851				93,828
Other liabilities			47,324				46,474
Total liabilities			4,900,557				4,926,225
Shareholders’ equity:
Series preferred stock, par value $1 per share; authorized 8,000,000 shares, none issued			—				—
Common stock, par value $1 per share; authorized 200,000,000 shares; issued 43,139,515 shares at March 31, 2010 and December 31, 2009, respectively			43,140				43,140
Additional paid-in capital			380,206				380,134
(Accumulated deficit) retained earnings			(150,020	)			(141,872	)
Accumulated other comprehensive loss			(16,436	)			(19,822	)
Treasury stock, at cost: 527 shares at March 31, 2010 and December 31, 2009, respectively			(9	)			(9	)
Total shareholders’ equity			256,881				261,571
Total liabilities and shareholders’ equity		$	5,157,438			$	5,187,796

See accompanying notes to consolidated financial statements.

HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended
		March 31,
(Dollars in thousands except per share information)		2010				2009
		(Unaudited)
Interest Income
Loans and leases, including fees		$	36,715			$	48,156
Investment securities:
Taxable			8,085				11,786
Exempt from federal taxes			2,446				3,569
Deposits in banks			463				127
Total interest income			47,709				63,638
Interest Expense
Savings and money market deposits			3,844				6,171
Time deposits			9,914				14,693
Short-term borrowings			741				128
Long-term borrowings			6,616				7,342
Total interest expense			21,115				28,334
Net interest income			26,594				35,304
Provision for loan losses			13,400				7,121
Net interest income after provision for loan losses			13,194				28,183
Noninterest income
Service charges			3,598				4,194
Gain on sales of investment securities, net			2,205				1,952
Other-than-temporary impairment losses			(1,285	)			(1,344	)
Gain on mortgage banking sales, net			1,276				1,698
Wealth management			3,912				4,322
Bank-owned life insurance			749				778
Other income			1,648				4,559
Total noninterest income			12,103				16,159
Noninterest expense
Salaries, wages and employee benefits			16,493				20,279
Occupancy			4,010				4,206
Furniture and equipment			1,325				1,608
Professional fees			2,587				1,570
Intangibles expense			1,116				948
FDIC deposit insurance			3,354				2,787
Other expense			7,147				7,223
Total noninterest expense			36,032				38,621
(Loss) income before income taxes			(10,735	)			5,721
Income tax (benefit) expense			(2,587	)			1,126
Net (loss) income		$	(8,148	)		$	4,595
Net (loss) income per share information:
Basic		$	(0.19	)		$	0.11
Diluted		$	(0.19	)		$	0.11
Cash dividends per share		$	—			$	0.10
Weighted average number of common shares:
Basic			43,138,988				42,990,542
Diluted			43,138,988				43,018,233

See accompanying notes to consolidated financial statements.

HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars and share information in thousands)

Three Months Ended March 31, 2010

		Common				Treasury												(Accumulated				Accumulated
		Stock				Stock								Additional				Deficit)				Other
		Number of				Number of								Paid				Retained				Comprehensive												Comprehensive
		shares				shares				Par Value				in Capital				Earnings				(Loss) Income				Treasury				Total				(Loss) Income
Balance, January 1, 2010			43,140				(1	)		$	43,140			$	380,134			$	(141,872	)		$	(19,822	)		$	(9	)		$	261,571
Stock based compensation expense			—				—				—				72				—				—				—				72
Net loss			—				—				—				—				(8,148	)			—				—				(8,148	)		$	(8,148	)
Other comprehensive income, net of reclassifications and tax			—				—				—				—				—				3,386				—				3,386				3,386
Comprehensive loss																																		$	(4,762	)
Balance, March 31, 2010			43,140				(1	)		$	43,140			$	380,206			$	(150,020	)		$	(16,436	)		$	(9	)		$	256,881

Three Months Ended March 31, 2009

		Common				Treasury																Accumulated
		Stock				Stock								Additional								Other
		Number of				Number of								Paid				Retained				Comprehensive												Comprehensive
		shares				shares				Par Value				in Capital				Earnings				(Loss)				Treasury				Total				(Loss) Income
Balance, January 1, 2009			43,022				(76	)		$	43,022			$	379,551			$	82,295			$	(29,017	)		$	(1,144	)		$	474,707
Issuance of stock for stock options, net of excess tax benefits			—				36				—				(144	)			—				—				545				401
Issuance of stock under dividend reinvestment and stock purchase plan			28				40				28				(268	)			—				—				599				359
Stock based compensation expense			—				—				—				79				—				—				—				79
Net income			—				—				—				—				4,595				—				—				4,595			$	4,595
Other comprehensive loss, net of reclassifications and tax			—				—				—				—				—				(2,168	)			—				(2,168	)			(2,168	)
Cash dividends			—				—				—				—				(4,260	)			—				—				(4,260	)
Comprehensive income																																		$	2,427
Balance, March 31, 2009			43,050				—			$	43,050			$	379,218			$	82,630			$	(31,185	)		$	—			$	473,713

See accompanying notes to consolidated financial statements.

HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Three Months ended March 31,
(Dollars in thousands)		2010				2009
Operating Activities:
Net cash provided by (used in) operating activities		$	32,011			$	(19,013	)
Investing Activities:
Proceeds from sales of investment securities available for sale			60,625				102,932
Proceeds from maturity or calls of investment securities held to maturity			—				9,441
Proceeds from maturity or calls of investment securities available for sale			61,850				47,213
Proceeds, redemption of Federal Home Loan Bank stock and reduction in other investments			—				24
Purchases of investment securities available for sale			—				(104,072	)
Purchase of Federal Home Loan Bank stock, Federal Reserve Bank stock and other investments			(1,604	)			(5,213	)
Other net decrease (increase) in loans			103,730				95,113
Net cash paid due to acquisition			—				(877	)
Purchases of premises and equipment			—				(2,458	)
Proceeds from sales of premises and equipment			—				10
Proceeds from sales of other real estate			536				658
Net cash provided by investing activities			225,137				142,771
Financing Activities:
Net (decrease) increase in deposits			(7,472	)			208,986
Decrease in federal funds purchased and securities sold under agreements to repurchase			(3,403	)			(31,917	)
Increase in other short-term borrowings			81				1,025
Repayments of long-term borrowings			(12,507	)			(22,556	)
Cash dividends			—				(4,260	)
Proceeds from the exercise of stock options			—				401
Proceeds from issuance of stock under dividend reinvestment and stock purchase plan			—				359
Net cash (used in) provided by financing activities			(23,301	)			152,038
Net increase in cash and cash equivalents			233,847				275,796
Cash and cash equivalents at beginning of period			843,957				102,526
Cash and cash equivalents at end of the period		$	1,077,804			$	378,322
Cash paid during the period for:
Interest		$	24,350			$	29,000
Income taxes		$	—			$	622
Supplemental disclosure of noncash investing and financing activities:
Transfer of assets from loans to other real estate owned		$	916			$	1,080
See accompanying notes to consolidated financial statements.

HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

All normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements, have been included. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes in Harleysville National Corporation’s (the Corporation) Annual Report on Form 10-K for the year ended December 31, 2009. The results of operations presented for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. We reviewed subsequent events and determined that no further disclosures were required.

The consolidated financial statements include the Corporation and its wholly owned subsidiaries Harleysville National Bank (the Bank), HNC Financial Company and HNC Reinsurance Company. All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and the income and expense in the income statements for the periods presented. Actual results could differ significantly from those estimates. Critical estimates include the determination of the allowance for loan losses, goodwill and other intangible assets impairment, fair value measurement for investment securities available for sale, inclusive of other-than-temporary impairment, and deferred income taxes.

For additional information on other significant accounting policies, see Note 1 of the Consolidated Financial Statements of the Corporation’s 2009 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In December 2009, the FASB issued ASU No. 2009-16 codifying the new guidance issued in June 2009 regarding the Transfer of Financial Assets. This guidance requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk in the assets. The guidance eliminates the concept of a qualifying special-purpose entity, changes the requirements for the derecognition of financial assets, and enhances the disclosure requirements for sellers of the assets. This guidance was effective for the fiscal year beginning after November 15, 2009. The adoption of ASU No. 2009-16 on January 1, 2010 did not have a material impact on the financial statements.

In December 2009, the FASB issued ASU No. 2009-17 codifying the new guidance issued in June 2009 regarding Consolidations. The guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity (which would result in the enterprise being deemed the primary beneficiary of that entity and, therefore, obligated to consolidate the variable interest entity in its financial statements); to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to revise guidance for determining whether an entity is a variable interest entity; and to require enhanced disclosures that will provide more transparent information about an enterprise’s involvement with a variable interest entity. The guidance was effective for interim periods as of the beginning of the first annual reporting period beginning after November 15, 2009. The adoption of ASU No. 2009-17 on January 1, 2010 did not have a material impact on the financial statements.

Note 2 — Agreement and Plan of Merger

Merger with First Niagara Financial Group, Inc.

On April 9, 2010, First Niagara Financial Group, Inc. (First Niagara) acquired all of the outstanding common shares of the Corporation and thereby acquired all of the Bank’s 83 branch locations across nine Eastern Pennsylvania counties. Under the terms of the merger agreement, the Corporation’s stockholders received 0.474 shares of First Niagara common stock in exchange for each share of Corporation common stock, resulting in First Niagara issuing 20.3 million common shares of First Niagara common stock with an acquisition date fair value of $298.7 million. Also under the terms of the merger agreement, the Corporation’s employees became 100% vested in any Corporation stock options they held.

Note 3 — Investment Securities

The amortized cost, unrealized gains and losses, and the estimated fair value of the Corporation’s investment securities available for sale and held to maturity are as follows:

		March 31, 2010
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
		(Dollars in thousands)
Available for sale
Obligations of U.S. government agencies		$	500			$	2			$	—			$	502
Obligations of states and political subdivisions			205,104				8,180				(868	)			212,416
Residential mortgage-backed securities			675,576				11,842				(12,384	)			675,034
Trust preferred pools/collateralized obligations			41,846				176				(31,856	)			10,166
Corporate bonds			2,990				28				(434	)			2,584
Equity securities			21,404				104				(76	)			21,432
Total investment securities available for sale		$	947,420			$	20,332			$	(45,618	)		$	922,134
Held to maturity
Obligations of states and political subdivisions		$	23,430			$	80			$	(223	)		$	23,287
Total investment securities held to maturity		$	23,430			$	80			$	(223	)		$	23,287

		December 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
		(Dollars in thousands)
Available for sale
Obligations of U.S. government agencies		$	500			$	3			$	—			$	503
Obligations of states and political subdivisions			214,452				7,168				(1,360	)			220,260
Residential mortgage-backed securities			786,502				12,465				(14,877	)			784,090
Trust preferred pools/collateralized obligations			42,502				100				(32,733	)			9,869
Corporate bonds			3,240				28				(1,053	)			2,215
Equity securities			21,453				136				(373	)			21,216
Total investment securities available for sale		$	1,068,649			$	19,900			$	(50,396	)		$	1,038,153
Held to maturity
Obligations of states and political subdivisions		$	25,324			$	88				(220	)		$	25,192
Total investment securities held to maturity		$	25,324			$	88			$	(220	)		$	25,192

The tables below indicate the length of time individual securities have been in a continuous unrealized loss position at March 31, 2010 and December 31, 2009.

		March 31, 2010
		Less than 12 months												12 months of longer												Total
		# of				Fair				Unrealized				# of				Fair				Unrealized				# of				Fair				Unrealized
Description of		Securities				Value				Losses				Securities				Value				Losses				Securities				Value				Losses
Securities		(Dollars in thousands)
Obligations of states and political subdivisions			25			$	16,782			$	(150	)			27			$	14,825			$	(941	)			52			$	31,607			$	(1,091	)
Residential mortgage-backed securities			21				191,551				(1,611	)			31				64,271				(10,773	)			52				255,822				(12,384	)
Trust preferred pools/collateralized debt obligations			—				—				—				13				8,957				(31,856	)			13				8,957				(31,856	)
Corporate bonds			—				—				—				1				2,056				(434	)			1				2,056				(434	)
Equity securities			2				1,539				(39	)			3				287				(37	)			5				1,826				(76	)
Totals			48			$	209,872			$	(1,800	)			75			$	90,396			$	(44,041	)			123			$	300,268			$	(45,841	)

		December 31, 2009
		Less than 12 months												12 months of longer												Total
		# of				Fair				Unrealized				# of				Fair				Unrealized				# of				Fair				Unrealized
Description of		Securities				Value				Losses				Securities				Value				Losses				Securities				Value				Losses
Securities		(Dollars in thousands)
Obligations of states and political subdivisions			46			$	24,471			$	(803	)			15			$	13,007			$	(777	)			61			$	37,478			$	(1,580	)
Residential mortgage backed securities			16				123,033				(951	)			32				69,491				(13,926	)			48				192,524				(14,877	)
Trust preferred pools/collateralized debt obligations			—				—				—				14				8,858				(32,733	)			14				8,858				(32,733	)
Corporate bonds			—				—				—				1				1,437				(1,053	)			1				1,437				(1,053	)
Equity securities			1				11,826				(174	)			9				6,784				(199	)			10				18,610				(373	)
Totals			63			$	159,330			$	(1,928	)			71			$	99,577			$	(48,688	)			134			$	258,907			$	(50,616	)

Management believes that the unrealized losses associated with the securities portfolio, are temporary in nature, and the Corporation has the ability and intent to hold these investments for the time necessary to recover its cost which may be at maturity (i.e. these investments have contractual maturities that, absent credit default, ensure a recovery of cost). Factors considered in evaluating the securities portfolio for other-than-temporary impairment are the length of time and the extent to which the fair value has been below the cost, analyst reports, analysis of the current interest rate environment, anticipated volatility in the market and the underlying credit rating of the issuers. In certain cases where sufficient data is not available, a cash flow model is utilized.

The changes in the unrealized losses on securities were caused by changes in interest rates, credit spread and liquidity issues in the marketplace.

The Corporation recognized other-than-temporary impairment (OTTI) charges totaling $1.3 million during the first quarter of 2010 primarily as a result of deterioration in three collateralized debt obligation investments in pooled trust preferred securities and five collateralized mortgage obligation investments. The pooled trust preferred securities and four of the five collateralized mortgage obligation investment were deemed impaired in the prior year.

On a quarterly basis, the Corporation evaluates its investment securities for other-than-temporary impairment. For securities deemed to be other-than-temporarily impaired, the Corporation uses cash flow modeling to determine the credit portion of the loss. The credit portion of the loss is recognized in earnings and the noncredit portion on securities not expected to be sold is recognized in other comprehensive income. The credit related OTTI recognized in earnings during each of the three months ended March 31, 2010 and 2009 was $1.3 million. These impairment charges related primarily to collateralized debt obligations and collateralized mortgage obligation investments.

Regarding the securities on which the Corporation recorded OTTI charges in the first quarter of 2009, prior to adoption of the new OTTI requirements at June 30, 2009, the Corporation does not intend to sell the securities and it is not more likely than not that the Corporation will be required to sell the securities before recovery of their amortized costs basis less any current-period credit loss. The securities were assessed to determine the amount of OTTI representing credit losses and the amount related to all other factors. Based upon the discounted cash flow analysis, it was determined that the OTTI was due solely to credit related factors and no prior period cumulative effect adjustment was recorded through retained earnings.

The Corporation utilizes a third party valuation specialist to determine fair value for those securities which have insufficient observable market data available. In order to determine the fair value of these securities, the third party valuation specialist performs a discounted cash flow analysis. All relevant data inputs and the appropriateness of key model assumptions are reviewed by management. These assumptions include, but are not limited to collateral performance projections, historical and projected defaults, and discounted cash flow modeling. The discount rate is calculated utilizing current and observable market spreads for comparably structured credit products.

On a quarterly basis, all pooled trust preferred securities for which the fair value of the investment is less than its amortized cost basis are reviewed for OTTI. For those securities in a loss position, a detailed analysis is performed by management to assess them for OTTI as described below. Management will also assess if the Corporation has the ability and intent to hold the security until the market recovers or maturity for all securities.

In evaluating the pooled trust preferred securities for credit related OTTI, the Corporation considered the following:

	•		The length of time and the extent to which the fair value has been less than the amortized cost basis
	•		Adverse conditions specifically related to the security, industry, or geographic area
	•		The historical and implied volatility of the fair value of the security
	•		The payment structure of the debt security
	•		Failure of the underlying issuers to make scheduled interest or principal payments
	•		Any changes to the rating of the security

After evaluating the criteria above, if certain ratios such as excess collateral, excess subordination and principal shortfall and interest shortfall conditions suggest an uncertainty of future recovery of principal and interest, a discounted cash flow model is obtained from the third party investment specialist. The excess collateral, excess subordination, principal shortfall and interest shortfall ratios are obtained from the Corporation’s third party investment advisor and evaluated by management as a part of the quarterly tranche analysis prepared for each debt security. The principal and interest shortfall ratios reflect the percentage of paying collateral that can be absorbed by defaults prior to the collection of the full contractual payments would be in doubt. The excess subordination calculation represents the remaining subordination available for the Corporation’s tranche after full repayment of principal due to higher tranches.

For every debt security which fails the Corporation’s initial test for OTTI, a discounted cash flow analysis is performed by our third-party investment advisor. When a discounted cash flow analysis is performed, the following assumptions are utilized:

	•		Discount rate equal to original coupon spread for the respective security using forward LIBOR rates;
	•		No prepayments of the underlying collateral are assumed prior to maturity;
	•		Each piece of underlying collateral with existing deferrals/defaults is evaluated individually for future recovery and the recovery rate is adjusted accordingly; and
	•		Additional deferrals/defaults of 2.0% are assumed every three years with no recovery. This assumption was developed utilizing historical default experience of approximately 1.2% as provided by our third-party investment advisor, adjusted for a risk-factor to account for the deteriorated market conditions.

Based upon the results of the discounted cash flow analysis, it is determined whether or not the investment return upon debt expiration is at or above par. If the resulting return is below par, a credit related impairment charge is recorded through operations.

For the collateralized mortgage obligation portfolio, a detailed analysis was performed involving a review of delinquency data in relation to projected current credit enhancement and coverage levels based upon certain stress factors. This analysis included a review of third-party investment summary reports to assess the length of time in a loss position and changes in credit ratings. If the calculated principal loss exceeded the current credit enhancement, additional evaluation was required to determine what, if any impairment would be recorded. In order to determine the existence of OTTI, related data such as foreclosures, bankruptcy and real estate owned is analyzed to calculate a default percentage. Based upon completion of the stressed discounted cash flow analysis performed on three collateralized mortgage obligation investments, credit related OTTI charges on collateralized mortgage obligations totaling $577,000 were recorded for the three months ended March 31, 2010. The OTTI charges were recorded because the full contractual principal due was not expected to be recovered upon maturity of the security. The credit related OTTI charge was recorded for the portion deemed uncollectible.

For the other debt securities in the Corporation’s portfolio, while several are in an unrealized loss position, the analysis supports the Corporation’s assumption that future cash flows will not be impacted and the full amount of contractual principal and interest payments will be realized upon maturity.

Securities with a carrying value of $570.0 million and $689.0 million at March 31, 2010 and December 31, 2009, respectively, were pledged to secure public funds, customer trust funds, government deposits and repurchase agreements.

Accrued interest receivable on investment securities was $5.7 million and $6.1 million at March 31, 2010 and December 31, 2009, respectively.

The amortized cost and estimated fair value of investment securities, at March 31, 2010, by contractual maturities are shown in the following table. Actual maturities will differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		March 31, 2010
		Held to Maturity								Available for Sale
						Estimated								Estimated
		Amortized				Fair				Amortized				Fair
(Dollars in thousands)		Cost				Value				Cost				Value
Due in one year or less:
Obligations of states and political subdivisions		$	—			$	—			$	1,250			$	1,253
Total due on one year or less			—				—				1,250				1,253
Due after one year through five years:
Obligations of U.S. government agencies			—				—				500				502
Obligations of states and political subdivisions			—				—				5,608				5,972
Corporate bonds			—				—				500				528
Total due after one year through five years			—				—				6,608				7,002
Due after five years through ten years:
Obligations of states and political subdivisions			8,911				8,904				96,863				98,736
Corporate bonds			—				—				2,490				2,056
Total due after five years through ten years			8,911				8,904				99,353				100,792
Due after ten years:
Obligations of states and political subdivisions			14,519				14,383				101,383				106,455
Trust preferred pools/collateralized debt obligations			—				—				41,846				10,166
Total due after ten years			14,519				14,383				143,229				116,621
Residential mortgage-backed securities			—				—				675,576				675,034
Equity securities			—				—				21,404				21,432
Totals		$	23,430			$	23,287			$	947,420			$	922,134

The components of net realized gains on sales of investment securities were as follows:

		Three months ended
		March 31,
		2010				2009
		(Dollars in thousands)
Gross realized gains		$	2,205			$	2,979
Gross realized losses			—				(1,027	)
Net realized gain on sale of investment securities		$	2,205			$	1,952

The Corporation also holds investments in the Federal Home Loan Bank of Pittsburgh (FHLB) stock totaling $31.3 million as of March 31, 2010 and December 31, 2009. The Corporation is required to maintain a minimum amount of FHLB stock as determined by its borrowing levels. As the FHLB stock is not a marketable instrument, it does not have a readily marketable determinable fair value and is not accounted for in a similar manner to other investment securities. FHLB stock is generally viewed as a long-term investment with its value based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Corporation considers criteria in determining the ultimate recoverability of the par value such as 1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted, 2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, 3) the impact of regulatory changes on the FHLB and on its customer base, and 4) the liquidity position of the FHLB. The Corporation has considered the FHLB’s announcement on December 23, 2008 of the suspension of its dividend and capital stock repurchases in the assessment for impairment. In addition, FHLB institutions are generally not required to redeem membership stock until five years after the membership is terminated. Based upon review of the most recent financial statements of FHLB Pittsburgh, management believes it is unlikely that the stock would be redeemed in the future at a price below its par value and therefore management believes that no impairment is necessary related to the FHLB stock at March 31, 2010.

Note 4 — Goodwill and Other Intangibles

The changes in the carrying amount of goodwill by business segment were as follows:

		Community				Wealth
		Banking				Management				Total
		(Dollars in thousands)
Balance, January 1, 2010		$	4,835			$	16,787			$	21,622
Additions / Reductions to goodwill			—				—				—
Balance, March 31, 2010		$	4,835			$	16,787			$	21,622

The gross carrying value and accumulated amortization related to core deposit intangibles and other identifiable intangibles at March 31, 2010 and December 31, 2009 are presented below:

		March 31,								December 31,
		2010								2009
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
		(Dollars in thousands)
Core deposit intangibles		$	21,083			$	7,040				21,083			$	6,228
Other identifiable intangibles			7,209				2,819				7,209				2,570
Total		$	28,292			$	9,859			$	28,292			$	8,798

The amortization of core deposit intangibles allocated to the Community Banking segment was $812,000 and $998,000 for the first quarter of 2010 and 2009, respectively, Amortization of identifiable intangibles related to the Wealth Management segment totaled $249,000 and $263,000 for the first quarter of 2010 and 2009, respectively.

Mortgage servicing rights of $2.2 million and $2.3 million at March 31, 2010 and December 31, 2009, respectively are included on the Corporation’s balance sheet in other intangible assets and subsequently measured at the lower of amortized cost or fair value. The mortgage servicing rights had a fair value of $2.2 million and $2.3 million at March 31, 2010 and December 31, 2009, respectively. Servicing assets are amortized in proportion to, and over the period of net servicing income and assessed for impairment based on fair value at each reporting period. At March 31, 2010, the principal balance of residential mortgage loans serviced for others was $335 million. As a result of these assessments, the Corporation recorded a reduction of intangible expense of $51,000 and $487,000 for the first quarters of 2010 and 2009, respectively. The Corporation recorded amortization of mortgage servicing rights in intangibles expense, including impairment assessments, on its consolidated statements of operations of $55,000 and $ (313,000) for the first quarter of 2010 and 2009, respectively.

Note 5 — Federal Home Loan Bank Advances and Trust Preferred Subordinated Debentures

Federal Home Loan Bank Advances

FHLB advances totaled $447.7 million and $461.0 million at March 31, 2010 and December 31, 2009, respectively, all of which were long-term. Commencing in July 2009, the FHLB required the Corporation’s outstanding borrowings with the FHLB be fully collateralized. Any future borrowings with the FHLB are also required to be fully collateralized. The loan collateral are subject to varying market and collateral value haircuts determined by the FHLB. At March 31, 2010, real estate loans with a carrying value of $706.2 million and cash of $145.0 million were pledged as collateral for FHLB borrowings. At December 31, 2009, real estate loans with a carrying value of $736.1 million and cash of $145.0 million were pledged as collateral for FHLB borrowings.

Trust Preferred Subordinated Debentures

As of March 31, 2010, the Corporation has six statutory trust affiliates (collectively, the Trusts). These trusts were formed to issue mandatorily redeemable trust preferred securities to investors and loan the proceeds to the Corporation for general corporate purposes. The Trusts hold, as their sole assets, subordinated debentures of the Corporation totaling $105.5 million at March 31, 2010 and December 31, 2009. The trust preferred securities represent undivided beneficial interests in the assets of the Trusts. The carrying value of the trust preferred subordinated debentures, net of a discount of approximately $14.9 million from the acquisition of Willow Financial, was $93.9 million at March 31, 2010 and $93.8 million at December 31, 2009. The Corporation owns all of the trust preferred securities of the Trusts and has accordingly recorded $3.3 million in other assets on the consolidated balance sheets at March 31, 2010 and December 31, 2009 representing its investment in the common securities of the Trusts. The Trusts qualify as variable interest entities. As the shareholders of the trust preferred securities are the primary beneficiaries, the Trusts are not consolidated in the Corporation’s financial statements.

The trust preferred securities require quarterly distributions to the holders of the trust preferred securities at a rate per annum equal to the interest rate on the debentures held by that trust. The Corporation has the right to defer payment of interest on the debentures, at any time or from time to time for a period not exceeding five years, provided that no extension period may extend beyond the stated maturity of the debentures. During any such extension period, distributions on the trust securities will also be deferred, and the Corporation shall not pay dividends or distributions on, or redeem, purchase or acquire any shares of its capital stock. The Corporation has elected to defer quarterly interest payments on its outstanding subordinated debentures until further notice, beginning with the interest payments that were due on September 15, 2009. This action was taken to conserve capital and in accordance with a directive from the Federal Reserve Bank of Philadelphia (Reserve Bank) to the Corporation, precluding the Corporation from making any interest payments on the subordinated debt associated with trust preferred securities without the prior written approval of the Reserve Bank. Interest continues to be accrued although the interest payments are being deferred. As of March 31, 2010, interest payments on HNC Statutory Trust I, II, III and IV, East Penn Statutory Trust I and Willow Grove Statutory Trust I totaling $2.7 million were due and deferred. Accrued interest payable on subordinated debentures amounted to $3.3 million and $2.1 million at March 31, 2010 and December 31, 2009, respectively. Immediately prior to the completion of the acquisition of the Corporation by First Niagara on April 9, 2010, all contractual interest payments, including amounts previously deferred by the Corporation, were paid in full by the Corporation.

The trust preferred securities must be redeemed upon the stated maturity dates of the subordinated debentures. The Corporation may redeem the debentures, in whole but not in part, (except for Harleysville Statutory Trust II and Willow Grove Statutory Trust I which may be redeemed in whole or in part) at any time within 90 days at the specified special event redemption price following the occurrence of a capital disqualification event, an investment company event or a tax event as set forth in the indentures relating to the trust preferred securities and in each case subject to regulatory approval. For HNC Statutory Trust II, III and IV, East Penn Statutory Trust I and Willow Grove Statutory Trust I, the Corporation also may redeem the debentures, in whole or in part, at the stated optional redemption dates (after five years from the issuance date) and quarterly thereafter, subject to regulatory approval if required. The optional redemption price is equal to 100% of the principal amount of the debentures being redeemed plus accrued and unpaid interest on the debentures to the redemption date. For Harleysville Statutory Trust I, the Corporation could have redeemed the debt securities, in whole or in part, at the stated optional redemption date of February 22, 2011 and semi-annually thereafter, subject to regulatory approval if required. The redemption price on February 22, 2011 was equal to 105.10% of the principal amount, and declines annually to 100.00% on February 22, 2021 and thereafter, plus accrued and unpaid interest on the debentures to the redemption date. The Corporation’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Corporation of the Trust’s obligations under the trust preferred securities.

The following table is a summary of the subordinated debentures as of March 31, 2010 as originated by the Corporation and assumed from the acquisitions of Willow Financial and East Penn Financial:

						Principal
		Principal				Amount of
		Amount of				Trust
		Subordinated				Preferred
		Debentures				Securities
Trust Preferred Subordinated Debentures		(Dollars in thousands)
Issued to Harleysville Statutory Trust I in February 2001, matures in February 2031, interest rate of 10.20% per annum		$	5,155			$	5,000
Issued to HNC Statutory Trust II in March 2004, matures in April 2034, interest rate of three-month London Interbank Offered Rate (LIBOR) plus 2.70% per annum			20,619				20,000
Issued to HNC Statutory Trust III in September 2005, matures in November 2035, bearing interest at 5.67% per annum through November 2010 and thereafter three-month LIBOR plus 1.40% per annum			25,774				25,000
Issued to HNC Statutory Trust IV in August 2007, matures in October 2037, bearing interest at 6.35% per annum through October 2012 and thereafter three-month LIBOR plus 1.28% per annum			23,196				22,500
Issued to East Penn Statutory Trust I in July 2003, matures in September 2033, interest rate of three-month LIBOR plus 3.10% per annum			8,248				8,000
Issued to Willow Grove Statutory Trust I in March 2006, matures in June 2036, interest rate of three-month LIBOR plus 1.31% per annum			25,774				25,000
Total		$	108,766			$	105,500

Note 6 — Pension Plans

The Corporation had a non-contributory defined benefit pension plan covering substantially all employees. The plan’s benefits were based on years of service and the employee’s average compensation during any five consecutive years within the ten-year period preceding retirement. On October 31, 2007, the Corporation announced that it formally amended its pension plan to provide for its termination. Employees ceased to accrue additional pension benefits as of December 31, 2007, and pension benefits are not being provided under a successor pension plan. All retirement benefits earned in the pension plan as of December 31, 2007 were preserved and all participants became fully vested in their benefits upon plan termination. The Corporation recorded a one-time pre-tax charge related to the pension plan curtailment of approximately $1.9 million in 2007. On July 3, 2008, the Corporation purchased $896,000 of terminal funding annuity contracts for participants in pay status at that time. During 2008, the majority of assets were distributed to those participants that elected lump sum payments.

In March 2009, the Corporation made a final contribution of $371,000 to the pension plan, which together with the remaining plan assets, was utilized to purchase $435,000 in terminal funding annuity contracts for any remaining participants entering pay status. No further contributions are required to this pension plan.

The Corporation maintains a 401(k) defined contribution retirement savings plan which allows employees to contribute a portion of their compensation on a pre-tax and/or after-tax basis in accordance with specified guidelines. The Corporation previously matched 50% of pre-tax employee contributions up to a maximum of 3% and additionally all eligible employees previously received a company funded basic contribution to the 401(k) plan equal to 2% of eligible earnings. On March 12, 2009, the Corporation’s Board of Directors approved an amendment to the 401(k) plan providing for the suspension of the Corporation’s basic and matching contributions effective for the April 17, 2009 employee bi-weekly pay period until further notice by the Board of Directors. The suspension of employer contributions resulted in retirement-related expense savings of approximately $1.8 million during 2009. Contributions charged to earnings for the three months ended March 31, 2010 and 2009, were $0 and $588,000, respectively.

Note 7 — Authorized Shares of Common Stock and Dividend Reinvestment and Stock Purchase Plan

On May 12, 2009, the Corporation amended its Articles of Incorporation to increase the number of authorized shares of the Corporation’s common stock, par value, $1.00 per share, from 75,000,000 to 200,000,000 shares. The amendment was previously approved and adopted by the Corporation’s shareholders at the annual meeting of shareholders held on April 28, 2009.

On March 12, 2009, the Corporation’s Board of Directors approved amendments to the Corporation’s Dividend Reinvestment and Stock Purchase Plan (DRIP) designed to provide additional benefits for existing shareholders. Beginning April 6, 2009, shareholders could reinvest all or part of their dividends in additional shares of common stock or make additional cash investments for a minimum of $100 and up to $100,000 per calendar quarter, an increase from the prior quarterly limitation of $5,000. In addition, beginning April 6, 2009, existing shareholders could receive a ten percent discount to the market price of the Corporation’s shares on the date shares are purchased. The ten percent discount to the market price was available for all investments made in the Corporation’s shares through the Corporation’s DRIP. This action was part of the Corporation’s ongoing capital enhancement program. On April 28, 2009, the Board of Directors suspended the DRIP until further notice.

Note 8 — (Loss) Earnings Per Share

Basic (loss) earnings per share excludes dilution and are computed by dividing (loss) income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share take into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

The calculations of basic and diluted (loss) earnings per share are as follows:

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2010				2009
Basic (loss) earnings per share
Net (loss) income available to common shareholders		$	(8,148	)		$	4,595
Weighted average common shares outstanding			43,138,988				42,990,542
Basic (loss) earnings per share		$	(0.19	)		$	0.11
Diluted (loss) earnings per share
Net (loss) income available to common shareholders and assumed conversions		$	(8,148	)		$	4,595
Weighted average common shares outstanding			43,138,988				42,990,542
Dilutive potential common shares (1), (2)			0				27,691
Total diluted weighted average common shares outstanding			43,138,988				43,018,233
Diluted (loss) earnings per share		$	(0.19	)		$	0.11

Note 9 — Other Comprehensive (Loss) Income and Accumulated Other Comprehensive Loss

The components of other comprehensive (loss) income are as follows:

Other Comprehensive (Loss) Income

(Dollars in thousands)		Before tax				Tax Benefit				Net of tax
Three months ended March 31, 2010		Amount				(Expense)				Amount
Net unrealized gains on available for sale securities:
Net unrealized holding gains arising during period		$	6,130			$	(2,146	)		$	3,984
Less reclassification adjustment for net gains realized in net income			2,205				(772	)			1,433
Less reclassification adjustment for other-than-temporary impairment of available for sale securities recognized in net income			(1,285	)			450				(835	)
Net unrealized gains			5,210				(1,824	)			3,386
Other comprehensive income, net		$	5,210			$	(1,824	)		$	3,386

(Dollars in thousands)		Before tax				Tax Benefit				Net of tax
Three months ended March 31, 2009		Amount				(Expense)				Amount
Net unrealized losses on available for sale securities:
Net unrealized holding losses arising during period		$	(2,731	)		$	956			$	(1,775	)
Less reclassification adjustment for net gains realized in net income			1,952				(683	)			1,269
Less reclassification adjustment for other-than-temporary impairment of available for sale securities recognized in net income			(1,344	)			470				(874	)
Net unrealized losses			(3,339	)			1,169				(2,170	)
Change in fair value of derivatives used for cash flow hedges			3				(1	)			2
Other comprehensive loss, net		$	(3,336	)		$	1,168			$	(2,168	)

The components of accumulated other comprehensive loss, net of tax, which is a component of shareholders’ equity were as follows:

						Net Change in
						Fair Value of				Accumulated
		Net Unrealized				Derivatives Used				Other
		Losses on Available				for Cash Flow				Comprehensive
(Dollars in thousands)		For Sale Securities				Hedges				Loss
Balance, January 1, 2010		$	(19,822	)		$	—			$	(19,822	)
Net Change			3,386								3,386
Balance, March 31, 2010		$	(16,436	)		$	—			$	(16,436	)
Balance, January 1, 2009		$	(29,014	)		$	(3	)		$	(29,017	)
Net Change			(2,170	)			2				(2,168	)
Balance, March 31, 2009		$	(31,184	)		$	(1	)		$	(31,185	)

Note 10 — Segment Information

The Corporation operates two main lines of business along with several other operating segments. Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision-maker in deciding how to allocate and assess resources and performance. The Corporation’s chief operating decision-maker is the President and Chief Executive Officer. The Corporation has determined it has two reportable business segments: Community Banking and Wealth Management.

The Community Banking segment provides financial services to consumers, businesses and governmental units primarily in southeastern Pennsylvania and the Lehigh Valley of Pennsylvania. These services include full-service banking, comprised of accepting time and demand deposits, making secured and unsecured commercial loans, mortgages, consumer loans, and other banking services. The treasury function income is included in the Community Banking segment, as the majority of effort and activity of this function is related to this segment. Primary sources of income include net interest income and service fees on deposit accounts. Expenses include costs to manage credit and interest rate risk, personnel, and branch operational and technical support.

The Wealth Management segment includes: trust and investment management services, providing investment management, trust and fiduciary services, estate settlement and executor services, financial planning, and retirement plan and institutional investment services; employee benefits services; and the Cornerstone Companies, registered investment advisors for high net worth, privately held business owners, wealthy families and institutional clients. Major revenue component sources include investment management and advisory fees, trust fees, estate and tax planning fees, brokerage fees, and insurance related fees. Expenses primarily consist of personnel and support charges. Additionally, the Wealth Management segment includes an inter-segment credit related to trust deposits which are maintained within the Community Banking segment using a transfer pricing methodology.

The Corporation has also identified several other operating segments. These operating segments within the Corporation’s operations do not have similar characteristics to the Community Banking or Wealth Management segments and do not meet the quantitative thresholds requiring separate disclosure. These non-reportable segments include HNC Reinsurance Company, HNC Financial Company, and the parent holding company and are included in the “Other” category.

Information about reportable segments and reconciliation of the information to the consolidated financial statements follows:

		Community				Wealth								Consolidated
(Dollars in thousands)		Banking				Management				All Other				Totals
Three Months Ended March 31, 2010
Net interest income (expense)		$	28,440			$	35			$	(1,881	)		$	26,594
Provision for loan losses			13,400				—				—				13,400
Noninterest income (loss)			9,950				2,241				(88	)			12,103
Noninterest expense			33,264				2,385				383				36,032
(Loss) income before income taxes			(8,274	)			(109	)			(2,352	)			(10,735	)
Income tax (benefit) expense			(2,038	)			(36	)			(513	)			(2,587	)
Net (loss) income		$	(6,236	)		$	(73	)		$	(1,839	)		$	(8,148	)
Assets		$	5,112,064			$	35,148			$	10,226			$	5,157,438
Three Months Ended March 31, 2009
Net interest income (expense)		$	36,599			$	43			$	(1,338	)		$	35,304
Provision for loan losses			7,121				—				—				7,121
Noninterest income (loss)			11,831				4,421				(93	)			16,159
Noninterest expense			33,634				4,835				152				38,621
(Loss) income before income taxes			7,675				(371	)			(1,583	)			5,721
Income tax (benefit) expense			1,785				(121	)			(538	)			1,126
Net (loss) income		$	5,890			$	(250	)		$	(1,045	)		$	4,595
Assets		$	5,577,426			$	56,522			$	12,247			$	5,646,195

The accounting policies of the segments are the same as those described in the summary of significant accounting policies disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009. Consolidating adjustments reflecting certain eliminations of inter-segment revenues, cash and investment in subsidiaries are included in the “All Other” segment.

Note 11 — Financial Instruments with Off-Balance Sheet Risk

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Bank has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Bank may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Bank elects not to apply hedge accounting.

The Bank’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amounts of those instruments. The Bank uses the same stringent credit policies in extending these commitments as they do for recorded financial instruments and controls exposure to loss through credit approval and monitoring procedures. These commitments often expire without being drawn upon and often are secured with appropriate collateral; therefore, the total commitment amount does not necessarily represent the actual risk of loss or future cash requirements.

The approximate contract amounts are as follows:

		Total Amount
		Committed at
Commitments		March 31,				December 31,
(Dollars in thousands)		2010				2009
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit		$	642,282			$	677,388
Standby letters of credit and financial guarantees written			38,557				40,040
Financial instruments whose notional or contract amounts represent credit risk:
Interest rate swap agreements			197,241				208,036

The table below presents the fair value of the Bank’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2010 and December 31, 2009:

Asset Derivatives

Liability Derivatives

As of March 31, 2010

As of December 31, 2009

As of March 31, 2010

As of December 31, 2009

Balance Sheet

Balance Sheet

Balance Sheet

Balance Sheet

(Dollars in thousands)

Classification

Fair Value

Classification

Fair Value

Classification

Fair Value

Classification

Fair Value

Derivatives designated as hedging instruments:

Interest Rate Products

Other Assets

$

—

Other Assets

$

—

Other Liabilities

$

228

Other Liabilities

$

209

Derivatives not designated as hedging instruments:

Interest Rate Products

Other Assets

$

3,766

Other Assets

$

3,102

Other Liabilities

$

4,049

Other Liabilities

$

3,537