The following discussion and analysis is intended to provide greater details of our results of operations and financial condition and should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this document. Certain statements under this caption constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which First Niagara Financial Group, Inc. and its subsidiaries operate, projections of future performance and perceived opportunities in the market. Our actual results may differ significantly from the results, performance, and achievements expressed or implied in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, economic conditions, competition in the geographic and business areas in which we conduct our operations, fluctuation in interest rates, changes in the credit quality of our borrowers and obligors on investment securities we own, increased regulation of financial institutions or other effects of recently enacted legislation, and other factors discussed under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 . First Niagara Financial Group, Inc. does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements.

OVERVIEW

First Niagara Financial Group, Inc. (the “Company”) is a Delaware corporation and a bank holding company, subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), serving both retail and commercial customers through our bank subsidiary, First Niagara Bank, N.A. (the “Bank”), a national bank subject to supervision and regulation by the Office of the Comptroller of the Currency (the “OCC”). At March 31, 2015 , we had $39 billion in assets, $28 billion in deposits, and 393 full-service branch locations across New York, Western and Eastern Pennsylvania, Connecticut, and Western Massachusetts. The Company and the Bank are referred to collectively as “we” or “us” or “our.”

In January 2014, we announced a Strategic Investment Plan that represents a pivot in our strategic imperatives by choosing to collectively accelerate certain investments in our business focused on enhancing the customer experience. At the end of our planned three to four year investment period, our objective is to be better positioned to i) deliver greater fee generation and revenue capabilities; ii) improve operating leverage by lowering integration costs of new systems and our overall cost to serve; iii) address growing industry wide regulatory imperatives such as cybersecurity; and iv) improve our overall financial returns. The total cash spend in 2014 through 2017 for these investments is currently estimated at between $200 million and $250 million. Our Board of Directors has formed a Technology Committee to assist the Board of Directors in overseeing the planning and execution of our strategic investment in major technology projects; reviewing and approving major financial commitments related to the Strategic Investment Plan; from a technology perspective, monitoring how the Strategic Investment Plan competitively positions us in relation to our peers; and advising the Risk Committee of the Board of Directors on risk management associated with the Strategic Investment Plan and major technology vendor relationships.

There are three components that make up this strategic technology investment: 1) Revenue Generation, 2) Next Gen Infrastructure, and 3) Integration Layer. First, approximately one half of our planned overall investment will be focused on revenue generation by building specific new products and service enhancements. The second component, which is approximately 25% of our planned overall investment, is building our Next Gen Infrastructure, with a primary focus of reducing our overall operating costs and operational risk. The third area of focus, which is also approximately 25% of our planned overall investment, is on our technology integration capabilities that will significantly reduce our cost of delivering the first two components. The improved integration capabilities piece will allow us to lower both our development and operating costs while increasing our speed to market and maximizing our product capabilities.

Our customer-centric strategy is focused on the successful execution of our aforementioned strategic investment plan that we believe will increase revenues, improve operating leverage and enable us to continue to maintain our strong risk management and regulatory compliance position, all of which we expect will result in greater shareholder value. Our strategy is focused on creating a strong, competitive position by differentiating us through a fast, easy, simple and secure customer experience.

Our objective is to provide our customers with the best experience possible based on their individual needs, however they choose to do business with us, whether it's in the branch, online, on their mobile phone, through our call center, at an ATM or through whatever new channel may appear in the future. In doing so, we believe we will drive greater customer acquisition and retention and incremental revenue growth. This customer-centric omni - channel approach is being embedded in our culture so that it guides every decision we make and every action we take.

In 2014, our cash expenditures related to implementing our strategic investment plan approximated $58 million out of the estimated $200 million to $250 million multi-year spend. In 2013, prior to the announcement of, and not including, our strategic investment plan, we spent $40 million in total capital expenditures. During 2014, we completed the execution of many projects and completed the planning for more. Compared to our overall plan presented in January 2014, we accelerated certain revenue generating projects while deferring certain infrastructure investments out to 2017 that don't directly support product feature and functionality. With this acceleration of projects, we expect to realize revenues now in 2015, and earlier than originally contemplated. In 2015, cash spend is estimated to increase to approximately $70 million, which will increase year-over-year operating expenses related to such investments. However, we believe the benefits accrued from our strategic investments completed to date will offset such expense increase.

In 2014, we completed about 25 discrete projects which provide more product features and functionality that enhances our ability to attract and retain customers. These projects also serve as the foundation upon which other revenue related projects are being built. Overall, the projects completed in 2014 were delivered on time and on budget.

Some of these completed projects and enhancements include:

Late in the first quarter of 2015, we implemented our deposit online account opening. Early results show that "quality start completions" are approximately two times greater than what they were on our legacy platform. In the fourth quarter of 2015, we expect to begin phasing in our Treasury Management suite. This Treasury Management enhancement is a multi-project program and once fully implemented will add the capabilities that larger commercial customers desire, and will feature new and expanded services such as lock box, business online banking, foreign exchange, online remote check printing, account analysis and deposit reconciliations.

We continue to expect that our strategic investments will drive $80 million in incremental benefits in 2017 and improve our return profile. The benefits that we expect to generate from aforementioned projects along with other system enhancements contemplated in our strategic investment plan will include incremental fee income, increased loan and deposit core customer acquisitions, enhanced pricing opportunities as well as expense efficiencies.

BUSINESS AND INDUSTRY

We operate a multi-faceted regional bank that provides our customers with a full range of products and services. These include commercial real estate loans, including construction loans, commercial business loans and leases, residential real estate, home equity, indirect auto, credit cards, and other consumer loans, as well as retail and commercial deposit products and insurance services, which we offer through a wholly owned subsidiary of the Bank. We also provide wealth management products and services. Our business model has and will continue to evolve from our thrift roots to a relationship based community banking model that is supported by enhanced products and services that better serve our customers' needs.

Our profitability is primarily dependent on 1) the difference between the interest we receive on loans and investment securities, and the interest we pay on deposits and borrowings, 2) credit costs for nonperforming assets, and 3) our cost to deliver these products. The rates we earn on our assets and the rates we pay on our liabilities are a function of the general level of interest rates, the structure of the instrument, the credit worthiness of the borrower, and competition within our markets. These rates are also highly sensitive to conditions that are beyond our control, such as inflation, economic growth, and unemployment, as well as actions and policies of the federal government and its regulatory agencies, including the Federal Reserve. While the prolonged low interest rate and weak economic environment has pressured our net interest income and margin for several years, more recently, the competition from banks and non-banks has intensified both from a pricing and structural perspective. Absent an improvement in the competitive environment, net interest income will be challenged until we see an increase in short term interest rates. We manage our interest rate risk as described in "Market Risk" in this report, Part II Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

The Federal Reserve implements national monetary policies (with objectives of maximum employment and targeted levels of inflation) through its open-market operations in U.S. Government securities, by adjusting depository institutions reserve requirements, by varying the target federal funds and discount rates and by varying the supply of money. The actions of the Federal Reserve in these areas influence the growth of our loans, investments, and deposits, and also affect interest rates that we earn on interest-earning assets and that we pay on interest-bearing liabilities.

During the third quarter of 2011, the Federal Reserve announced that it intended to keep interest rates low through mid-2013, and has taken certain actions, such as “Operation Twist” and Quantitative Easing, aimed at keeping short- and long-term interest rates low, thus spurring economic growth in the labor and housing markets. The most recent round of Quantitative Easing (QE3) began in September 2012, and was an open-ended program calling for the purchase of $40 billion per month in agency mortgage-backed securities. In December 2012, the Federal Open Market Committee ("FOMC") stated they anticipate that the current exceptionally low federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than 0.5% above the FOMC's 2% longer-run goal, and longer -term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the FOMC stated it would also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the FOMC decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%. At the December 2012 meeting, the FOMC also announced it would continue purchasing additional agency mortgage-backed securities at the pace of $40 billion each month and add additional purchases of longer-term Treasury securities initially at a pace of $45 billion per month.

These actions had the cumulative impact of flattening the yield curve, keeping interest rates low and therefore reducing the yields on our earning assets. We have been replacing higher yielding, fixed rate, longer duration loans that prepaid or refinanced away with lower yielding, shorter duration loans.

In June 2013, the Federal Reserve began discussing the tapering of the Quantitative Easing program. This discussion caused the yield curve to steepen appreciably, and slowed the refinancing market in our mortgage banking business. Subsequent to its December 2013 meeting, the Federal Reserve began tapering its monthly purchases of Treasury and agency mortgage-backed securities by $10 billion.

In January 2014, the Fed announced that it would continue tapering its monthly purchases of Treasury and agency mortgage-backed securities by an additional $10 billion, thereby reducing the level of purchases to $65 billion per month.

In September 2014, the Federal Reserve released its mechanisms for how they will raise interest rates when the decision is made to do so and include, in addition to conventional measures such as increases to the Federal Funds Rate, new tools such as paying interest on excess reserves and the use of reverse repurchase agreements. The timing and use of these tools may affect the direction and impact of short-term rate increases.

In October 2014, the Fed announced it had discontinued the quantitative easing program. While the FOMC voted to discontinue monthly bond purchases, they are increasingly divided on the timing of any increase to short-term interest rates. Certain Federal Reserve policy officials have expressed growing concern that maintaining an accommodative monetary policy for longer will lead to inflation exceeding the Federal Reserve’s 2% inflation target and accordingly, the timing of the first increase to short-term interest rates should be during 2015. This view is currently offset by other FOMC members, including Federal Reserve Chair, Janet Yellen, who believe the accommodative policy needs to be maintained and that the Federal Reserve would continue to hold interest rates low until the outlook for the labor market and the general economy improve, including higher overall wages and fewer part time employees. Additionally, some market participants have expressed views that the Federal Funds terminal rate will be 2% lower than historic levels of 4% to 5%, which would impact the steepness of the yield curve in a normalized interest rate environment if correct. Further, depositor behavior is also subject to much debate regarding the pace and timing of deposits flowing out of the banking system.

On December 17, 2014 the FOMC released their Meeting Statement and Economic Projections that, among other things, provide each FOMC participant’s judgment of the midpoint of the appropriate target range for the federal funds rate. The FOMC members’ median projection for the federal funds rate at the end of 2015 was 1.125%. On March 18, 2015, the FOMC updated their economic projections and reduced the midpoint of the appropriate target range for the federal funds rate at the end of 2015 by 0.50% to 0.625%. The median projection for the federal funds rate at the end of 2016 declined from 2.50% to 1.875%. Minutes from the March 18, 2015 meeting demonstrated that the Federal Reserve members are split on whether to increase the federal funds rate in June 2015 stating "Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting."

Despite the decrease in the projections, the continued low levels of inflation and the decline in oil prices has caused the market to believe the Federal Reserve will not raise the federal funds rate as soon or as high as the Federal Reserve projections. The current futures market has the first rate hike at the end of the third quarter of 2015 and continues to move later in the year. Additionally, longer term interest rates have remained low. The 10 year Treasury rate has fallen to as low as 1.64% on January 30, 2015, the lowest since the second quarter of 2013. Similarly, the mortgage refinance rate was 3.93% on April 30, 2015 up from 3.88% at March 31 but down from 4.00% on December 31, 2014.  In its release after the March 18, 2015 meeting, the FOMC acknowledged that inflation is expected to remain near its recent low level in the near term but stated they expect inflation to gradually rise toward the target level over the medium term. The FOMC also expressed that it anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market. On April 29, 2015, the FOMC maintained the same outlook for inflation and the federal funds rate but conceded that economic growth slowed during the winter months, describing the slowdown as “in part reflecting transitory factors”.  We do not expect to see significant improvement in net interest income until short-term interest rates increase, and the impact on net interest income will be influenced by the nature and timing of the market reaction and customer behavior, all of which are very unpredictable.

MARKET AREAS AND COMPETITION

Our business operations are concentrated in our primary market areas of New York, Western and Eastern Pennsylvania, Connecticut, Western Massachusetts and the Tri-State area which includes Lower Hudson Valley, Fairfield County, Connecticut, and Northern New Jersey. Therefore, our financial results are affected by economic conditions in these geographic areas. If economic conditions in our markets deteriorate or if we are unable to

sustain our competitive posture, our ability to expand our business and the quality of our loan portfolio could materially impact our financial results.

Our primary lending and deposit gathering areas are generally concentrated in the same areas as our branches. We face significant competition in both making loans and attracting deposits in our markets as they have a high density of financial institutions, some of which are significantly larger than we are and have greater financial resources. Competition for loans comes principally from commercial banks, savings banks, savings and loan associations, mortgage banking companies, credit unions, insurance companies, and other financial services companies. Our most direct competition for deposits has historically come from commercial banks, savings banks, and credit unions, as well as additional competition for deposits from the mutual fund industry, internet banks, securities and brokerage firms, and insurance companies, as well as nontraditional competitors such as large retailers offering bank-like products. In addition to the traditional sources of competition for loans and deposits, payment processors and other companies exploring direct peer-to-peer banking provide additional competition for our products and services. In these marketplaces, opportunities to grow and expand are primarily a function of how we are able to differentiate our product offerings and customer experience from our competitors. We offer a variety of financial services to meet the needs of the communities that we serve, functioning under a philosophy that includes a commitment to customer service and the community. We have created a customer-centric organization structure that brings our customers' needs and preferences closer to the executive team that enables us to be more responsive to our customers.

More recently, competition for loans, particularly commercial loans, has intensified given the weak economic activity within our markets and nationally. This increased competition from banks and non-banks has resulted in accelerated loan prepayments, particularly in our investor owned commercial real estate portfolio as borrowers gravitate towards financial institutions that are more willing to compete on price, loan structures or tenor. This competition is most notable in Eastern Pennsylvania and New England.

We offer a variety of financial services to meet the needs of the communities that we serve, functioning under a philosophy that includes a commitment to customer service and the community.

REGULATORY REFORM

Volcker Rule

The Volcker Rule provisions of the Dodd-Frank Act restrict the ability of affiliates of insured depository institutions to sponsor or invest in private funds or to engage in certain types of proprietary trading. Although the Volcker Rule became effective on July 21, 2012 and the final rules became effective April 1, 2014, in connection with the adoption of the final rules on December 10, 2013 by the responsible agencies, the Federal Reserve issued an order extending the period during which institutions have to conform their activities and investments to the requirements of the Volcker Rule to July 21, 2015. The issuance of the final Volcker Rule restricts our ability to hold debt securities issued by Collateralized Loan Obligations ("CLOs") where our investment in these debt securities is deemed to be an ownership interest in a CLO and the CLO itself does not qualify for an exclusion in the final rule for loan securitizations. On December 18, 2014 the Federal Reserve Board announced it would give banking entities until July 21, 2016 to conform investments in covered funds that were in place prior to December 31, 2013 ("legacy covered funds"). The Board also announced its intention to grant banking entities an additional one-year extension of the conformance period for legacy covered funds which together would extend until July 21, 2017 the time period for institutions to conform their ownership interests to the stated provisions of the final Volcker Rule.

At March 31, 2015 , we have $1.0 billion of CLO investments, with a weighted average yield of 3.2% that could be impacted by this rule ("legacy CLO"). These investments are further described under “Risk Management—Investment Securities Portfolio.” While we believe that it is unlikely that regulatory agencies will initiate any further changes in the Volcker Rule, we continue to evaluate structural solutions that we can apply to our legacy CLO securities and monitor expected prepayments, refinancing and other solutions initiated by the asset managers of the CLO structure that we believe would make any remaining legacy CLO securities compliant with the stated

provisions of the final Volcker Rule. CLO securities that are not compliant with the Volcker Rule may bear greater price risk as the conformance date draws nearer.

As of March 31, 2015 , we have purchased $190 million of newly issued CLO investments that we believe to be exempt from the Volcker Rule.  These CLOs are structured in a manner consistent with the loan securitization exclusion set forth in the Volcker Rule.

Should we no longer be able to hold such securities, we could i) sell these securities expeditiously, and not be able to realize the value we might be able to realize with a normal market sale; ii) recognize all unrealized losses on such securities should we determine it is not more likely than not that we can hold any securities that have a fair value less than book value to a time when the fair value would be at least equal to its book value, which could be the security’s maturity; and iii) reinvest proceeds in other, likely lower yielding investments, which would reduce our revenues. Of the bonds that do not qualify for an exclusion for loan securitizations, at March 31, 2015 , we had $140 million of legacy CLO securities with fair values less than their book values, aggregating to a $0.6 million unrealized loss. We continue to believe it is more likely than not that we can hold any underwater bonds to recovery, which could be maturity as the Federal Reserve intends to extend the holding period to July 21, 2017 and we believe that expected prepayments, refinancing and other structural remedies would enable us to make any remaining CLO securities compliant with the stated ownership interest provisions of the final Volcker Rule and thus allow us to continue holding the bonds after the conformance period ends.

Regulatory Reform is discussed in our Annual Report on Form 10-K for the year ended December 31, 2014 under Item 1, “Business—Supervision and Regulation,” and Item 1A, “Risk Factors.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We evaluate those accounting policies and estimates that we judge to be critical: those most important to the presentation of our financial condition and results of operations, and those which require our most subjective and complex judgments. Accordingly, our accounting estimates relating to the valuation of our investment securities, prepayment assumptions on our collateralized mortgage obligations and mortgage-backed securities, adequacy of our allowance for loan losses, the accounting treatment and valuation of our acquired loans, and the analysis of the carrying value of goodwill for impairment are deemed to be critical as our judgments could have a material effect on our results of operations and have been discussed under this same heading in Item 7 of our 2014 Annual Report on Form 10-K. Additional accounting policies are more fully described in Note 1 in the “Notes to Consolidated Financial Statements” presented in our 2014 Annual Report on Form 10-K. The following are critical accounting estimates that have changed since our 2014 Annual Report on Form 10-K:

Investment Securities

Our investment securities portfolio includes residential mortgage-backed securities and collateralized mortgage obligations. As the underlying collateral of each of these securities is comprised of a large number of similar residential mortgage loans for which prepayments are probable and the timing and amount of such prepayments can be reasonably estimated, we estimate future principal prepayments of the underlying residential mortgage loans to determine a constant effective yield used to apply the interest method, with retroactive adjustments as warranted.

In order to compute the constant effective yield for these securities, we estimate pooled level cash flows for each security based on a variety of factors, including historical and projected prepayment speeds, current and future interest rates, yield curve assumptions, security issuer and the current political environment. These cash flows are then translated into security level cash flows based on the tranche we own and the unique structure and status of each security. At March 31, 2015 , the par value of our portfolio of residential mortgage-backed securities totaled $7.3 billion , which included $6.9 billion of collateralized mortgage obligations. In the determination of our constant effective yield, we estimate that we will receive $1.3 billion of principal cash flows on our collateralized mortgage obligations over the next 12 months.

RESULTS OF OPERATIONS

Overview

The following table summarizes our results of operations for the periods indicated on a GAAP basis and on an operating (non-GAAP) basis. Our operating results exclude certain nonoperating expense items as detailed below. We believe this non-GAAP measure provides a meaningful comparison of our underlying operational performance and facilitates management’s and investors’ assessments of business and performance trends in comparison to others in the financial services industry and period over period analysis of our fundamental results. In addition, we believe the exclusion of the nonoperating items from our performance enables management and investors to perform a more effective evaluation and comparison of our results and to assess performance in relation to our ongoing operations. 

On an operating (non-GAAP) basis, our first quarter of 2015 reflected the typical first quarter revenue seasonality, primarily due to fewer days, strong expense and headcount management, robust commercial low growth, low credit costs, and a more normalized effective tax rate. The cold weather also had a modest impact on some or our consumer businesses during the first quarter of 2015. Additionally, our results demonstrate our continued strong core business fundamentals and the progress we are making to provide a faster, easier, simpler, and more secure banking experience for our customers, which we believe will ultimately drive increased value for our shareholders. During the quarter, we launched our new Online Deposit Account Opening solution which enables our customers to choose the products they want and open their accounts using their mobile, tablet or desktop devices.

Excluding the restructuring charges, our noninterest expenses decreased 2% , reflecting strong expense management more than offsetting seasonal pressures from certain expense items such as payroll taxes. Additionally, our operating results were consistent with typical first quarter seasonal trends, resulting from fewer days in the quarter. Salaries and employee benefits decreased 5% from the first quarter of 2014, driven primarily by our previously disclosed organization simplification initiative. Average consumer checking account balances increased 11% annualized driven both by balance growth and new customer acquisition.

Comparison to Prior Quarter

Our first quarter 2015 GAAP net income was $51 million , or $0.12 per diluted share, and included $18 million in pre-tax restructuring and severance expenses incurred primarily in connection with the consolidation of 17 branches and the completion of our organization simplification during the quarter as well as third party professional fees incurred in connection with the overstatement of the allowance for loan losses resulting from mid-level employee misconduct that was discovered in February 2015. Excluding these nonoperating items, our operating (non-GAAP) net income was $62 million , or $0.15 per diluted share. By comparison, in the fourth quarter of 2014 , we reported GAAP net income of $69 million , or $0.17 per diluted share, which included the benefit of a $23 million pre-tax reversal of reserves related to the process issue on certain customer accounts as well as the expense impact of $9 million in pre-tax restructuring charges primarily associated with our organization simplification initiative. Excluding these items, our operating (non-GAAP) net income for the three months ended December 31, 2014 amounted to $61 million , or $0.15 per diluted share.

Our first quarter 2015 net interest income decreased $7 million from the prior quarter to $263 million driven primarily by fewer days in the quarter, lower commercial real estate prepayment fees, deposit promotional pricing campaigns, as well as the continued impact of reinvestments and repricing of assets in the current low rate environment. The 4% annualized increase in average interest-earning assets was partially offset by a four basis points decrease in our taxable equivalent net interest rate margin to 3.07% . Growth in average interest earning assets reflected continued loan growth, particularly in commercial real estate, home equity, and indirect auto loans. Average investment securities increased 5% from the prior quarter, driven by growth in our residential mortgage-backed securities portfolio. The four basis points decrease in net interest margin in the first quarter of 2015 reflected continued compression of earning assets yields in the current low interest rate environment, expiration of certain favorable purchase accounting marks on acquired certificates of deposit, as well as the impact of deposit pricing promotional campaigns. Average commercial loan yields declined five basis points while consumer loan yields increased a modest one basis point from the prior quarter.

Compared to the prior quarter, average loans increased 4% annualized during the first quarter of 2015 . Average commercial business and real estate loans increased 5% annualized driven by growth in commercial real estate volumes, primarily in our Eastern Pennsylvania and New England markets. Average commercial real estate loans increased 9% annualized due to higher construction draws as well as increased conversion of our construction customers into permanent mortgages. Commercial business loans were relatively flat compared to the prior quarter given our focus on relationship pricing and prudent underwriting in the current competitive environment, and to a lesser extent, principal paydowns. Average consumer loans increased 2% annualized driven by continued increases in our indirect auto and home equity portfolios.

Average transactional deposit balances, which include interest-bearing and noninterest-bearing checking accounts, decreased 4% annualized from the prior quarter and represent 38% of our average deposit balances at March 31, 2015 , consistent with December 31, 2014 . Average noninterest-bearing checking deposit and interest-bearing checking balances both decreased 4% from the prior quarter, driven by seasonal weakness in municipal deposits. Money market deposit balances increased 4% reflecting promotional marketing campaigns. Time deposits averaged $3.8 billion and decreased 11% from the prior quarter driven primarily by a decrease in brokered deposits. The average cost of interest-bearing deposits increased three basis points from the prior quarter to 0.28% .

Our provision for credit losses totaled $13 million and $36 million for the three months ended March 31, 2015 and December 31, 2014 , respectively. The provision for loan losses on originated loans totaled $11 million and $31 million for the first quarter of 2015 and the fourth quarter of 2014 , respectively. The provision for loan losses on originated loans for the fourth quarter of 2014 included $5 million to cover exposure to borrowers servicing the energy sector following the fall in oil prices as well as $10 million related to a single borrower in the oil and gas industry and a $5 million provision towards an unrelated commercial credit that we held for sale at March 2015 and for which we received the proceeds in April 2015. Net charge-offs on our originated loans exceeded our provision for losses on originated loans for the first quarter of 2015. Excluding the commercial credit charge-off related to the loan we sold in March that was recorded in the first quarter but provided for in the fourth quarter,

our net charge-offs would have been 22 basis points reflecting higher than normal recoveries in our commercial business portfolio. Annualized net charge-offs equaled 0.31% of average originated loans, a 13 basis points decrease from 0.44% reported for the fourth quarter of 2015 . At March 31, 2015 , originated criticized loans decreased 5% from the prior quarter and nonperforming originated loans comprised 1.01% of originated loans, an 11 basis points increase from the prior quarter.

The provision for losses on acquired loans totaled $3 million in both the first quarter of 2015 and the fourth quarter of 2014 . Annualized net charge-offs equaled 0.25% of average acquired loans for the first quarter of 2015 , compared to 0.17% for the fourth quarter of 2014 .

Noninterest income increased $5 million , or 7% , in the first quarter of 2015 compared to the fourth quarter of 2014 , which included $11 million in amortization of historic tax credits. Excluding this amortization, noninterest income increased 7% reflecting moderation in capital markets income from record levels in the fourth quarter as well as normal seasonal declines in deposit service charges and merchant and card fees. Noninterest expenses increased $27 million from the fourth quarter of 2014 . Excluding $18 million of pre-tax restructuring charges in the first quarter of 2015 and the $23 million pre-tax reversal of a reserve to address a process issue related to certain customer deposit accounts and $9 million in pre-tax restructuring charges in the fourth quarter of 2014 , noninterest expenses decreased $5 million where strong expense management offset normal seasonal increases typical in the first quarter.

Our effective tax rate was 28.0% and 10.2% for first quarter of 2015 and the fourth quarter of 2014 , respectively, primarily reflecting the expiration of previously disclosed tax strategies.

Comparison to Prior Year Quarter

Our first quarter 2015 GAAP net income was $51 million , or $0.12 per diluted share, and included $18 million in pre-tax restructuring and severance expenses incurred primarily in connection with the consolidation of 17 branches and the completion of our organization simplification initiative during the quarter, as well as third party professional fees incurred in connection with the overstatement of the allowance for loan losses resulting from mid-level employee misconduct. Excluding these charges, our non-GAAP operating net income was $62 million , or $0.15 per diluted share. Our first quarter 2014 GAAP net income was $60 million , or $0.15 per diluted share, and included $10 million in pre-tax restructuring charges. Excluding these charges, our non-GAAP operating net income was $69 million , or $0.17 per diluted share, for the first quarter of 2014 .

Our first quarter of 2015 net interest income decreased $8 million , or 3% , from the first quarter of 2014 . Our taxable equivalent net interest margin decreased 26 basis points to 3.07% at March 31, 2015 from 3.33% in the first quarter of 2014 . During the current quarter, yields on average interest-earning assets decrease d 24 basis points, compared to the same quarter in 2014 , driven by lower yields across all loan portfolios with the exception of our credit card portfolio. The cost of interest-bearing liabilities of 0.48% for the current quarter increased four basis points from the same quarter in 2014 .

Average loans increased 7% for the quarter ended March 31, 2015 compared to the same quarter in 2014 . Average commercial business and real estate loans increased 6% over the same quarter in 2014 , with our commercial real estate portfolio increasing 6% and our commercial business portfolio increasing 7% . Average consumer loans increased 8% , primarily driven by growth in home equity and indirect auto loan balances, partially offset by decreases in residential real estate and other consumer loan portfolios.

Average transactional deposit balances, which include interest-bearing and noninterest-bearing checking accounts, increased 9% over the prior year and represent 38% of our average deposit balances, up from 36% a year ago. Average noninterest-bearing checking deposits increased an annualized 12% over the prior year. Average interest-bearing checking balances increased $266 million , or 6% , for the quarter ended March 31, 2015 from the same quarter in the prior year. Average money market balances increased 2% annualized compared to the prior year quarter while time deposits increased 4% . The average cost of interest-bearing deposits of 0.28% increased five basis points from the prior year quarter.

Our provision for credit losses totaled $13 million and $24 million for the three months ended March 31, 2015 and 2014 , respectively. The provision for loan losses on originated loans decreased to $11 million in the first quarter of 2015 from $20 million in the same quarter in 2014 . Nonperforming originated loans as a percentage of originated loans increased to 1.01% at March 31, 2015 from 0.82% at March 31, 2014 . Annualized net charge-offs equaled 0.31% of average originated loans for the three months ended March 31, 2015 and 0.36% of average originated loans for the three months ended March 31, 2014 .

The provision for losses on acquired loans totaled $3 million in the first quarter of 2015 and 2014 . Net charge-offs equaled 0.25% and 0.28% of average acquired loans for the quarters ended March 31, 2015 and 2014 , respectively.

For the quarter ended March 31, 2015 , noninterest income increased $6 million , or 7% , from the same period in 2014 . Increases in mortgage banking, capital markets income, and other income were partially offset by decreases in deposit service charges, wealth management services, and bank owned life insurance. Other income for the quarter ended March 31, 2014 included $11 million in amortization for historic tax credit investments, which was more than offset by lower tax expense. Noninterest expenses increased $12 million during the same period. Excluding $18 million and $10 million in pre-tax restructuring and severance expenses for the quarter ended March 31, 2015 and 2014 , respectively, noninterest expenses increased $5 million , or 2% . Expenses increased across all categories, except salaries and benefits, occupancy and equipment and amortization of intangibles.

Our effective tax rate was 28.0% and 19.8% for the first quarter of 2015 and 2014 , respectively. The effective tax rate for the three months ended March 31, 2014 reflects the benefits of a taxable reorganization of a subsidiary and from investments in certain historic tax credits originated by our commercial real estate business.

Net Interest Income

First quarter 2015 net interest income decreased $7 million from the prior quarter to $263 million . Approximately half of this decrease was driven by two less days in the first quarter. The remainder of the decrease was driven by lower commercial real estate prepayment fees, the expiration of certain favorable purchase accounting marks on acquired certificates of deposit, deposit promotional pricing campaigns, and the continued impact of reinvestments and re-pricing of assets in the current low interest rate environment. A 4% annualized increase in total average interest-earning assets was partially offset by a four basis points decrease in the tax equivalent net interest margin to 3.07% . Growth in average earning assets reflected continued organic loan growth and higher investment securities balances.

The four basis points decrease in our tax equivalent net interest margin reflects continued compression of loan yields from prepayments and reinvestments at current market rates, particularly in our commercial real estate portfolio, which had an eight basis points decrease compared to the prior quarter.  Additionally, in the first quarter of 2015 , yields on our investment securities portfolio decreased six basis points driven by a seven basis points decrease in other investment securities yield along with an 11 basis points decrease in yields on our commercial mortgage-backed securities and a two basis points decrease in yields on our residential mortgage-backed securities. Premium amortization on our residential mortgage-backed securities portfolio was $6 million, consistent with prior quarter.

During 2013, the yield curve steepened appreciably driven by increased anticipation that the Federal Reserve will begin tapering its Quantitative Easing Bond-Buying program.  The steepening of the yield curve resulted from an increase in the mid-to-long end of the curve which has the positive impact of increasing reinvestment rates on certain securities purchases and mitigating premium amortization due to lower prepayment activity driven by higher mortgage rates. However, these benefits to net interest income continue to be more than offset by continued prepayments and/or refinancing of higher-yielding loans and new loan growth at current lower market rates. An intensifying competitive landscape, particularly for commercial and commercial real estate loans may drive spread compression in the future, which will likely impact net interest income.

On December 17, 2014 the FOMC released their Meeting Statement and Economic Projections that, among other things, provide each FOMC participant’s judgment of the midpoint of the appropriate target range for the federal

funds rate. The FOMC members’ median projection for the federal funds rate at the end of 2015 was 1.125%. On March 18, 2015 the FOMC updated their Economic Projections and reduced the midpoint of the appropriate target range for the federal funds rate at the end of 2015 by 0.50% to 0.625%. The median projection for the federal funds rate at the end of 2016 declined from 2.50% to 1.875%. On March 18, 2015 the FOMC updated their Economic Projections and reduced the midpoint of the appropriate target range for the federal funds rate at the end of 2015 by 0.50% to 0.625%. The median projection for the federal funds rate at the end of 2016 declined from 2.50% to 1.875%. Minutes from the March 18, 2015 meeting demonstrated the Fed members are split on whether to increase the federal funds rate in June 2015 stating “Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting.”

Despite the decrease in the FOMC projections, the continued low levels of inflation and the decline in oil prices has caused the market to believe the Federal Reserve will not raise the federal funds rate as soon or as high as the Federal Reserve projections. The current futures market has the first rate hike at the end of the third quarter of 2015 and continues to move later in the year. Additionally, longer term interest rates have remained low. The 10 year Treasury rate has fallen to as low as 1.64% on January 30, 2015, the lowest since the second quarter of 2013. Similarly, the mortgage refinance rate was 3.93% on April 30, 2015 up from 3.88% at March 31 but down from 4.00% on December 31, 2014.  In its release after the March 18, 2015 meeting, the FOMC acknowledged that inflation is expected to remain near its recent low level in the near term but stated they expected inflation to gradually rise toward the target level over the medium term. The FOMC also expressed it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market. On April 29th, 2015, the FOMC maintained the same outlook for inflation and the federal funds rate but conceded that economic growth slowed during the winter months, describing the slowdown as “in part reflecting transitory factors”.  We do not expect to see significant improvement in net interest income until short-term interest rates increase, and the impact on net interest income will be influenced by the nature, timing, market reaction and customer behavior, all of which are very unpredictable.