Setup 2 is recommended for better CPU cooling. You will use fresh air from outside your case to cool the rad, which is always some degrees below the air temperature inside your case. With this setup (and front and sidepanel fans as intake), I would recommend to change rear stock fan and mount a 140mm fan as exhaust to make sure there is enough power to get the air out of your case.
Replacing the rear fan by a 140mm fan is something I would recommed for Setup 1 as well, but in this setup as intake. The advantage of this setup is that you can use the stack effect and the warm air can leave through the top fans.
Anyway, I would suggest that you try both setups and see what will get the best results for you. It would be great if you could post your results here as reference, there are a few people in this forum asking similar questions.