CHARTER ONE FINANCIAL INC, DEF 14A, 1997-03-14

CHARTER ONE FINANCIAL INC
DEF 14A, 1997-03-14
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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<PAGE> 1

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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

CHARTER ONE FINANCIAL, INC.

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies: .......

(2) Aggregate number of securities to which transaction applies: ..........

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............

(4) Proposed maximum aggregate value of transaction: ......................

(5) Total fee paid: .......................................................

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: ...............................................

(2) Form, Schedule or Registration Statement No.: .........................

(3) Filing Party: .........................................................

(4) Date Filed: ...........................................................

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<PAGE> 2
Charter One Financial, Inc.
Building on Our Momentum

Notice of 1997 Annual Meeting
Proxy Statement and
Annual Financial Report

[CHARTER ONE FINANCIAL, INC. LOGO]

<PAGE> 3

[CHARTER ONE FINANCIAL, INC. LOGO]

CHARTER ONE FINANCIAL, INC.
1215 Superior Avenue
Cleveland, Ohio 44114
(216) 566-5300

---------------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 24, 1997

---------------------------

NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders of
Charter One Financial, Inc. ("Charter One" or the "Corporation") will be held on
Thursday, April 24, 1997, at 2:00 p.m. at the Forum Conference and Education
Center, One Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio, for the
following purposes:

1. To elect four directors each for a three-year term (Proposal 1);

2. To approve the Charter One Financial, Inc. 1997 Stock Option and
Incentive Plan (Proposal 2);

3. To ratify the appointment by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of the Corporation
for the fiscal year ending December 31, 1997 (Proposal 3); and

4. To transact such other business as may properly come before the
meeting or any adjournments thereof.

Pursuant to the Bylaws, the Board of Directors has fixed the close of
business on February 28, 1997 as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting. Only
holders of common stock of record at the close of business on that date will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. In the event that there are not sufficient votes to approve any one or
more of the foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned to permit further solicitation of proxies by the
Corporation.

By Order of the Board of Directors

/s/ Charles John Koch

Charles John Koch
Chairman of the Board
Cleveland, Ohio
March 18, 1997

- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------

<PAGE> 4

CHARTER ONE FINANCIAL, INC.
1215 Superior Avenue
Cleveland, Ohio 44114
(216) 566-5300

---------------------------

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

APRIL 24, 1997

This Proxy Statement is furnished to shareholders of Charter One
Financial, Inc. ("Charter One" or the "Corporation") in connection with the
solicitation by the Board of Directors of Charter One of proxies to be used at
the 1997 Annual Meeting of Shareholders (the "Annual Meeting") to be held on
April 24, 1997, at 2:00 p.m. at the Forum Conference and Education Center, One
Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio, and at any
adjournments thereof.

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES

If the enclosed form of proxy is properly executed and returned to the
Corporation in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted FOR Proposal 1 to elect the nominees
of the Board of Directors as directors; (2) FOR Proposal 2 to approve the
Charter One Financial, Inc. 1997 Stock Option and Incentive Plan; and (3) FOR
Proposal 3 to ratify the appointment by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of the Corporation for the fiscal
year ending December 31, 1997.

This Proxy Statement is initially being mailed to shareholders on or
about March 18, 1997. The presence of a shareholder at the Annual Meeting will
not automatically revoke such shareholder's proxy. Shareholders may, however,
revoke a proxy at any time prior to its exercise by delivering to the
Corporation a duly executed proxy bearing a later date, by attending the Annual
Meeting and voting in person, or by filing written notice of revocation with
Robert J. Vana, Secretary of the Corporation, at 1215 Superior Avenue,
Cleveland, Ohio 44114.

OUTSTANDING VOTING SECURITIES

The securities which can be voted at the Annual Meeting consist of
shares of common stock of the Corporation (the "Common Stock") with each share
entitling its owner to one vote on all matters. The close of business on
February 28, 1997 has been fixed by the Board of Directors as the record date
for determination of shareholders entitled to vote at the meeting. The number of
shares outstanding on February 28, 1997 was 46,330,703. The presence, in person
or by proxy, of at least the majority of the total number of outstanding shares
of common stock is necessary to constitute a quorum at the Annual Meeting. Any
proxies marked as abstentions, and any shares held in street name which have
been designated by brokers on proxy cards as not voted, will not be counted as
votes cast. Any proxies marked as abstentions or as broker nonvotes will,
however, be treated as shares present for purposes of determining whether a
quorum is present.

<PAGE> 5

Listed in the following table are beneficial owners as of February 28,
1997 of more than 5% of the Corporation's outstanding common stock.

<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME AND ADDRESS OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP OUTSTANDING
---------------- --------- -----------
<S> <C> <C>
FMR Corporation..................................................... 3,687,885(1) 7.96%
82 Devonshire Street
Boston, MA 02109

Martinique Hotel, Inc., Max M. Fisher, Jane F. Sherman,
Phillip Wm. Fisher, Mary D. Fisher, Julie Fisher Cummings
and Marjorie Fisher Aronow........................................ 2,408,933(2) 5.20%
2700 Fisher Building
Detroit, MI 48202

<FN>
- ------------------

(1) Included are 621,686 shares as to which the reporting party has sole power
to vote and no shares as to which shared voting may be exercised. The
reporting party has sole power to dispose of the entire 3,687,885 shares.

(2) Included are 537,352 shares owned by Martinique Hotel, Inc. ("Martinique"),
1,228,023 shares owned by Max M. Fisher, 107,965 shares owned by Jane F.
Sherman, 113,400 shares owned by Phillip Wm. Fisher, 70,875 shares owned by
Mary D. Fisher, 109,830 shares owned by Julie Fisher Cummings, and 113,400
shares owned by Marjorie Fisher Aronow, as to which shares the named company
and individuals have sole voting and dispositive power. Also included are
126,088 shares held in various trusts for the benefit of certain
grandchildren of Max M. Fisher with various trustees having sole voting and
dispositive power. Martinique is a personal holding company whose shares are
owned by the individuals named in the above table other than Max M. Fisher,
and all of such persons, including Max M. Fisher, are directors of
Martinique. Additionally, Max M. Fisher's wife, Marjorie S. Fisher, is a
director and serves as President of Martinique. As directors, such persons
exercise shared voting and dispositive power over the shares held by
Martinique.
</TABLE>

The following table sets forth, as of February 28, 1997, certain
information as to each of the named executive officers and directors and all
executive officers and directors as a group.

<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP(1)(2)(3)(4) OUTSTANDING
---------------- --------------------- -----------
<S> <C> <C>
Charles John Koch, Director, Chairman of the Board, 426,712(5) *
President and Chief Executive Officer of the Corporation
and the Corporation's subsidiary, Charter One Bank,
F.S.B. (the "Bank")

Mark D. Grossi, Director, Senior Vice President of the 193,452(6) *
Corporation and Executive Vice President of the Bank

John D. Koch, Director, Senior Vice President of the 242,881(7) *
Corporation and Executive Vice President of the Bank

Richard W. Neu, Director, Treasurer of the Corporation, 251,721(8) *
and Executive Vice President and Chief Financial
Officer of the Bank

Robert J. Vana, Chief Corporate Counsel and 92,264(9) *
Secretary of the Corporation and the Bank

Eugene B. Carroll, Sr., Director 12,677(10) *

Denise M. Fugo, Director 6,450(11) *

Charles M. Heidel, Director 4,158(12) *
</TABLE>

2
<PAGE> 6

Richard J. Jacob, Director 132,930(13) *

Philip J. Meathe, Director 15,435(14) *

Henry R. Nolte, Jr., Director 6,825(15) *

Alonzo H. Poll, Director 12,910 *

Victor A. Ptak, Director 13,647(16) *

Jerome L. Schostak, Director 1,642,388(17) 3.55%

Mark Shaevsky, Director 30,329(18) *

Eresteen R. Williams, Director 1,938(19) *

All executive officers and directors as a group 3,222,144(20) 6.88%
(17 persons)

<FN>
- ------------------

* Does not exceed 1%.

(1) Shares held under the Bank's employee savings plan are reported as of
December 31, 1996. Shares held under the Employee Stock Ownership Plan (the
"ESOP") are reported as of December 31, 1995. The ESOP allocation for
December 31, 1996 will not be completed until April 1997.

(2) Assumes exercise of stock options held by beneficial owner exercisable
within 60 days.

(3) Included are shares owned directly or indirectly through a trust or
corporation or by spouses and minor children, as to which the beneficial
owner exercises sole voting and dispositive power, except as otherwise
noted herein.

(4) For the executive officers, included are shares allocated to such executive
officers under the ESOP, as well as a proportionate share of the
unallocated shares, which are deemed to be beneficially owned by the
executive officers as a result of the executive officers' ability to direct
the trustee's voting of such shares through the vote of the executive
officers' allocated shares.

(5) Included are 200,305 shares Mr. Charles John Koch has the right to purchase
pursuant to stock options exercisable within 60 days.

(6) Included are 80,039 shares Mr. Grossi has the right to purchase pursuant to
stock options exercisable within 60 days.

(7) Included are 114,538 shares Mr. John D. Koch has the right to purchase
pursuant to stock options exercisable within 60 days.

(8) Included are 240,819 shares Mr. Neu has the right to purchase pursuant to
stock options exercisable within 60 days.

(9) Included are 37,800 shares Mr. Vana has the right to purchase pursuant to
stock options exercisable within 60 days.

(10) Included are 9,450 shares Mr. Carroll has the right to purchase pursuant to
stock options exercisable within 60 days.

(11) Included are 4,095 shares Ms. Fugo has the right to purchase pursuant to
stock options exercisable within 60 days.

(12) Included are 1,575 shares Mr. Heidel has the right to purchase pursuant to
stock options exercisable within 60 days.

(13) Included are 1,575 shares Mr. Jacob has the right to purchase pursuant to
stock options exercisable within 60 days.

(14) Included are 1,575 shares Mr. Meathe has the right to purchase pursuant to
stock options exercisable within 60 days.

(15) Included are 1,575 shares Mr. Nolte has the right to purchase pursuant to
stock options exercisable within 60 days.

(16) Included are 4,725 shares Mr. Ptak has the right to purchase pursuant to
stock options exercisable within 60 days.

(17) Included are 1,575 shares Mr. Schostak has the right to purchase pursuant
to stock options exercisable within 60 days.

(18) Included are 1,575 shares Mr. Shaevsky has the right to purchase pursuant
to stock options exercisable within 60 days.

(19) Included are 1,575 shares Ms. Williams has the right to purchase pursuant
to stock options exercisable within 60 days.

(20) Included are 723,971 shares the directors and executive officers as a group
have the right to purchase pursuant to stock options exercisable within 60
days.
</TABLE>

<PAGE> 7

PROPOSAL 1 - ELECTION OF DIRECTORS

The Corporation's certificate of incorporation provides that the number
of directors of Charter One shall be between seven and 16. In 1995, the
Corporation completed a merger of equals (the "Merger") with FirstFed Michigan
Corporation ("FirstFed") and its principal subsidiary, First Federal of Michigan
("First Federal"). As a result of the Merger, Charter One has 16 director
positions, eight directors previously serving on the Charter One Board and eight
previously serving on the FirstFed Board. The certificate of incorporation
further provides that the directors are to be divided into three classes
composed of as equal a number per class as is possible. The term of office of
only one class of directors expires in each year, and their successors are
elected for terms of three years until their successors are elected and
qualified.

At the Annual Meeting, four directors will each be elected for a
three-year term even though five directors have terms ending in 1997. One
director, Alonzo H. Poll, has elected to retire from the Board and will not seek
reelection. As a result, the Board will be reduced by resolution from 16
director positions to 15 director positions effective April 24, 1997. See
"Corporate Governance and Other Matters" for information on conditions of the
Merger that relate to the Board of Directors. Unless otherwise specified on the
proxy, it is the intention of the persons named in the proxy to vote the shares
represented by each properly executed proxy for the election as directors of the
persons named below as nominees. Under Delaware law, directors are elected by a
plurality of the votes of the shares present in person or represented by proxy
at a meeting and entitled to vote on the election of directors. The Board of
Directors believes that the nominees will stand for election and will serve if
elected as directors. However, if any of the persons nominated by the Board of
Directors fails to stand for election or will be unable to accept election, the
proxies will be voted for the election of such other persons as the Board of
Directors may recommend, or the size of the Board may be reduced to eliminate
the vacancy.

INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS

The following tables set forth the names of the Board of Directors'
nominees for election as a director and those directors who will continue to
serve after the Annual Meeting. Also set forth is certain other information with
respect to each person's age at December 31, 1996, principal occupation or
employment during the past five years, the date the individual first became a
director of Charter One or FirstFed (including First Federal) and, if
applicable, positions currently held with the Corporation.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST BECAME
NAME OR EMPLOYMENT(1) AGE A DIRECTOR
---- ---------------- --- ----------
<S> <C> <C> <C>
Nominees for Terms Ending in 2000

Mark D. Grossi Senior Vice President of the Corporation and 43 1995
Executive Vice President/Retail Banking of the
Bank since September 1992; President and Chief
Executive Officer of First American Savings Bank
from December 1989 through September 1992

Richard J. Jacob President of Richard J. Jacob and Associates, a 77 1987
private investing and consulting firm in Dayton,
Ohio, since 1993; owner of Jacob-Dourlet &
Associates, a real estate investment firm in
Dayton, Ohio, from 1987 to 1993; Director of
Durakon Industries, a manufacturer of truck
liners and related vehicle items

John D. Koch (2) Senior Vice President of the Corporation and 44 1995
Executive Vice President/Lending of the Bank,
with additional management responsibility for the
Bank's subsidiaries

Philip J. Meathe Retired Chairman of the Board and Chief 70 1976
Executive Officer of Smith, Hinchman & Grylls
Associates, Inc., an architectual engineering
and planning firm in Detroit, Michigan
</TABLE>

4
<PAGE> 8

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST BECAME
NAME OR EMPLOYMENT(1) AGE A DIRECTOR
---- ---------------- --- ----------
<S> <C> <C> <C>
Continuing Directors Whose Terms End in 1998

Eugene B. Carroll, Sr. President, Employer Sponsored Plans, Inc., a 72 1987
third-party health plan administrator in Cleveland,
Ohio, and agent for New England Mutual Life Insurance
Co.

Denise M. Fugo President of City Life Inc., a restaurant, banquet 43 1993
and catering company in Cleveland, Ohio

Charles John Koch (2) President and Chief Executive Officer of the 50 1987
Corporation and the Bank

Henry R. Nolte, Jr. Of Counsel to Miller, Canfield, Paddock and 72 1983
Stone, a law firm headquartered in Detroit,
Michigan, and was a senior partner from 1989 to
1993; retired as Vice President/General Counsel
of Ford Motor Company, a vehicle manufacturer
headquartered in Dearborn, Michigan, in 1989

Jerome L. Schostak Vice Chairman of the Corporation since the 63 1985
Merger;
Chairman of the Board and Chief Executive
Officer of Schostak Brothers & Company, Inc.,
a full service real estate company in
Southfield Michigan, and served as President
until 1994; Director of Crowley Milner &
Company, a retail department store chain

Mark Shaevsky Partner in Honigman Miller Schwartz and Cohn, 61 1985
a law firm headquartered in Detroit, Michigan

Continuing Directors Whose Terms End in 1999

Charles M. Heidel Retired President, Chief Operating Officer and 71 1980
Director of The Detroit Edison Company, a
public utility in Detroit, Michigan

Charles F. Ipavec General counsel to the Bank; 75 1987
President, LaPorte and Ipavec Co., L.P.A.,
a law firm in Cleveland, Ohio

Richard W. Neu Treasurer of the Corporation and Executive Vice 40 1992
President and Chief Financial Officer of the Bank;
Treasurer of FirstFed prior to the Merger

Victor A. Ptak General partner, manager of J.C. Bradford & 64 1989
Co., L.P.A., an investment banking firm in
Cleveland, Ohio

Eresteen R. Williams Retired Medical Office Manager for D.G. 71 1979
Williams, Jr., M.D., P.C., a medical practice
in Detroit, Michigan

<FN>
- ------------------

(1) Except as otherwise indicated, there has been no change in principal
occupation or employment during the past five years.

(2) Messrs. Charles John Koch and John D. Koch are brothers.
</TABLE>

5
<PAGE> 9

CORPORATE GOVERNANCE AND OTHER MATTERS

The Board of Directors of the Corporation acts as a nominating committee
for selecting nominees for election as directors. Although the Board will
consider nominees recommended by shareholders, it has not established any
procedures for this purpose. A condition of the Merger stipulates that at all
times prior to October 31, 1999, the Board will consist of an equal number of
directors representing Charter One and FirstFed prior to the Merger and that any
vacancies be filled based on the recommendation of the directors remaining from
the board served by the departing director prior to the Merger. The same
condition further stipulates that for such period Charles John Koch and Jerome
L. Schostak will serve as the Chairman and Vice Chairman, respectively, of the
Corporation's Board of Directors.

The Board of Directors of the Corporation has an Audit Committee which
recommends independent auditors to the Board, reviews the scope and results of
the auditors' services, reviews with management and the independent auditors the
systems of internal control and audit and ensures that the books and records of
the Corporation are kept in accordance with generally accepted accounting
principles. The members of the Audit Committee currently are Philip J. Meathe
(Chairman), Eugene B. Carroll, Sr., Charles F. Ipavec, Alonzo H. Poll, Mark
Shaevsky and Eresteen R. Williams. In 1996, the Audit Committee met six times.

The Board of Directors of the Corporation has a standing Stock Option
Committee and the Bank has a standing Compensation Committee which establish the
compensation of the Board of Directors, establish the compensation of senior
officers and consider the granting of stock options and other employee
compensation matters. The members of the committees currently are Eugene B.
Carroll, Sr. (Chairman), Denise M. Fugo, Charles M. Heidel, Henry R. Nolte, Jr.,
Victor A. Ptak and Jerome L. Schostak. The committees met nine times in 1996.

In 1996, Charter One held 12 meetings of the Board of Directors. No
incumbent director attended fewer than 75% of the aggregate of the total number
of meetings held by the Board of Directors and the total number of meetings held
by all committees of the Board on which he or she served during the period that
he or she served.

COMPENSATION OF DIRECTORS

Each non-employee member of the Corporation's Board of Directors
receives $200 per month plus $250 for each Board meeting attended by the
director. Additionally, each non-employee member of the Bank's Board of
Directors receives $1,200 per month plus $1,100 for each Board meeting attended
by the director. Executive officers of the Corporation or the Bank do not
receive any fees as directors of the Corporation or the Bank. In addition,
members of the committees of the Bank's Board receive $300 per month for each
committee on which they sit, except for the chairman of the Compensation and
Audit Committees, who receive $600 per month. In addition to other fees, Jerome
L. Schostak receives $11,960 per month for services rendered as Vice Chairman of
the Board of Directors of the Corporation.

For information regarding other business relationships between certain
directors and the Corporation, see "Compensation Committee Interlocks and
Insider Participation."

DIRECTORS' STOCK OPTION PLAN

The Corporation has a directors' stock option plan (the "Directors'
Plan") which is administered by the Corporation's Board of Directors and
provides for a one-time grant of 4,725 stock options to non-employee directors
upon joining the Board. On January 17, 1996, each non-employee director formerly
serving on FirstFed's Board (Charles M. Heidel, Richard J. Jacob, Philip J.
Meathe, Henry R. Nolte, Jr., Jerome L. Schostak, Mark Shaevsky and Eresteen R.
Williams) was granted 4,725 options with an exercise price of $28.333 under the
Directors' Plan. The options vest one-third on each of the first three
anniversaries of the grant date. In 1996, no non-employee director exercised
options except for Denise M. Fugo who exercised a stock option of 630 shares for
net value realized (market value less exercise price) of $8,576. If the Charter
One Financial, Inc. 1997 Stock Option and Incentive Plan is approved at the 1997
Annual Meeting, any shares reserved for awards but ungranted under the
Directors' Plan will be cancelled and non-employee directors will be eligible
for awards under the new plan. See "Proposal 2 - Approval of 1997 Stock Option
and Incentive Plan."

6
<PAGE> 10

EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY COMPENSATION TABLE

The Summary Compensation Table includes individual
compensation information on the Chief Executive Officer and the four other most
highly paid executive officers, for services rendered in all capacities during
the fiscal years ended December 31, 1996, 1995 and 1994.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ---------------------- --------
SECURITIES
OTHER UNDER- ALL
ANNUAL RESTRICTED LYING LTIP OTHER
COMPEN- STOCK OPTIONS/ PAYOUTS COMPEN-
NAME AND SALARY(1) BONUS(2) SATION AWARD(S) SARs (4) SATION(5)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- --------- -------- ------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles John Koch 1996 398,907 366,208 - - 168,000 - 15,297
Chief Executive 1995 338,657 238,696 - - - - 45,501
Officer 1994 321,740 227,113 - - - - 44,746

John D. Koch 1996 270,216 213,781 - - 105,000 - 14,601
Executive Vice 1995 229,103 133,775 - - - - 28,827
President 1994 217,846 124,632 52,004(3) - - - 28,284

Richard W. Neu (6) 1996 267,752 212,362 - - 105,000 - 6,658
Executive Vice 1995 240,000 159,657 - - - 139,906 32,331
President and 1994 240,000 - - - - 75,165 -
Chief Financial
Officer

Mark D. Grossi 1996 238,048 201,531 - - 105,000 - 13,814
Executive Vice 1995 190,201 115,522 - - - - 16,323
President 1994 180,806 107,168 - - - - 15,826

Robert J. Vana 1996 145,251 113,491 - - 47,250 - 12,081
Chief Corporate 1995 122,193 69,190 - - - - 19,603
Counsel and 1994 109,340 59,385 - - - - 18,765
Secretary

<FN>
- ------------------

(1) Salary includes amounts deferred at the election of the executive officer
through the Bank's 401(k) Plan.

(2) Includes annual award under the Executive Incentive Goal Achievement Plan
and, in the case of Mr. Neu, payments under First Federal's Profit Sharing
Plan and Management Incentive Award Plan ("MIAP"). Both First Federal plans
were terminated upon the Merger.

(3) Includes tax gross-ups and perquisites.

(4) Includes payment of appreciation on 1992 and 1993 Long-Term MIAP awards
which was distributed in conjunction with the termination of First
Federal's MIAP.

(5) Includes the Bank's contributions to the 401(k) Plan and ESOP, life
insurance premium payments, and, in 1995, Mr. Neu's relocation expenses
grossed up for taxes.

(6) Mr. Neu's individual compensation information includes his compensation
from First Federal prior to the Merger.
</TABLE>

7
<PAGE> 11

STOCK OPTIONS GRANTED IN 1996

The following table sets forth information concerning stock
options granted under the 1988 Stock Option Plan to the Corporation's Chief
Executive Officer and the four most highly compensated executive officers in
1996.

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS EXERCISE ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR OPTION TERM(1)
OPTIONS EMPLOYEES PER EXPIRATION -------------------------------
NAME GRANTED IN 1996 SHARE DATE 5% 10%
---- ------- ------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Charles John Koch........ 168,000 10.56% $ 28.333 01/17/06 $ 2,993,424 $ 7,586,208

John D. Koch............. 105,000 6.60 28.333 01/17/06 1,870,890 4,741,380

Richard W. Neu........... 105,000 6.60 28.333 01/17/06 1,870,890 4,741,380

Mark D. Grossi........... 105,000 6.60 28.333 01/17/06 1,870,890 4,741,380

Robert J. Vana........... 47,250 2.97 28.333 01/17/06 841,901 2,133,621

<FN>
- ------------------

(1) A 5% and 10% annually compounded increase in the Corporation's stock price
from the date of grant to the end of the 10-year option term would result
in stock prices of $46.151 and $73.489, respectively.
</TABLE>

The 1996 grant vests one-third on each of the first three anniversaries
of the grant date. Under the 1988 Stock Option Plan, the exercise price of any
option granted is equal to the closing price of the Corporation's common stock
on the grant date.

8
<PAGE> 12

OPTION/SAR EXERCISES AND HOLDINGS

The following table sets forth information regarding options exercised
by the Chief Executive Officer and the other named executive officers during
1996 and options and stock appreciation rights ("SARs") held by such persons at
the end of 1996.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARs
SHARES OPTIONS/SARs AT FY-END
ACQUIRED AT FY-END(#) ($)(1)
ON VALUE
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Charles John Koch............................... 6,250 $ 173,465 212,807(2)/ $6,718,025/
168,000 2,296,056

John D. Koch.................................... - - 94,304(3)/ 2,839,798/
105,000 1,435,035

Richard W. Neu.................................. 1,852 30,909 192,590(4)/ 6,178,513/
121,258 1,840,505

Mark D. Grossi.................................. - - 45,039(5)/ 1,423,680/
105,000 1,435,035

Robert J. Vana.................................. - - 30,910(6)/ 690,638/
47,250 645,766

<FN>
- ------------------

(1) The value of the SARs at fiscal year end was determined in accordance
with the terms of the stock plan which provides that the value of the
SARs will appreciate at a maximum level of $1.27 per year from date of
grant. The value of the options at fiscal year end was determined by
subtracting the exercise price from the market value of the underlying
securities on December 31, 1996, which was $42.00 per share and
multiplying the same by the number of options.

(2) Amount reported includes 29,531 SARs.

(3) Amount reported includes 14,766 SARs.

(4) Represents options granted under the FirstFed Stock Option Plan, which
Plan has been maintained by the Corporation in connection with the
Merger. Options to purchase FirstFed common stock were converted to
options to purchase the Corporation's common stock at a 1.2 share
exchange rate; however, all other terms of the FirstFed Stock Option
Plan were unchanged.

(5) Represents options granted under the First American BanCorp Stock
Option Plan, which Plan has been maintained by the Corporation in
connection with the merger of First American Savings Bank into the
Bank. Options to purchase First American BanCorp stock were converted
to options to purchase the Corporation's stock; however, all other
terms of the First American BanCorp Stock Option Plan were unchanged.

(6) Amount reported includes 8,860 SARs.
</TABLE>

PENSION PLANS

First Federal's Pension Plan was terminated on December 15, 1995. All
benefits were distributed to participants in accordance with Internal Revenue
Service and Pension Benefit Guarantee Corporation guidelines. The distribution
of all Plan assets was completed on February 19, 1997. The amount of each
distribution was a function of the Plan's benefit formula and an actuarial
determination of the value of the Plan assets. The Plan formula provided for
benefits based on the participant's years of service and base salary for the
highest consecutive 60-month period. Richard W. Neu received a distribution of
$92,064 due to the termination of the Plan.

The Supplemental Executive Retirement Plan ("SERP") became effective on
October 31, 1995 for Charles John Koch, John D. Koch, Richard W. Neu, Mark D.
Grossi and Robert J. Vana. The SERP is a nonqualified salary continuation
program designed to provide monthly benefits upon retirement. The amount of
benefits is a function of years of service and the highest three years of total
compensation. Annual benefits under the SERP are capped at $400,000 for Charles
John Koch and John D. Koch, and at $250,000 for Messrs. Neu, Grossi and Vana. As
of December 31, 1996, the monthly

9
<PAGE> 13

benefits that would be paid at normal retirement age would be $17,827, $4,970,
$4,105, $2,710, and $2,576 for Charles John Koch, John D. Koch, Richard W. Neu,
Mark D. Grossi and Robert J. Vana, respectively.

EMPLOYMENT AGREEMENTS

Effective October 31, 1995, the Bank entered into employment agreements
(the "Agreements") with Charles John Koch, John D. Koch, Richard W. Neu, Mark D.
Grossi and Robert J. Vana. The Agreements provide for an initial term of five
years, with one-year extensions of the term annually on October 31 beginning in
1998, unless the officer receives notice that such term will not be extended and
receives an unsatisfactory performance review from the Corporation or the Bank
Boards of Directors.

The Agreements provide for an annual base salary in an amount not less
than the executive's base salary as of October 31, 1995, subject to reduction
for amounts paid to the executive by any Corporation subsidiary. The Agreements
also entitle each executive to participate in an equitable manner with all other
executive officers in such performance-based and discretionary bonuses, if any,
as are authorized and declared by the Corporation or the Bank Boards of
Directors, and in the Bank's employee benefit, fringe benefit and welfare plans
and programs.

In the event an executive experiences an involuntary termination of
employment during the term of his Agreement, and the executive has offered to
continue to provide services as contemplated by his Agreement, the Agreement
obligates the Bank to pay the executive, during the lesser period of the
remaining term of the Agreement or three years following the date of
termination, monthly payments equal to one-twelfth of his annual base salary in
effect immediately prior to the date of termination and one-twelfth of the
average annual amount of cash bonus and cash incentive compensation of the
executive for the two full fiscal years preceding the date of termination. The
payments as described above will be reduced by any cash compensation actually
paid to the executive by Charter One's subsidiaries during the three-year period
following termination, as well as amounts received by the executive for services
other than to Charter One or Charter One's subsidiaries during the unexpired
term of his Agreement or the three-year period following termination.

In the event an executive experiences an involuntary termination of
employment within 12 months preceding or 24 months following a "change in
control" (as defined in the Agreements), the Agreements require Charter One, in
addition to its other payment obligations under the Agreements, to make a lump
sum payment to the executive in an amount equal to up to 299% of the executive's
"base amount" as determined under Section 280G of the Internal Revenue Code.
Based on current salaries, if Charles John Koch, John D. Koch, Richard W. Neu,
Mark D. Grossi or Robert J. Vana had terminated their employment as of February
28, 1997 under circumstances entitling them to severance pay as described above,
they would have been entitled to receive lump sum cash payments of $1,440,841,
$1,053,191, $1,157,086, $978,062 and $909,407, respectively.

1996 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Charter One Financial, Inc. (the "Corporation") is a unitary savings and
loan holding company which through a subsidiary owns all of the outstanding
capital stock of Charter One Bank, F.S.B. (the "Bank"). The Corporation's
business has consisted primarily of the business of the Bank and its
subsidiaries. The financial results of the Corporation are a direct function of
the Bank's achievement of its goals as set forth in its annual business plan.
Executives are compensated for their contribution to the achievement of these
goals which benefit the shareholders, customers, employees and the communities
in which the Bank operates.

The Corporation's Stock Option Committee and the Bank's Compensation
Committee (together the "Compensation Committee" or the "Committee") is composed
exclusively of outside directors. The Committee is dedicated to the philosophy
of linking executive pay to achievement of the Bank's goals and the resulting
performance of the Corporation. The Committee reviews all issues pertaining to
executive compensation and submits its recommendations to the full Board of
Directors for approval.

10
<PAGE> 14

EXECUTIVE COMPENSATION PHILOSOPHY

The Executive Compensation Program ("Program") is designed to guide the
Compensation Committee in formulating an appropriate compensation structure for
senior management. Its overall objective is to align senior management
compensation with the goals of the Bank's annual business plan by creating
strong incentives to manage the business successfully from both a financial and
operating perspective. The Program, which is administered by the Committee, is
structured to accomplish the following specific objectives:

1) Maintain a program which:

a) clearly motivates personnel to perform and succeed according to
the goals outlined in the Bank's annual business plan;

b) retains key personnel critical to the long-term success of the
Bank; and

c) emphasizes formula-based components, such as incentive plans, in
order to better focus management efforts in its execution of the
Bank's annual business plan.

2) Maintain pay for performance as an integral component of the Program
by utilizing incentive plans that emphasize corporate success;

3) Continue to incorporate compensation elements such as stock options
which clearly align the interests of management with those of the
shareholders;

4) Maintain a corporate environment which encourages stability and a
long-term focus for both the Bank and its management; and

5) Ensure that management:

a) fulfills its overall responsibility to its constituents,
including shareholders, customers, employees, the community and
government regulatory agencies;

b) conforms its business conduct to the highest ethical standards;

c) remains free from any influences that could impair or appear to
impair the objectivity and impartiality of its judgments or
treatment of the Bank's constituents; and

d) continues to avoid any conflict between its responsibilities to
the Bank and each member's personal interests.

Achievement of these objectives should result in a compensation
structure that reasonably tracks the total performance of the Bank.

The Program's compensation elements include base salary as well as
incentive plans. The incentive plans have been designed to reflect corporate
performance, individual performance, and alignment with the interests of the
Corporation's shareholders.

The Committee relies upon survey market research to determine and
maintain a relevant peer group (the "peer group") for total corporate
performance, for base salary comparison and for incentive compensation
comparison. The peer group survey is somewhat unique in that it looks to total
corporate performance and the relationship between performance, base pay and
incentive compensation. The resulting peer group is national in scope, covering
all 18 publicly traded savings institutions with assets between $5 billion and
$22 billion and six selected banks, principally in the Midwest, with assets in
that range. The Committee believes the peer group is representative of the
Corporation's competitors for business, personnel recruitment and compensation.
Performance comparisons include rankings based on return on average equity,
return on average assets, efficiency ratio, nonperforming assets over average
assets, tangible equity over assets, the risk-based capital ratio and total
return on the company's stock price. Compensation data utilized for comparisons
is generally annual cash compensation including base salary and most forms of
cash bonus and annual incentive awards.

11
<PAGE> 15

BASE SALARY

Base salary forms the foundation of the Bank's compensation program as
it represents income not at risk. The Committee believes that base salary should
function as an anchor: large enough that the executive is comfortable remaining
in the Bank's employ, but not so large as to conflict with the executive's
motivation to work hard to increase shareholder value. An individual's base
salary is directly related to his or her position scope, job responsibilities,
accountabilities, performance and contribution to the Bank. In general, the base
salary of each executive officer is intentionally set below the median of the
peer group. However, superior Corporation or individual performance should
result in incentive compensation which, when combined with base salary, would
place overall compensation above that of the peer group median.

INCENTIVE PLANS

Executive Incentive Goal Achievement Plan (the "EIGAP"). The purpose of
the Bank's EIGAP is to achieve the following objectives:

1) promote stability and the achievement of the Bank's profitability
and business goals;

2) link executive compensation to specific Bank objectives and
individual goals;

3) provide a competitive reward structure for senior officers and other
key employees; and

4) encourage involvement and communication regarding Bank strategic
plans.

Eligibility is normally limited to those management positions where the
functional responsibility encompasses the establishment of the Bank's strategic
direction and long-range plans, or operating results at the divisional level.
Other selected employees may also be eligible to participate as defined by
competitive compensation practices within the Bank's labor market.

All awards are established as a percentage of each participant's base
salary. Award levels differ due to the varying amount of impact on the Bank's
success. Participants earn awards by personally achieving their individual goals
and assisting the Bank in achieving its overall objectives. Awards are weighted
between Bank objectives and individual goals and vary by participant level. The
more control and influence a participant has on either Bank objectives or
individual goals, the greater the participant's weighting on that particular
factor. Individual goals and Bank objectives are established at the beginning of
each year. Bank objectives are established by the CEO and the Committee. All
measures under the EIGAP remain in effect for the entire year.

Should individual performance and goal achievement meet expectations but
the Bank fails to achieve certain of its objectives, no incentive award will be
made to any participant. Additionally, if the Bank achieves all of its
objectives but a participant's performance and/or goal achievement fails to meet
expectations, no incentive award will be made to that participant.

Stock Options. At least annually, the Committee reviews the
appropriateness of granting stock options to senior management. The purposes of
this long-term element of the Program are to:

1) provide an incentive to key employees to promote the success of the
business;

2) provide key officers with a long-term incentive to increase
shareholder value;

3) encourage ownership rights through purchase of common stock; and

4) attract and retain the best available personnel.

In the past, the Committee has been careful to grant options based on an
individual's performance and impact on the Bank's financial results. All options
have a term of 10 years and all previous grants have contained substantial
vesting requirements (usually three years). This element of the Program also
clearly aligns the executive with corporate and shareholder objectives.

12
<PAGE> 16

Federal Income Tax Limitations. Commencing with the Corporation's tax
year beginning January 1, 1994, Section 162(m) of the Internal Revenue Code
generally limits to $1 million the Corporation's federal income tax deduction
for compensation paid in any year to its Chief Executive Officer and each of its
four highest paid executive officers, to the extent that such compensation is
not "performance-based compensation", within the meaning of Section 162(m).
Although it is unlikely that an executive's level of compensation will exceed $1
million, if an executive exercises sufficient stock options it is possible for
the executive's compensation to exceed $1 million. Accordingly, in structuring
the Corporation's compensation arrangements with its highest paid executive
officers, the Committee attempted to provide incentive formulas that qualify as
"performance-based compensation" under Section 162(m) in order to decrease the
after-tax cost of such arrangements to the Corporation.

CORPORATE PERFORMANCE AND EXECUTIVE PAY

Base Salary for 1996. Approximately half of the potential compensation
of Charles John Koch (the "CEO") is based upon the Corporation's Incentive Plan
and, therefore, is dependent upon specific Corporation achievements in any given
year. The balance of the CEO's annual compensation is primarily his base salary
which is established by the Committee after consideration of his current
performance, his past base salary, comparison of the base salaries within the
peer group, and the overall performance and economic condition of the
Corporation. On April 1, 1996, the Board of Directors, acting on the
recommendation of the Committee, increased the CEO's salary by 22%. The increase
in base salary was the result of the CEO's outstanding efforts, evidenced in
particular by the following: the successful negotiation of the FirstFed Merger
and the acquisition of First Nationwide's Michigan branches, the achievement of
record core earnings during 1995; the continued quality of the Bank's financial
statements; and continued compliance with governmental regulations. The
Committee recognized that national issues influence the value of the
shareholders' interest in the Corporation and, accordingly, the Committee
considered Mr. Koch's involvement in various committees such as the FDIC SAIF
Fund Advisory Committee and the Federal Reserve Thrift Institutions Advisory
Council. In comparing the CEO's base salary to the peer group, the Committee
found that it fell below the median base salary for the peer group. Base salary
for the CEO is targeted to fall below the median of the peer group because of
the Corporation's emphasis on incentive compensation for its executives.
Additionally, the Committee reviews the total compensation package of executive
officers to the peer group to ensure that the total package is competitive with
the marketplace. All executive officers were also granted salary increases
effective April 1, 1996, based on the Committee's subjective assessment of the
individual's leadership, technical knowledge, analytical ability, decision
making, planning, personnel development and communication effectiveness and
their objective review of the individual executive's goal achievement for the
performance period in areas such as: loan production, investment return, branch
operating efficiency, merger and acquisition integration, and deposit retention.

Bonus Awards for 1996. The EIGAP for 1996 provided for the cash bonus
awarded to Mr. Koch recognizing his contribution to the achievement of the
Bank's annual goals. The Committee reviewed the Bank's performance relative to
the percentage achievement of the goals established in the 1996 Business Plan,
which focused on core earnings, net worth, asset quality, efficiency ratio, loan
origination, deposit growth, and interest rate risk. The Bank exceeded the
financial and operational goals it set for 1996 which resulted in a bonus to Mr.
Koch at the maximum level under the EIGAP. The goals established in the Bank's
annual business plan are designed such that if achieved, the Corporation's
earnings should increase while maintaining the institution's historical
financial soundness. In order to qualify for a bonus, an individual must achieve
at least 50% of his or her preestablished goals, with the individual's bonus
increasing as the achievement percentage increases. Cash bonuses under the EIGAP
were awarded in January 1997. In comparing the CEO's bonus award to the peer
group, the Committee found that bonus earnings were above the average for the
peer group. This finding coincides with the Corporation's focus on higher at
risk compensation and lower base compensation to provide a competitive total
compensation package. All executive officers were also awarded cash bonuses
which were functions of the achievement of the Corporation's aforementioned
goals, in conjunction with the achievement of related individual goals.

Submitted by the Compensation Committee
of the Corporation's Board of Directors

Eugene B. Carroll, Sr. (Chairman)
Denise M. Fugo
Charles M. Heidel
Henry R. Nolte
Victor A. Ptak
Jerome L. Schostak

13
<PAGE> 17

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996, no member of the Compensation Committee of the
Corporation's Board of Directors was a current or former officer or employee of
the Corporation or any of its subsidiaries or had a reportable business
relationship with the Corporation, except as set forth below.

Eugene B. Carroll, Sr., a director and chairman of the Compensation
Committee, is President and Chief Executive Officer of Employer Sponsored Plans,
Inc. ("ESP, Inc.") which provides third-party payment services for the
Corporation's self-insured medical plan and group life insurance policy. Mr.
Carroll is also President and Chief Executive Officer of Eugene B. Carroll, CLU,
Inc. ("E.B.C., Inc.") which provides, on an agency basis, group life insurance
benefits for the Corporation. During 1996, ESP, Inc. and/or E.B.C., Inc.
received from the Corporation fees and commissions in the amount of $76,000 for
services rendered to the Corporation. Additionally, Jerome L. Schostak, Vice
Chairman of the Board and member of the Compensation Committee, is also Chairman
and Chief Executive Officer of Schostak Brothers & Company, Inc. which has
provided lease management services for the Corporation.

COMPARATIVE PERFORMANCE BY THE CORPORATION

The following chart compares the Corporation's common stock with (i) the
S&P 500 Index, and (ii) a selected peer group which includes all publicly traded
thrifts (18 institutions) with an asset size greater than $5 billion and less
than $22 billion as of September 30, 1996 and six selected banks, principally in
the Midwest, with assets in that range(1)(2). The chart assumes an investment of
$100 on January 1, 1992, in each of the Corporation's common stock, the S&P 500
Index and the stocks in the selected peer group. Each year's performance is for
the calendar year ended December 31. The overall performance assumes dividend
reinvestment throughout the period.

14
<PAGE> 18

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CHARTER ONE FINANCIAL, INC., S&P 500 INDEX
AND PEER GROUP INDEX

[GRAPH]

<TABLE>
<CAPTION>
CHARTER ONE PEER GROUP S&P 500
FINANCIAL, INC. INDEX INDEX
<S> <C> <C> <C>
1991
1992
1993
1994
1995
1996

<FN>
- -----------------------

(1) The specific institutions meeting the criteria established for Charter One's
selected peer group consisted of the following: Astoria Financial
Corporation, Cal Fed Bancorp, Inc., Charter One Financial, Inc., Coast
Savings Financial, Inc., Collective Bancorp, Inc., Commercial Federal
Corporation, Dime Bancorp, Incorporated, Fifth Third Bancorp, First
Financial Corporation, FirstMerit Corporation, Glendale Federal Bank,
Federal Savings Bank, GreenPoint Financial Corporation, Long Island Bancorp,
Inc., Old Kent Financial Corporation, ONBANCorp, Inc., Peoples Bank, MHC,
Provident Bancorp, Inc., Roosevelt Financial Group, Inc., Sovereign Bancorp,
Inc., Standard Federal Bancorporation, Star Banc Corporation, TCF Financial
Corp., Washington Federal, Inc., and Washington Mutual Inc.

(2) The same criteria were used to define the selected peer group in 1996 as in
1995. The peer group represented here is identical to that used for
compensation review purposes. The specific institutions meeting the criteria
in 1996 remained the same as in 1995 except that Long Island Bancorp, Inc.
and Washington Federal, Inc. were added as a result of assets increasing
above $5 billion during the year.
</TABLE>

TRANSACTIONS WITH RELATED PARTIES

Historically, the Bank provided residential mortgage loans to directors,
officers and other employees at reduced interest rates and without loan fees.
Since 1989, only employees and nonexecutive officers have been eligible for
preferential loans. Loans to directors and executive officers, and their
immediate families, have been made in the ordinary course of business on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons and, when made, have not involved more than the
normal risk of uncollectibility or presented other unfavorable features. No
director or executive officer of the Corporation or the Bank had a loan with
preferential terms and an outstanding aggregate balance exceeding $60,000 at any
time since January 1, 1996 except Charles John Koch. Mr. Koch is the borrower on
an adjustable-rate loan, originated pursuant to the Bank's lending policy in
1984, which provides for a rate .83% below current market. At February 28, 1997,
the principal balance was $152,640, the rate was 6.44% and the largest amount
outstanding on the loan since January 1, 1996 was $156,480.

Charles F. Ipavec, a director and general counsel to the Corporation, is
President of the law firm of LaPorte and Ipavec Co., L.P.A. ("LaPorte and
Ipavec"). During 1996, LaPorte and Ipavec received from the Corporation fees in
the amount of $105,060 for services rendered to the Corporation. Additionally,
Mark Shaevsky, a director, is a partner of the law firm of Honigman Miller
Schwartz and Cohn. The firm has been retained to provide legal services to the
Corporation regarding the real estate taxation of office properties and
environmental issues. For information regarding other business relationships
between certain directors and the Corporation, see "Compensation Committee
Interlocks and Insider Participation."

15
<PAGE> 19

PROPOSAL 2 - APPROVAL OF 1997 STOCK OPTION AND INCENTIVE PLAN

GENERAL

On February 18, 1997, the Board of Directors of the Corporation adopted
the Charter One Financial, Inc. 1997 Stock Option and Incentive Plan (the
"Option Plan"), subject to the approval of shareholders at the Annual Meeting.
This proposal requires the affirmative vote of a majority of the votes actually
cast at the Annual Meeting. The principal provisions of the Option Plan are
summarized below. Such summary does not, however, purport to be complete and is
qualified in its entirety by the terms of the Option Plan, the entire text of
which is included here as Exhibit I. Capitalized terms used in this summary and
not defined here have the same meaning as in the Option Plan.

PURPOSE OF THE OPTION PLAN

The purpose of the Plan is to promote the long-term interests of the
Corporation and its shareholders by providing a means for attracting and
retaining directors, advisory directors, officers and employees ("Participant")
of the Corporation and its Affiliates. The Option Plan is being adopted at this
time as the Corporation's 1988 Stock Option Plan expires on January 29, 1998. If
the Option Plan is approved, common shares reserved for awards but ungranted
under all existing stock option plans (approximately 386,000 shares) will be
cancelled. A total of approximately 2,270 persons will be eligible to receive
Awards under the Option Plan.

DESCRIPTION OF THE OPTION PLAN

Administration. The Option Plan will be administered by a Committee, appointed
by the Board of Directors, consisting of two or more non-employee directors. The
Committee will have complete authority and discretion over the granting of
Awards and administration of the Plan.

Shares Subject to the Plan. The Option Plan provides for Awards up to a maximum
of 4,586,739 shares of common stock (9.9% of the Corporation's current
outstanding shares), subject to various adjustments. These shares may be either
authorized and unissued shares or previously issued shares reacquired and held
as treasury shares. In the event of a change in the outstanding shares as a
result of a reorganization, recapitalization, stock split/dividend, combination
or exchange of shares, merger, consolidation or other similar event, the shares
available for future Awards as well as Awards previously granted will be
adjusted accordingly.

Awards. The exercise price per share for an option may not be less than 100% of
the market value of a share of the Corporation's common stock on the day of
grant and an option cannot have a term greater than 10 years. Options awarded
may be in the form of Incentive Stock Options within the meaning of Section 422
of the Code ("ISO") or Non-Qualified Stock Options except that ISOs may be
granted only to employees of the Corporation or its Affiliates. Additionally,
Awards granted to any one Participant may not exceed 500,000 shares per year
except that non-employee directors are limited to an annual maximum of 5,000
shares. The timing and form of payment of the exercise of an option will be
determined by the Committee.

Stock Appreciation Rights. A stock appreciation right ("SAR") may be granted in
tandem with an option or independently. Exercise of an SAR entitles the
Participant to shares, cash or a combination of shares and cash with an
aggregate value equal to the excess of the aggregate fair market value of the
shares represented by the Award being exercised over the aggregate exercise
price.

Effect of Merger. In the event of a merger, consolidation or combination in
which the Corporation is not the surviving entity, a Participant exercising an
Award shall have the right to receive an amount equal to the excess of the fair
market value per share of the securities, cash or property receivable in the
merger, consolidation or combination over the exercise price of the Award,
multiplied by the number of shares with respect to which the Award shall have
been exercised.

Effect of Change in Control. In the event of a tender offer or exchange offer
for shares of the Corporation or a change in control of the Corporation (as
defined in Section 8(a)(i) through (a)(v) of the Plan), all options and SARs
previously granted and not yet fully exercisable become exercisable in full and
remain exercisable for one year. Similarly, in the event a Participant in the
Plan is involuntarily terminated without cause, or if a director is not
renominated, following a change in control (as defined in Section 8(a)(vi) of
the Plan), such Participant's, or such director's, unvested options and SARs
become exercisable for one year.

16
<PAGE> 20
Federal Income Tax Consequences. The rules governing the tax treatment of stock
options, stock appreciation rights and shares acquired upon the exercise of
stock options and stock appreciation rights are quite technical. Therefore, the
description of federal income tax consequences set forth below is necessarily
general in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, the tax consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.

Under present federal income tax laws, Awards under the Option Plan will have
the following federal income tax consequences:

1) The grant of an Award will not, by itself, result in the recognition of
taxable income to the Participant nor entitle the Corporation to a
deduction at the time of such grant.

2) The exercise of a stock option which is an ISO will generally not, by
itself, result in the recognition of taxable income to the Participant
nor entitle the Corporation to a deduction at the time of such exercise.
However, the difference between the exercise price and the fair market
value of the shares acquired on the date of exercise is an item of tax
preference which may, in certain situations, trigger the alternative
minimum tax. Additionally, the Participant will recognize long-term
capital gain or loss upon resale of the shares received upon such
exercise, provided that the Participant holds the shares for more than
one year following the exercise. The Corporation will generally not be
entitled to a tax deduction with respect to the granting or exercise of
such a stock option or the subsequent sale of the shares. If the shares
are not held for at least one year after transfer of the shares to
him/her or two years after the grant of the stock option, whichever is
later, the Participant will also recognize ordinary income or loss upon
disposition in an amount equal to the difference between the exercise
price and the fair market value on the date of exercise of the shares
acquired pursuant to the stock option. In such an event, the Corporation
will generally be entitled to a corresponding deduction, provided the
Corporation meets its federal withholding tax obligations.

3) The exercise of a stock option which is not an ISO will result in the
recognition of ordinary income by the Participant on the date of
exercise in an amount equal to the difference between the exercise price
and the fair market value on the date of exercise of the shares acquired
pursuant to the exercise of the stock option. The calculation of federal
income tax and recognition of gain occurs on the date of exercise. The
amount subject to tax will be the difference between the exercise price
(amount paid) and the fair market value (market price) on the date of
exercise. In general, the Corporation will be entitled to a tax
deduction in the year in which compensation income is recognized by the
Participant, in the amount of such compensation income. This amount is
generally the difference between the exercise price and the fair market
value of the stock.

4) A Participant is able to exercise a stock option, if permitted by the
Committee, by delivering shares of the Corporation's common stock ("old
stock") to the Corporation in exchange for the stock received by
exercise of the stock option ("option stock".) In general, if a
Participant exchanges old stock for option stock instead of, or in
addition to, paying part or all of the exercise price in cash, no gain
or loss will be recognized with respect to the exchange of the old
stock. To the extent the number of shares received upon the exercise of
a stock option which is not an ISO exceeds the number of shares
surrendered, a Participant will recognize taxable income in an amount
equal to the fair market value of the excess number of shares. If ISO
shares which have not met the ISO holding period are used, this will
trigger a disqualifying disposition of the amount of ISO shares used and
result in recognition of taxable compensation to the Participant as to
those shares used.

5) When the Participant sells the shares acquired upon exercise of the
option, provided that the sale is not a disqualifying disposition of an
Incentive Stock Option, the Participant will recognize a capital gain or
loss in an amount equal to the difference between the amount realized
upon the sale of the shares and the Participant's basis in the shares.
If the Participant holds the shares for longer than one year, this gain
or loss will be a long-term capital gain or loss.

6) The exercise of an SAR will result in the recognition of ordinary income
by the Participant on the date of exercise in an amount equal to the
amount of cash and/or the fair market value on that date of the shares
acquired pursuant to the exercise. The Corporation will generally be
entitled to a corresponding tax deduction, provided the Corporation
meets its federal withholding tax obligation.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED PLAN.

17
<PAGE> 21

PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The firm of Deloitte & Touche LLP served as the Corporation's
independent auditors for the fiscal year ending December 31, 1996.
Representatives of Deloitte & Touche LLP will be present at the Annual Meeting.
They will be given an opportunity to make a statement if they desire to do so
and will be available to respond to the appropriate questions.

The Board of Directors has appointed the firm of Deloitte & Touche LLP
to continue as independent auditors for the Corporation for the fiscal year
ending December 31, 1997, subject to ratification of such appointment by the
shareholders. Deloitte & Touche LLP has acted as the independent auditors of the
Bank since 1986, and of Charter One since its organization in July 1987. Unless
otherwise indicated, properly executed proxies will be voted in favor of
ratifying the appointment of Deloitte & Touche LLP, independent certified public
accountants, to audit the books and accounts of the Corporation for the fiscal
year ending December 31, 1997. This proposal requires the affirmative vote of a
majority of the votes actually cast at the Annual Meeting. No determination has
been made as to what action the Board of Directors would take if the
shareholders do not ratify the appointment.

DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
TO BE PRESENTED AT 1998 ANNUAL MEETING OF SHAREHOLDERS

Any proposal intended to be presented by any shareholder for action at
the 1998 Annual Meeting of Shareholders of the Corporation must be received by
the Secretary of the Corporation at 1215 Superior Avenue, Cleveland, Ohio 44114,
not later than November 18, 1997, in order for the proposal to be considered for
inclusion in the proxy statement and proxy relating to the 1998 Annual Meeting.
Nothing in this paragraph shall be deemed to require the Corporation to include
in its proxy statement and proxy relating to the 1998 Annual Meeting any
shareholder proposal which does not meet all the requirements for inclusion
established by the Securities and Exchange Commission at the time such proposal
is received.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
10% of the Corporation's common stock (or any other equity securities, of which
there is none), to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of the
Corporation's common stock. Executive officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms they file.

To the Corporation's knowledge, based solely on a review of the copies
of such reports furnished to the Corporation and written representations that no
other reports were required during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with.

OTHER MATTERS

As of the date of this Proxy Statement, the Board of Directors of
Charter One does not know of any other matters to be presented for action by the
shareholders at the Annual Meeting. If, however, any other matters not now known
are properly brought before the meeting, the persons named in the accompanying
proxy will vote such proxy in accordance with the determination of a majority of
the Board of Directors.

MISCELLANEOUS

The cost of soliciting proxies in the form enclosed herewith will be
borne by the Corporation. In addition to the solicitation of proxies by mail,
the Corporation, through its directors, officers and regular employees, may also
solicit proxies personally or by telephone or telegraph. The Corporation will
also request persons, firms and corporations holding shares in their names or in
the name of their nominees, which are beneficially owned by others, to send
proxy material to, and obtain proxies from, such beneficial owners and will
reimburse such holders for their reasonable expenses in doing so. The
Corporation may engage a proxy soliciting firm to assist in the solicitation of
proxies. The cost of such a firm would not be expected to exceed $7,500.

18
<PAGE> 22

A copy of the Annual Report to Shareholders for the fiscal year ended
December 31, 1996 accompanies this Proxy Statement. Such Annual Report to
Shareholders is not to be treated as a part of the proxy solicitation material
or as having been incorporated herein by reference.

FORM 10-K

The Corporation is required to file an Annual Report for its fiscal year
ended December 31, 1996 on Form 10-K with the SEC. Shareholders may obtain, free
of charge, a copy of the Form 10-K by writing to Robert J. Vana, Secretary,
Charter One Financial, Inc., 1215 Superior Avenue, Cleveland, Ohio 44114.

By Order of the Board of Directors

/s/ Charles John Koch

CHARLES JOHN KOCH
Chairman of the Board
Cleveland, Ohio
March 18, 1997

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<PAGE> 23

EXHIBIT I

CHARTER ONE FINANCIAL, INC.
1997 STOCK OPTION AND INCENTIVE PLAN

1. PLAN PURPOSE

2. DEFINITIONS

The following definitions are applicable to the Plan:

Affiliate -- means any "parent corporation" or "subsidiary corporation" of
the Corporation as such terms are defined in Section 424(e) and (f),
respectively, of the Code.

Award -- means the grant by the Committee of an Incentive Stock Option, a
Non-Qualified Stock Option, a Stock Appreciation Right or any combination
thereof, as provided in the Plan.

Award Agreement -- means the agreement evidencing the grant of an Award
made under the Plan.

Cause -- means Termination of Service by reason of personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order. No act or failure to
act by the Participant shall be considered willful unless the Participant
acted or failed to act with an absence of good faith and without a
reasonable belief that his action or failure to act was in the best
interest of the Corporation.

Code -- means the Internal Revenue Code of 1986, as amended.

Committee -- means the Committee referred to in Section 3 hereof.

Corporation -- means Charter One Financial, Inc., a Delaware corporation,
and any successor thereto.

Incentive Stock Option -- means an option to purchase Shares granted by
the Committee which is intended to qualify as an Incentive Stock Option
under Section 422(b) of the Code. Unless otherwise set forth in the Award
Agreement any Option which does not qualify as an Incentive Stock Option
for any reason shall be deemed a Non-Qualified Stock Option.

Market Value -- means the average of the high and low quoted sales price
on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on
the Composite Tape for New York Stock Exchange-Listed Stocks, or, if on
such date the Shares are not quoted on the Composite Tape, on the New York
Stock Exchange, or if the Shares are not listed or admitted to trading on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 (the "Exchange Act")
on which the Shares are listed or admitted to trading, or, if the Shares
are not listed or admitted to trading on any such exchange, the mean
between the closing high bid and low asked quotations with respect to a
Share on such date on the Nasdaq Stock Market, or any similar system then
in use, or, if no such quotations are available, the fair market value on
such date of a Share as the Committee shall determine.

Non-Qualified Stock Option -- means an option to purchase Shares granted
by the Committee which does not qualify, for any reason, as an Incentive
Stock Option under Section 422(b) of the Code.

Option -- means an Incentive Stock Option or a Non-Qualified Stock Option.

Participant -- means any director, advisory director, officer or employee
of the Corporation or any Affiliate who is selected by the Committee to
receive an Award.

20
<PAGE> 24
Plan -- means this 1997 Stock Option and Incentive Plan of the
Corporation.

Related -- means (i) in the case of a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in
lieu of, an Option or another Right and (ii) in the case of an Option, an
Option with respect to which and to the extent a Right is exercisable, in
whole or in part, in lieu thereof.

Right -- means a Stock Appreciation Right.

Shares -- means the shares of common stock of the Corporation.

Stock Appreciation Right -- means a stock appreciation right with respect
to Shares granted by the Committee pursuant to the Plan.

Termination of Service -- means cessation of service, for any reason,
whether voluntary or involuntary, as a director, advisory director,
officer or employee of the Corporation or any of its Affiliates.

3. ADMINISTRATION

The Plan shall be administered by a Committee consisting of two or more
members of the Board of Directors of the Corporation, each of whom (i)
shall be an outside director as defined under Section 162(m) of the Code
and the regulations thereunder and (ii) shall be a Non-Employee Director
as defined under Rule 16(b) of the Securities Exchange Act of 1934 or any
similar or successor provision. The members of the Committee shall be
appointed by the Board of Directors of the Corporation. Except as limited
by the express provisions of the Plan or by resolutions adopted by the
Board of Directors of the Corporation, the Committee shall have complete
authority and discretion to (i) select Participants and grant Awards; (ii)
determine the number of Shares to be subject to types of Awards generally,
as well as to individual Awards granted under the Plan; (iii) determine
the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such
grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, and make all
determinations deemed necessary or advisable for the administration of the
Plan.

A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee
without a meeting, shall be acts of the Committee.

4. SHARES SUBJECT TO PLAN

(a) Subject to adjustment by the operation of Section 6, the maximum
number of shares with respect to which Awards may be made under the
Plan is 4,586,739 shares (9.9% of the currently outstanding shares.)
The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued shares or previously issued
shares reacquired and held as treasury shares. Shares which are
subject to Related Rights and Related Options shall be counted only
once in determining whether the maximum number of Shares with respect
to which Awards may be granted under the Plan has been exceeded. An
Award shall not be considered to have been made under the Plan with
respect to any Option or Right which terminates, and new Awards may
be granted under the Plan with respect to the number of Shares as to
which such termination or forfeiture has occurred.

(b) During any calendar year, no Participant may be granted Awards under
the Plan with respect to more than 500,000 Shares and no director who
is not also an employee of the Corporation or any Affiliate may be
granted Awards under the Plan with respect to more than 5,000 Shares,
subject to adjustment as provided in Section 6.

5. AWARDS

(a) Options

The Committee is hereby authorized to grant Options to Participants
with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine, including the granting of Options
in tandem with other Awards under the Plan:

21
<PAGE> 25

(i) Exercise Price. The exercise price per Share for an Option
shall be determined by the Committee; provided, however, that
such exercise price shall not be less than 100% of the Market
Value of a Share on the date of grant of such Option.

(ii) Option Term. The term of each Option shall be fixed by the
Committee, but shall be no greater than 10 years.

(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or
in part and the method or methods by which, and the form or
forms (including, without limitation, cash, Shares, other
Awards or any combination thereof, having a market value on the
exercise date equal to the relevant exercise price) in which,
payment of the exercise price with respect thereto may be made
or deemed to have been made.

(iv) Incentive Stock Options. Incentive Stock Options may be granted
by the Committee only to employees of the Corporation or its
Affiliates.

(v) Termination of Service. Unless otherwise determined by the
Committee and set forth in the Award Agreement evidencing the
grant of the Option, and except as provided in Section 8(b)
hereof, upon Termination of Service of the Participant for any
reason other than death, disability or for Cause, all Options
then currently exercisable shall remain exercisable for three
months following such Termination of Service. Upon Termination
of Service for death or disability, all Options then currently
exercisable shall remain exercisable for one year following
such Termination of Service. Upon Termination of Service for
Cause, all Options not previously exercised shall immediately
be forfeited.

(b) Stock Appreciation Rights

A Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Stock Appreciation Right was granted to
receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of
which (i.e., the sum of the amount of cash and/or Market Value of
such Shares on date of exercise) shall equal (as nearly as possible,
it being understood that the Corporation shall not issue any
fractional shares) the amount by which the Market Value per Share on
the date of such exercise shall exceed the exercise price of such
Stock Appreciation Right, multiplied by the number of Shares with
respect to which such Stock Appreciation Right shall have been
exercised. A Stock Appreciation Right may be Related to an Option or
may be granted independently of any Option as the Committee shall
from time to time in each case determine. In the case of a Related
Option, such Related Option shall cease to be exercisable to the
extent of the Shares with respect to which the Related Stock
Appreciation Right was exercised. Upon the exercise or termination of
a Related Option, any Related Stock Appreciation Right shall
terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.

6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

In the event of any change in the outstanding Shares subsequent to the
effective date of the Plan by reason of any reorganization,
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation or any change in the corporate structure or
Shares of the Corporation, the maximum aggregate number and class of
shares and exercise price of the Award, if any, as to which Awards may be
granted under the Plan and the number and class of shares and exercise
price of the Award, if any, with respect to which Awards have been granted
under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any Award which is adjusted as a result
of this Section 6 shall be subject to the same restrictions as the
original Award.

7. EFFECT OF MERGER ON OPTIONS OR RIGHTS

In the case of any merger, consolidation or combination of the Corporation
(other than a merger, consolidation or combination in which the
Corporation is the continuing corporation and which does not result in the
outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof), any
Participant to whom an Option or Right has been granted shall have the
additional right (subject to the provisions of the Plan and any limitation
applicable to such Option or Right), thereafter and during the term of
each such Option or Right, to receive upon exercise of any such Option or
Right an amount equal to the excess of the fair market value on the date
of such exercise of the securities, cash or other property, or combination
thereof, receivable upon such merger,

22
<PAGE> 26

consolidation or combination in respect of a Share over the exercise price
of such Right or Option, multiplied by the number of Shares with respect
to which such Option or Right shall have been exercised. Such amount may
be payable fully in cash, fully in one or more of the kind or kinds of
property payable in such merger, consolidation or combination, or partly
in cash and partly in one or more of such kind or kinds of property, all
in the discretion of the Committee.

8. EFFECT OF CHANGE IN CONTROL

(a) The term "Change in Control" means (i) an acquisition of securities
of the Corporation that is determined by the Board of Directors to
constitute a change in control of the Corporation or any of its
Affiliates, within the meaning of the Home Owners' Loan Act of 1933
and 12 C.F.R. Part 574 as in effect on the date of adoption of this
Plan by the Board of Directors; (ii) an event that would be required
to be reported in response to Item 1 of the current report on Form
8-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act") as in effect on the date of adoption of
this Plan by the Board of Directors; (iii) any person (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Corporation or any
of its Affiliates representing 25% or more of the combined voting
power of the Corporation's or any Affiliates' outstanding securities;
(iv) individuals who are members of the Board of Directors on the
date of adoption of this Plan (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, PROVIDED THAT any
person becoming a director subsequent to the date of adoption of this
Plan whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination
for election by the Corporation's shareholders was approved by the
nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; (v) approval by the
Corporation's shareholders of a plan of reorganization, merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, or a similar transaction in which the Corporation is not
the resulting entity; or (vi) a transaction at the completion of
which the former shareholders of the acquired corporation become the
holders of more than 40% of the outstanding common stock of the
Corporation or any Affiliate and the Corporation or any Affiliate is
the resulting entity of such transaction; PROVIDED THAT the term
"Change in Control" shall not include an acquisition of securities by
an employee benefit plan of any Affiliate or the Corporation. In the
application of 12 C.F.R. Part 574 to a determination of a Change in
Control, determinations to be made by the Office of Thrift
Supervision or its Director or any successor entity under such
regulations shall be made by the Board of Directors of the
Corporation.

(b) If a tender offer or exchange offer for Shares (other than such an
offer by the Corporation) is commenced, or if any of the events
constituting a Change in Control as specified in subparagraph (a)(i)
through (v) above shall occur, all Options and Stock Appreciation
Rights granted and not fully exercisable shall become exercisable in
full upon the happening of such event, and shall remain so for a
period of one year following such event; provided, however, that no
Option or Stock Appreciation Right which has previously been
exercised or otherwise terminated shall become exercisable. If the
event constituting a Change in Control as specified in subparagraph
(a)(vi) above shall occur, AND, unless the Committee shall have
otherwise --- provided in the Award Agreement; (i) if the employment
of the Participant as an employee of the Corporation or any Affiliate
thereof is involuntarily terminated without Cause or (ii) if a
non-employee Participant who is a director of the Corporation or any
Affiliate thereof is not re-nominated or re-elected to at least one
of such director positions, without Cause (unless such Participant
resigns or declines to stand for re-election), all Options and Stock
Appreciation Rights granted and not fully exercisable shall become
exercisable in full upon the happening of such event, and shall
remain so for a period of one year following such event; provided,
however, that no Option or Stock Appreciation Right which has
previously been exercised or otherwise terminated shall become
exercisable.

9. ASSIGNMENTS AND TRANSFERS

No Award granted under the Plan shall be transferable otherwise than by
will, the laws of descent and distribution or pursuant to a qualified
domestic relations order. During the lifetime of an Award recipient, an
Award shall be exercisable only by the Award recipient.

10. GRANTEE RIGHTS UNDER THE PLAN

No person shall have a right to be selected as a Participant nor, having
been so selected, to be selected again as a Participant and no officer,
employee or other person shall have any claim or right to be granted an
Award under the Plan or under any other incentive or similar plan of the
Corporation or any Affiliate. Neither the Plan nor any action

23
<PAGE> 27

taken thereunder shall be construed as giving any employee any right to be
retained in the employ of the Corporation or any Affiliate.

11. DELIVERY AND REGISTRATION OF STOCK

The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom
such Shares are to be delivered, in such form as the Committee shall
determine to be necessary or advisable to comply with the provisions of
the Securities Act of 1933 or any other federal, state or local securities
legislation. It may be provided that any representation requirement shall
become inoperative upon a registration of the Shares or other action
eliminating the necessity of such representation under such Securities Act
or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such
Shares to listing on any stock exchange on which Shares may then be
listed; and (ii) the completion of such registration or other
qualification of such Shares under any state or federal law, rule or
regulation, as the Committee shall determine to be necessary or advisable.

12. WITHHOLDING TAX

The Corporation shall have the right to deduct from all amounts paid in
cash with respect to the exercise of a Right under the Plan any taxes
required by law to be withheld with respect to such cash payments. Where a
Participant or other person is entitled to receive Shares pursuant to the
exercise of an Option or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or
sell without notice, a number of such Shares sufficient to cover the
amount required to be withheld.

All withholding decisions pursuant to this Section 12 shall be at the sole
discretion of the Committee or the Corporation.

13. AMENDMENT OR TERMINATION

(a) The Board of Directors of the Corporation may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of
shareholders or Participants, except that any such action will be
subject to the approval of the Corporation's shareholders if, when
and to the extent such shareholder approval is necessary or required
for purposes of any applicable federal or state law or regulation or
the rules of any stock exchange or automated quotation system on
which the Shares may then be listed or quoted, or if the Board of
Directors of the Corporation, in its discretion, determines to seek
such shareholder approval.

(b) The Committee may waive any conditions of or rights of the
Corporation or modify or amend the terms of any outstanding Award.
The Committee may not, however, amend, alter, suspend, discontinue or
terminate any outstanding Award without the consent of the
Participant or holder thereof, except as otherwise herein provided.

14. EFFECTIVE DATE AND TERM OF PLAN

The Plan shall become effective upon its adoption by the Board of
Directors of the Corporation, and the approval of the Plan by the
shareholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 13 hereof.

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<PAGE> 28

APPENDIX A

CHARTER ONE FINANCIAL, INC.

FINANCIAL INFORMATION

Table of Contents

<TABLE>
<S> <C>
Five-Year Summary............................................ 26
Management's Discussion and Analysis......................... 28
Consolidated Statements of Financial Condition............... 44
Consolidated Statements of Income............................ 45
Consolidated Statements of Shareholders' Equity.............. 46
Consolidated Statements of Cash Flows........................ 47
Notes to Consolidated Financial Statements................... 48
Independent Auditors' Report................................. 75
</TABLE>

25
<PAGE> 29

FIVE-YEAR SUMMARY

<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income.................................. $ 1,004,478 1,087,410 1,006,180 1,082,156 1,131,758
Interest expense................................. 621,086 769,594 694,207 774,762 884,752
---------- ---------- ---------- --------- ----------
Net interest income.............................. 383,392 317,816 311,973 307,394 247,006
Provision for loan and lease losses.............. 4,001 1,032 2,948 7,549 12,544
---------- ---------- ---------- --------- ----------
Net interest income after provision
for loan and lease losses...................... 379,391 316,784 309,025 299,845 234,462
Other income:
Net gain (loss)(1)............................. 1,893 (92,303) (145,786) 6,832 25,078
Other.......................................... 55,245 44,467 35,397 33,027 28,414
Administrative expenses(2)....................... 244,024 215,743 175,961 178,889 167,516
---------- ---------- ---------- --------- ----------
Income before federal income taxes,
extraordinary item and cumulative
effect of accounting change.................... 192,505 53,205 22,675 160,815 120,438
Federal income taxes............................. 64,783 19,173 7,056 56,415 42,270
---------- ---------- ---------- --------- ----------
Income before extraordinary item
and cumulative effect of
accounting change.............................. 127,722 34,032 15,619 104,400 78,168
Extraordinary item - early
extinguishment of debt, net of tax
benefit of $6,361............................ - - (12,348) - -
Cumulative effect of accounting
change(3)...................................... - - - - 14,825
---------- ---------- ---------- --------- ----------
Net income....................................... $ 127,722 34,032 3,271 104,400 92,993
========== ========== ========== ========= ==========

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE(4):
Income before extraordinary item
and accounting change........................... $ 2.67 .71 .32 2.18 1.87
Extraordinary item - early
extinguishment of debt.......................... - - (.26) - -
Cumulative effect of accounting
change.......................................... - - - - .35
---------- ---------- ---------- --------- ----------
Net income....................................... $ 2.67 .71 .06 2.18 2.22
========== ========== ========== ========= ==========
Dividends declared and paid per
common share(5)................................. $ .86 .71 .56 .40 .30
Common stock price range:
High........................................... 44.75 31.79 22.86 23.81 19.05
Low............................................ 27.14 17.98 16.90 16.19 10.79
Close.......................................... 42.00 29.17 18.09 18.81 19.05
Dividend payout ratio............................ 32.21% 100.00% * 18.34% 13.51%

<FN>
- ---------------------------

* Not meaningful.

(1) 1995 includes $101.8 million of merger-related costs, $66.1 million after
tax. 1994 includes $152.8 million in restructuring charges, $100.9 million
after tax.

(2) 1996 includes $56.3 million from special SAIF assessment. 1995 includes
$37.5 million of merger expenses.

(3) During 1992, the Company changed its method of accounting for income taxes
by adopting Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."

(4) All historical earnings per share have been restated to reflect the 5%
stock dividend issued on September 30, 1996. During 1995 and 1992, the
Company completed mergers which were accounted for as poolings of
interests.

(5) The amounts presented herein are historical per share amounts declared and
paid by the Company, as adjusted for stock splits and stock dividend. No
adjustment has been made for mergers accounted for as pooling of interests.
</TABLE>

26
<PAGE> 30
FIVE-YEAR SUMMARY (CONTINUED)

<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION AND
OTHER DATA:
Cash, federal funds sold and other......... $ 270,304 658,371 341,935 271,643 266,060
Investment securities...................... 243,632 407,427 467,247 428,579 687,285
Mortgage-backed securities................. 4,714,796 5,314,749 6,628,591 6,718,615 5,946,949
Loans and leases, net...................... 8,100,342 6,678,600 6,592,975 6,562,088 6,234,954
Other assets............................... 575,489 519,712 491,432 466,583 499,612
----------- ----------- ----------- ----------- -----------
Total assets............................. $ 13,904,563 13,578,859 14,522,180 14,447,508 13,634,860
=========== =========== =========== =========== ===========
Deposits................................... $ 7,841,197 7,012,491 7,089,153 7,280,125 7,088,649
FHLB advances.............................. 3,194,333 3,163,144 2,968,290 2,316,523 2,203,627
Other borrowings........................... 1,760,958 2,298,540 3,415,305 3,692,732 3,275,105
Other liabilities.......................... 179,382 260,286 225,761 255,889 333,628
Shareholders' equity....................... 928,693 844,398 823,671 902,239 733,851
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity.................................. $ 13,904,563 13,578,859 14,522,180 14,447,508 13,634,860
=========== =========== =========== =========== ===========
Total assets as initially reported(1)...... $ 13,904,563 13,578,859 6,130,172 5,215,426 4,261,850
Loan servicing portfolio................... $ 1,478,187 1,181,245 883,399 960,318 1,223,993
Number of offices:
Full service branches.................... 172 155 157 170 173
Loan production offices.................. 9 9 6 3 4
Number of employees (FTEs)................. 2,552 2,416 2,401 2,564 2,533
Book value per share(2).................... $ 20.00 17.86 17.44 19.14 17.89
SELECTED RATIOS:
Net yield on average interest-
earning assets............................ 2.92% 2.23% 2.24% 2.18% 1.86%
Interest rate spread during
the period................................ 2.66 1.96 1.99 1.89 1.53
Return on average equity(3):
Before SAIF assessment, restructuring,
merger-related charges and accounting
change, net............................. 17.93 14.61 14.02 12.28 11.34
After SAIF assessment, restructuring,
merger-related charges and accounting
change, net............................. 13.89 3.93 .39 12.28 13.49
Return on average assets(3):
Before SAIF assessment, restructuring,
merger-related charges and accounting
change, net............................. 1.22 .86 .82 .72 .57
After SAIF assessment, restructuring,
merger-related charges and accounting
change, net............................. .94 .23 .02 .72 .68
Average shareholders' equity to
average assets............................ 6.80 5.91 5.84 5.84 5.01
Total shareholders' equity to total
assets (at end of year)................... 6.68 6.22 5.67 6.24 5.38
Efficiency ratio excluding SAIF
assessment and merger expenses(4)......... 42.22 48.98 50.48 52.12 60.14
Administrative expenses to
average assets............................ 1.80 1.47 1.23 1.23 1.22
Net interest income to
administrative expenses................... 1.57x 1.47x 1.77x 1.72x 1.47x

<FN>
- ---------------------------

(1) The amounts presented represent amounts as initially reported by the
Company in the respective year's annual report to shareholders.

(2) Per share data has been restated to reflect the 5% stock dividend issued
September 30, 1996.

(3) Returns are presented before and after significant nonrecurring items: in
1996 the SAIF assessment reduced net income by $37,130,000, after tax; in
1995 net charges related to FirstFed Merger reduced net income by
$92,594,000, after tax; and in 1994 net charges related to FirstFed's
financial restructuring reduced net income by $114,005,000, after tax.

(4) Including the federal deposit insurance special assessment of $56.3
million, the 1996 efficiency ratio was 55.04%. Including merger expenses of
$37.5 million, the 1995 efficiency ratio was 59.34%.
</TABLE>

27
<PAGE> 31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following financial review presents an analysis of the asset and liability
structure of the Company and a discussion of the results of operations for each
of the periods presented in the annual report and sources of liquidity and
capital resources. Certain statements under this caption, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
constitute 'forward-looking statements' under the Private Securities Litigation
Reform Act of 1995 (the 'Reform Act'). See "Part I. Item 1. Business -
Discussion of Forward-looking Statements."

HOLDING COMPANY BUSINESS

Charter One Financial, Inc. ("Charter One" or the "Company") is a Delaware
corporation organized as a unitary savings and loan holding company and owns all
of the outstanding capital stock of Charter Michigan Bancorp., Inc. which is a
Michigan corporation organized as a unitary savings and loan holding company,
which in turn owns all of the outstanding capital stock of Charter One Bank,
F.S.B. (the "Bank".) The business of the Bank and, therefore, the primary
business of the Company is providing consumer and business banking services to
certain major markets in Ohio and, after October 1995, in Michigan. At the end
of 1996 the Bank was doing business through 172 full service banking branches
and 9 loan production offices.

GENERAL

Much of the Company's growth in recent years has been through mergers and
acquisitions. On October 31, 1995, Charter One completed the most significant
merger in its history when it combined with FirstFed Michigan Corporation
("FirstFed") in a merger of equals (the "FirstFed Merger") which was accounted
for as a pooling of interests and, accordingly, the financial statements for the
Company for all periods prior to the merger have been restated to include the
results of FirstFed. FirstFed was the holding company for First Federal of
Michigan ("First Federal"), a $7.7 billion savings and loan headquartered in
Detroit, Michigan. See Note 2 to the Consolidated Financial Statements for
further information concerning this merger.

In 1996, the only merger and acquisition activity was the acquisition of First
Nationwide's 21 Michigan branches on June 28 (the "First Nationwide
transaction".) The branch deposits totaled $796.7 million and were assumed at a
cost of $57.0 million which was reflected as goodwill.

Also in 1996, two major legislative events occurred which not only affected
current year results but will impact the savings and loan industry going
forward. The first event was in August when legislation was passed by Congress
to substantially limit recapture of the tax liability on certain accumulated bad
debt reserves which previously would have penalized any thrift choosing to adopt
a bank charter, either independently or in conjunction with a merger
transaction. Charter One's unrecorded potential liability approximated $60
million at the time of the legislation.

The second event occurred in September when Congress moved to recapitalize the
Savings and Loan Insurance Fund ("SAIF".) The recapitalization was accomplished
through a one-time special assessment of member institutions. The Bank's share
of the assessment resulted in an after-tax charge of $37.1 million (the "SAIF
assessment".) Due to the recapitalization, the Bank's deposit insurance rate
will be reduced to 6.5 basis points of insured deposits starting in 1997, down
from 23 basis points in 1996. As a result, it is expected that the Bank's
federal deposit insurance premium expense will be approximately $11.0 million
lower in 1997 than in 1996.

RESULTS OF OPERATIONS

The Bank's net income generally depends upon its net interest income, which is
the difference between the interest and dividend income earned on its loans and
investments and the interest expense on its deposits and borrowings. The Bank's
net interest income is significantly affected by general economic conditions and
policies of regulatory authorities.

For the year ended December 31, 1996, Charter One reported net income of $127.7
million, compared to $34.0 million and $3.3 million in the years ended December
31, 1995 and 1994, respectively. On a per share basis, net income was $2.67,
$0.71 and $0.06 in 1996, 1995 and 1994 respectively. As discussed below, the
FirstFed Merger had a significant impact on 1995 and 1994 results. In addition,
the 1996 results were adversely affected by the SAIF assessment detailed above.

28
<PAGE> 32

IMPACT OF FIRSTFED MERGER

The FirstFed Merger had a major impact on 1995 results. Additionally, because
the transaction was accounted for as a pooling of interests, it had a similar
impact on combined results reported for 1994. Because of the size, timing and
nature of the FirstFed Merger, much of the discussion here as it relates to
historical results cannot be meaningfully applied to future results and
operations.

1995 Impact

An integral component of the FirstFed Merger was a plan to reposition the
combined balance sheet in order to reduce the wholesale component of the
Company's operation and conform the interest rate risk profile to that of
Charter One before the merger. This plan, which was fully executed by year-end
1995, included the sale of $940 million of fixed, low-rate mortgage-backed
securities, the sale of $330 million of fixed, low-rate mortgage loans, and a
$740 million reduction in maturing agency investments. Proceeds from these sales
and maturities were used to repay approximately $1.5 billion of short-term
borrowings. Additionally, management took advantage of a relatively flat yield
curve to lengthen the maturity of $900 million in medium-term borrowings.
Finally, $750 million in interest rate exchange agreements ("swaps") and $800
million in interest rate cap agreements ("caps") were eliminated. The charges
related to the repositioning and those related to the merger itself totaled
$92.6 million, after tax, and are summarized below.

<TABLE>
<CAPTION>
EFFECT ON YEAR ENDED
DECEMBER 31, 1995
-----------------------
PRETAX AFTER
------ -----
TAX
---

(DOLLARS IN THOUSANDS)
<S> <C> <C>
Merger expenses:
Transaction costs.................................................................. $ (5,900) (5,900)
Severance costs.................................................................... (18,715) (12,163)
Other costs to combine operations.................................................. (12,913) (8,392)
--------- -------
Total merger expenses............................................................ (37,528) (26,455)
Loss on loans and securities......................................................... (25,545) (16,605)
Termination of swaps and caps........................................................ (76,207) (49,534)
--------- -------
Impact of repositioning and merger expenses on 1995 results........................ $ (139,280) (92,594)
========= =======
</TABLE>

1994 Impact

FirstFed reported a net loss for 1994 which, because of pooling of interests
accounting, is now reflected in Charter One's consolidated results for 1994.
FirstFed's loss was the result of a financial restructuring undertaken in the
first quarter of 1994, based upon an evaluation of its existing capital position
and then current market conditions with a goal of increasing future core
earnings and improving the corporation's overall financial profile. The major
components of the restructuring were: (i) reducing mortgage-backed securities by
$1.1 billion; (ii) terminating $900 million of interest rate swaps and
eliminating the liabilities to which they were specifically assigned; (iii)
extinguishing $194 million of FHLB advances; (iv) recording a $52.7 million
federal income tax benefit; and (v) adopting SFAS No. 72 to change the
accounting for goodwill. When originally reported, the aggregate effect from
these transactions was a net charge to FirstFed's after-tax net earnings of $146
million. However, in accounting for the FirstFed Merger, timing of the adoption
of SFAS No. 72 was conformed to Charter One's adoption date of January 1, 1990,
which reduced the net charge to the combined after-tax net earnings for 1994 to
$114 million.

PERFORMANCE OVERVIEW

As mentioned previously, the Company's reported results in each of the last
three years were significantly affected by the SAIF assessment and the FirstFed
Merger. By excluding the 1996 SAIF assessment of $56.3 million, the 1995 merger
expenses of $37.5 million and the restructuring and repositioning expenses in
1995 and 1994, a more comparable pretax core earnings can be examined.

29
<PAGE> 33

The following table summarizes the components of pretax core earnings.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income............................................... $ 383,392 317,816 311,973
Provision for loan and lease losses............................... (4,001) (1,032) (2,948)
Other income, excluding gains and losses.......................... 55,245 44,467 35,397
Administrative expenses........................................... (187,766) (178,215) (175,961)
--------- --------- ---------
Pretax core earnings............................................ $ 246,870 183,036 168,461
========= ========= =========
</TABLE>

In general, the above comparison reflects consistent growth in net interest
income, the Company's low credit risk (as characterized by modest provision
levels) and an increasing percentage of core earnings being derived by
non-interest income. Additionally, the Company's efforts to control overhead
costs are illustrated by an efficiency ratio (excluding the SAIF assessment and
merger-related charges) of 42%, 49% and 50% for 1996, 1995 and 1994,
respectively. The efficiency ratio is the ratio of administrative expenses
(excluding goodwill amortization) to net interest income and other income
exclusive of net gains and losses.

NET INTEREST INCOME

Net interest income is the principal source of earnings for the Company. It is
affected by a number of factors including the level, pricing and maturity of
interest-earning assets and interest-bearing liabilities, interest rate
fluctuations and asset quality.

Net interest income for 1996 was $383.4 million, an increase of $65.6 million,
or 20.6%, over the $317.8 million of net interest income in 1995. The increase
in net interest income was primarily due to a lower cost of interest-bearing
liabilities in 1996. The cost of interest-bearing liabilities decreased by 68
basis points to 4.99% for 1996. This lower cost of funds reduced interest
expense by $70.4 million to $621.1 million in 1996, from $769.6 million for
1995. This improvement in the cost of funds was primarily the result of the
financial restructuring undertaken in the fourth quarter of 1995 in conjunction
with the FirstFed Merger. The financial restructuring also reduced the average
balance of interest-earning assets and interest-bearing liabilities. The net
effect of reducing balances with negative spreads caused net interest income to
increase by $7.6 million for 1996 as the average balance of assets and
liabilities each declined by $1.1 billion.

The lower cost of interest-bearing liabilities for 1996 was the primary reason
the interest rate spread improved to 2.66% from 1.96% for 1995. Similarly, the
net yield on interest-earning assets increased to 2.92% for 1996 from 2.23% for
1995.

Net interest income for 1995 was $317.8 million, an increase of $5.8 million, or
1.9%, over net interest income in 1994. The increase in the yield on net
interest-earning assets in 1995 was the primary reason for the increase in net
interest income. The yield increased during 1995 primarily due to higher market
interest rates in 1995 as compared to 1994 and a shifting of assets from lower
yielding mortgage-backed securities available for sale to higher yielding
mortgage-backed securities, investment securities and loans. During the same
period, the cost of interest-bearing liabilities increased by 42 basis points.
This was due to higher market interest rates and customers shifting deposits
from core accounts to certificates of deposit. The average balance of
certificates of deposit was $536.8 million higher in 1995 than 1994. Conversely,
core deposit average balances (checking, savings and money market accounts) were
$329.3 million lower in 1995 than in 1994. This change in the mix of deposit
balances accounted for $23.6 million of the $41.1 million increase in deposit
interest expense. This resulted in the interest rate spread decreasing by 3
basis points to 1.96% for 1995.

30
<PAGE> 34

The following table shows average balances, interest earned or paid and average
interest rates for the years indicated. Average balances are calculated on a
daily basis.

AVERAGE BALANCES, INTEREST AND YIELDS/COSTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ---------------------------- ----------------------------
AVG. AVG. AVG.
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans and lease
financings(1) ........ $ 7,442,375 $ 602,432 8.09% $ 6,766,695 $ 557,936 8.25% $ 6,642,343 $ 532,719 8.02%
Mortgage-backed
securities:
Available for sale .. 158,383 11,340 7.16 368,526 23,820 6.46 1,137,084 64,482 5.67
Held to maturity .... 4,858,102 346,635 7.14 5,808,992 418,344 7.20 5,326,992 364,306 6.84
Investment
securities available
for sale ............ 316,843 21,205 6.69 893,433 59,746 6.69 418,125 26,122 6.25
Other interest-
earning assets ....... 350,385 22,866 6.53 412,543 27,564 6.68 375,819 18,551 4.94
----------- --------- ----- ----------- --------- ----- ----------- --------- -----
Total interest-
earning assets 13,126,088 1,004,478 7.65 14,250,189 1,087,410 7.63 13,900,363 1,006,180 7.24
--------- --------- ---------
Allowance for loan
and lease losses ....... (65,620) (64,540) (64,355)
Noninterest-earning
assets(2) .............. 466,478 478,640 486,209
----------- ----------- -----------
Total assets .... $13,526,946 $14,664,289 $14,322,217
=========== =========== ===========
Interest-bearing
liabilities:
Deposits:
Checking
accounts .......... $ 777,274 9,720 1.25 667,209 9,809 1.47 672,544 10,670 1.59
Money market
accounts .......... 1,082,869 36,159 3.34 853,140 27,229 3.19 989,654 29,151 2.95
Savings accounts .... 913,489 22,000 2.41 1,057,514 25,544 2.42 1,244,971 30,287 2.43
Certificates of
deposit ........... 4,597,054 259,069 5.64 4,614,460 284,023 6.16 4,077,693 235,386 5.77
----------- --------- ----- ----------- --------- ----- ----------- --------- -----
Total deposits ... 7,370,686 326,948 4.44 7,192,323 346,605 4.82 6,984,862 305,494 4.37
----------- --------- ----- ----------- --------- ----- ----------- --------- -----
FHLB advances ......... 3,237,680 185,439 5.73 2,902,779 177,704 6.12 2,770,428 150,744 5.44
Other borrowings ...... 1,826,084 108,699 5.95 3,467,715 245,285 7.07 3,474,927 237,969 6.85
----------- --------- ----- ----------- --------- ----- ----------- --------- -----
Total borrowings .. 5,063,764 294,138 5.81 6,370,494 422,989 6.64 6,245,355 388,713 6.22
----------- --------- ----- ----------- --------- ----- ----------- --------- -----
Total interest-
bearing
liabilities ...... 12,434,450 621,086 4.99 13,562,817 769,594 5.67 13,230,217 694,207 5.25
--------- --------- ---------
Noninterest-bearing
liabilities ............ 173,140 235,003 255,259
----------- ----------- -----------
Total liabilities 12,607,590 13,797,820 13,485,476
Shareholders' equity .... 919,356 866,469 836,741
----------- ----------- -----------
Total liabilities
and share-
holders' equity $13,526,946 $14,664,289 $14,322,217
=========== =========== ===========
Net interest income ..... $ 383,392 $ 317,816 $ 311,973
========= ========= =========
Interest rate spread .... 2.66 1.96 1.99
===== ===== =====
Net yield on average
interest-earning
assets ................. 2.92 2.23 2.24
===== ===== =====
Average interest-
earning assets to
average interest-
bearing liabilities .... 105.6% 105.1% 105.1%
===== ===== =====

<FN>
- ---------------------------

(1) Nonaccrual loans are included in the average balance.

(2) Includes mark-to-market adjustments on securities available for sale.
</TABLE>

31
<PAGE> 35

The following rate-volume analysis shows the approximate relative contribution
of changes in average interest rates and volume to changes in net interest
income for the years indicated.

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 V. 1995 YEAR ENDED DECEMBER 31, 1995 V. 1994
------------------------------------ ------------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
-------------------------- --------------------------
RATE(1) VOLUME(1) TOTAL RATE(1) VOLUME(1) TOTAL
------- --------- ----- ------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases .............. $(10,356) 54,852 44,496 15,048 10,169 25,217
Mortgage-backed securities
Available for sale .......... 2,334 (14,814) (12,480) 7,973 (48,635) (40,662)
Held to maturity ............ (3,827) (67,882) (71,709) 19,971 34,067 54,038
Investment securities available
for sale .................... 48 (38,589) (38,541) 1,961 31,663 33,624
Other interest-earning assets . (629) (4,069) (4,698) 7,056 1,957 9,013
-------- -------- -------- ------ ------- --------
Total ...................... (12,430) (70,502) (82,932) 52,009 29,221 81,230
-------- -------- -------- ------ ------- --------
Interest expense:
Checking, savings and
money market accounts ........ (348) 5,645 5,297 1,316 (8,842) (7,526)
Certificates of deposit ....... (23,887) (1,067) (24,954) 16,197 32,440 48,637
FHLB advances ................. (11,920) 19,655 7,735 19,510 7,450 26,960
Other borrowings .............. (34,253) (102,333) (136,586) 7,811 (495) 7,316
-------- -------- -------- ------ ------- --------
Total ...................... (70,408) (78,100) (148,508) 44,834 30,553 175,387
-------- -------- -------- ------ ------- --------
Change in net interest income ... $ 57,978 7,598 65,576 7,175 (1,332) 5,843
======== ======== ======== ====== ======= ========

<FN>
- ---------------------------

(1) Changes not solely attributable to volume or rate have been allocated in
proportion to the changes due to volume and rate.
</TABLE>

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses represents a charge against current
earnings in order for management to maintain the allowance for loan and lease
losses at a level that will absorb estimated future loan and lease charge-offs.
The provision for loan and lease losses was $4.0 million in 1996, $1.0 million
in 1995 and $2.9 million in 1994. The increase in the provision was primarily
due to growth in the loan and lease portfolio. The loan and lease portfolio at
December 31, 1996 was $8.1 billion, a 21.3% increase over the $6.7 billion
balance at December 31, 1995. The majority of this growth was in loans secured
by one-to-four family residential real estate, as that portfolio grew by $1.0
billion in 1996. Nonperforming loans and leases as a percentage of total loans
and leases were .44% at December 31, 1996. This was an improvement over the
December 31, 1995 and 1994 ratios of .65% and .75%, respectively. Net loan and
lease charge-offs have remained low. They were .03%, .02% and .04% of average
loan and lease balances for 1996, 1995 and 1994, respectively. See "Financial
Condition - Loans and Leases" for a further discussion about nonperforming
assets and the allowance for loan and lease losses.

OTHER INCOME

Other income for 1996 was $57.1 million as compared to a negative $47.8 million
for 1995. Other income for 1995 was negative as a result of the balance sheet
repositioning implemented in conjunction with the previously discussed FirstFed
Merger. The swap terminations in that repositioning resulted in a loss of $76.2
million in 1995. There was no similar event in 1996. Other net gains and losses
on the sale of investments and mortgage-backed securities during the 1996 period
improved by $19.0 million as compared to 1995 also due to the financial
repositioning that occurred in 1995. The sales of investments available for sale
in the 1996 period were executed to purchase higher yielding investments. The
mortgage-backed security sales in 1996 were in response to significant
deterioration in an issuer's creditworthiness as well as steps taken to
eliminate securities with outstanding balances less than 15% of original
amounts. Separately, recurring fee income increased $11.5 million or 32% during
the 1996 period, the increase consisting of $9.0 million in service fees and
other charges and $2.5 million in loan servicing fees. The improvement was
attributable to increases in fees from checking accounts, fees on servicing
loans for others, brokerage commissions earned by a subsidiary of the Bank, and
prepayment penalties on payoffs of commercial real estate loans. Checking
account fees increased as the number of checking accounts opened increased when
comparing 1996 to 1995. The primary reason for the increase in the number of
checking accounts relates to the acquisition of over 55,000 demand deposit
accounts in the First Nationwide Bank transaction. Also, the

32
<PAGE> 36

Charter One checking account programs were introduced in Michigan during 1996
along with a continuing sales effort in Ohio. Loan servicing fees increased
because the balance of loans serviced for others was higher in the 1996 period.
In addition to the loans sold as part of the fourth quarter 1995 financial
restructuring, in June 1996 another $510 million of mortgage loans were sold,
servicing retained, as part of an interest rate risk management strategy. Also,
mortgage loan prepayment penalties increased as a result of payoffs on several
large commercial real estate loans in 1996. Brokerage commissions were higher in
1996 as a result of expanded operations.

Other income for 1995 was a negative $47.8 million as compared to a negative
$110.4 million for the 1994 period. As mentioned above, the negative other
income in 1995 was a result of the financial repositioning executed in the
fourth quarter of 1995 in connection with the FirstFed Merger. Other income for
1994 was a negative $110.4 million due to the loss on termination of swaps
associated with FirstFed's 1994 restructuring, as previously discussed. Income
from leasing operations was $7.9 million in 1995, the year ICX Corporation
("ICX") was acquired. See Note 2 to the Consolidated Financial Statements for a
further discussion of the ICX acquisition. Service fees and other charges
increased $2.2 million, or 9.1%, in 1995 over 1994 primarily due to increases in
checking account and ATM fee income. These two increases in fee income were
partially offset by a decrease in loan servicing fees of $1.2 million resulting
from lower average balances of loans serviced for others. The balance was
reduced by repayments of the existing portfolio and fewer loan sales.

ADMINISTRATIVE EXPENSES

Administrative expenses were $244.0 million in 1996 and $215.7 million in 1995.
Each year had nonrecurring expenses that contributed significantly to total
administrative expenses. In 1996, the Bank paid and expensed the $56.3 million
SAIF assessment. In 1995, the Company incurred $37.5 million of one-time
expenses related to the FirstFed Merger. Administrative expenses for 1996,
excluding the SAIF assessment, were $187.8 million as compared to $178.2 million
for 1995, excluding merger-related expenses, a $9.6 million, or 5.4%, increase.
This increase was primarily attributable to increases in compensation and
benefits expense, office occupancy expenses, the amortization of goodwill and
other administrative expenses. These increases were primarily related to
increased retail banking activities along with increased subsidiary operations
relating to brokerage and insurance sales which expanded into the Michigan
market in 1996, offset by a reduction in back office personnel as a result of
the FirstFed Merger. Loans serviced for retail customers increased as Charter
One had a record year in loan originations. See "Loan and Lease Activity" for
further information concerning loan and lease originations and portfolio growth
in 1996. Overall, administrative expenses remained at favorable levels as
illustrated by the 42.2% efficiency ratio, excluding the SAIF assessment, for
1996 as compared to 49.0%, excluding merger-related charges, for 1995.

Administrative expenses for 1995 were $215.7 million, which included the
one-time merger expenses related to the FirstFed Merger of $37.5 million. There
were no comparable merger-related expenses in 1994. Excluding the 1995
merger-related expenses, administrative expenses were $178.2 million as compared
to $176.0 million for 1994, an increase of $2.3 million, or 1.3%. This increase
was primarily due to salaries and employee benefits expenses which increased by
$5.5 million, or 6.6%, which was partially offset by reductions in other
administrative expenses.

FEDERAL INCOME TAX EXPENSE

The provision for federal income taxes was $64.8 million for 1996 as compared to
$19.2 million for 1995. This increase was primarily attributable to an increase
in pretax book income. The effective tax rate was 34% in 1996 and 36% in 1995.
See Note 12 to the Consolidated Financial Statements for a further analysis of
the effective tax rate.

The provision for federal income taxes for 1995 was $19.2 million as compared to
$7.1 million for 1994. The primary reason was the increase in pretax book
income. The effective tax rates for 1995 and 1994 were 36% and 31%,
respectively.

ASSET/LIABILITY MANAGEMENT

Interest sensitivity gap ("gap") analysis measures the difference between the
assets and liabilities repricing or maturing within specific time periods. An
asset-sensitive position indicates that there are more rate-sensitive assets
than rate-sensitive liabilities repricing or maturing within specific time
horizons, which would generally imply a favorable impact on net interest income
in periods of rising interest rates and a negative impact in periods of falling
rates. A liability-sensitive position would generally imply a negative impact on
net interest income in periods of rising rates and a positive impact in periods
of falling rates.

Gap analysis has limitations because it cannot measure the effect of interest
rate movements and competitive pressures on the repricing and maturity
characteristics of interest-earning assets and interest-bearing liabilities. In
addition, a significant

33
<PAGE> 37
portion of the Company's adjustable-rate assets have limits on their maximum
yield, whereas most of its interest-bearing liabilities are not subject to such
limitations. As a result, certain assets and liabilities indicated as repricing
within a stated period may in fact reprice at different times and at different
volumes, and certain adjustable-rate assets may reach their yield limits and not
reprice.

The following table presents an analysis of the Company's interest-sensitivity
gap position at December 31, 1996. All interest-earning assets and
interest-bearing liabilities are shown based on their contractual maturity or
repricing date adjusted by forecasted prepayment and decay rates. Asset
prepayment and liability decay rates are selected after considering the current
rate environment, industry prepayment and decay rates, the Company's historical
experience, and the repricing and prepayment characteristics of portfolios
acquired through merger.

MATURITY/RATE SENSITIVITY

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------------------------------
OVER
0-6 7-12 1-3 3-5 5-10 10
MONTHS MONTHS YEARS YEARS YEARS YEARS TOTAL
----------- --------- ---------- ---------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate mortgage
loans and mortgage-
backed securities:
Adjustable rate ............. $3,114,367 948,473 728,534 183,445 3,234 2,204 4,980,257
Fixed rate .................. 548,370 513,883 1,762,262 1,237,945 1,800,626 697,980 6,561,066
Business loans ................ 76,793 1,224 6,247 8,040 2,604 -- 94,908
Consumer loans ................ 373,111 77,633 211,143 155,343 111,520 -- 928,750
Lease financings .............. 24,028 24,491 81,882 57,042 56,124 6,589 250,156
Investment securities, federal
funds sold, interest-bearing
deposits and other interest-
earning assets .............. 357,466 175,503 -- 44,345 537 1 577,852
--------- --------- --------- --------- --------- ------- ----------
Total ................... 4,494,135 1,741,207 2,790,068 1,686,160 1,974,645 706,774 13,392,989
--------- --------- --------- --------- --------- ------- ==========

Interest-bearing liabilites:
Deposits:
Checking and savings
accounts .................. 69,469 63,911 1,226,929 367,490 -- -- 1,727,799
Money market accounts ....... 672,488 -- 672,485 -- -- -- 1,344,973
Certificates of deposit ..... 2,336,294 1,181,105 911,770 181,399 157,857 -- 4,768,425
FHLB advances ............... 1,641,418 151,159 964,958 410,556 21,895 4,347 3,194,333
Reverse repurchase
agreements ................ 374,994 370,000 804,784 -- -- -- 1,549,778
Other borrowings ............ 16,885 5,257 12,535 22,532 152,267 1,704 211,180
--------- --------- --------- --------- --------- ------- ----------
Total ................... 5,111,548 1,771,432 4,593,461 981,977 332,019 6,051 12,796,488
--------- --------- --------- --------- --------- ------- ==========

Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities ........... (617,413) (30,225) (1,803,393) 704,183 1,642,626 700,723
Impact of hedging ............... (12,073) 130,000 (112,499) (5,428) -- --
--------- --------- --------- --------- --------- -------
Adjusted interest-
sensitivity gap ............... $ (629,486) 99,775 (1,915,892) 698,755 1,642,626 700,723
========= ========= ========= ========= ========= =======
Cumulative excess (deficiency)
of interest-earning assets over
interest-bearing liabilities .. $ (629,486) (529,711) (2,445,603) (1,746,848) (104,222) 596,501
========= ========= ========= ========= ========= =======
Cumulative interest-sensitivity
gap as a percentage of total
assets at December 31, 1996 ... (4.5%) (3.8%) (17.6%) (12.6%) (0.7%) 4.3%
==== ==== ===== ===== ==== ===
Cumulative interest-sensitivity
gap as a percentage of total
assets at December 31, 1995 ... 4.8% 1.0% (8.3%) (6.7%) 0.8% 4.4%
==== ==== ===== ===== ==== ===
</TABLE>

One of the principal operating strategies of Charter One has been to better
match the terms to repricing of its interest rate-sensitive assets and
liabilities to manage the sensitivity of the Company's earnings to changes in
interest rates. Charter One's principal efforts in this strategy include: (i)
originating and retaining adjustable-rate loans with shorter terms or more
frequent repricing than fixed-rate mortgage loans, while offering sufficiently
attractive yields to provide profitable margins over the Company's cost of
funds; and (ii) lengthening the maturities of its interest-bearing liabilities.
Management's goal is to manage the Company's interest rate risk by maintaining
the gap between interest-earning assets and interest-bearing liabilities
repricing within a one-year period to plus or minus 5% of total assets.

34
<PAGE> 38

As of December 31, 1996, the Company had swaps and caps in place to adjust the
interest rate risk profile of certain borrowings and deposit liabilities. See
Note 11 to the Consolidated Financial Statements for additional information.

FINANCIAL CONDITION

Consolidated assets of Charter One Financial, Inc., substantially all held by
Charter One Bank, F.S.B., were $13.9 billion at December 31, 1996, an increase
of $325.7 million, or 2.4%, from December 31, 1995. The increase in assets was
primarily due to growth in the loan and lease portfolio in 1996.

LOANS AND LEASES

Total loans and leases held for investment at December 31, 1996 totaled $8.1
billion, up from $6.7 billion at December 31, 1995. The $1.4 billion, or 21.3%,
increase was primarily due to significant growth in loan originations as the
Bank originated $3.8 billion of new loans and leases in 1996. Which represents a
111.1% increase over the $1.8 billion of loan and lease originations in 1995.
During 1996 the consumer loan portfolio grew by $334.6 million, or 56.3%, over
1995. Over the past few years, management has emphasized growth in the consumer
loan portfolio due to the shorter terms and higher yields. The Bank's consumer
loan portfolio is primarily secured by residential real estate properties. These
loans help the Bank manage its interest rate sensitivity gap. Also to help
manage interest rate sensitivity, the Bank securitized $510.4 million of
fixed-rate mortgage loans which were subsequently sold in June 1996.

The following table summarizes the loan and lease activity for each of the past
three years.

LOAN AND LEASE ACTIVITY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Originations:
Real estate:
Permanent:
One-to-four family ............................. $2,426,589 1,077,838 1,023,016
Multifamily .................................... 48,224 29,093 47,430
Commercial ..................................... 74,319 56,743 18,295
---------- --------- ---------
Total permanent .............................. 2,549,132 1,163,674 1,088,741
---------- --------- ---------
Construction:
One-to-four family ............................. 320,967 176,503 210,916
Multifamily .................................... 5,910 10,781 12,003
Commercial ..................................... 17,246 22,922 8,293
---------- --------- ---------
Total construction ........................... 344,123 210,206 231,212
---------- --------- ---------
Total real estate loans originated ......... 2,893,255 1,373,880 1,319,953
Consumer line of credit draws ................... 207,865 146,293 130,132
Consumer ........................................ 428,107 161,635 142,033
Business line of credit draws ................... 70,143 37,980 76,071
Business ........................................ 44,487 21,290 15,048
Lease financings(1) ............................. 205,789 82,585 --
---------- --------- ---------
Total loans and lease financings originated 3,849,646 1,823,663 1,683,237
---------- --------- ---------
Lease financings purchased in acquisition of
ICX Corporation(1) ............................ -- 76,912 --
---------- --------- ---------
Sales and principal reductions:
Loans sold(2) ................................. 570,317 473,488 177,521
Principal reductions .......................... 1,827,232 1,338,707 1,479,437
---------- --------- ---------
Total sales and principal reductions ...... 2,397,549 1,812,195 1,656,958
---------- --------- ---------
Increase before net items ............... $1,452,097 88,380 26,279
========== ========= =========

<FN>
- ---------------------------

(1) Excludes $29.0 million in operating leases purchased in the acquisition of
ICX in 1995, and $11.0 million and $22.0 million in operating leases
originated subsequent to the purchase in 1996 and 1995, respectively.

(2) Includes $510.4 million, $331.4 million and $28.7 million of loans swapped
for mortgage-backed securities in the years ended December 31, 1996, 1995
and 1994, respectively.
</TABLE>

35
<PAGE> 39

The following table sets forth certain information concerning Charter One's
nonperforming assets as of the past five year ends. The table illustrates there
has been a downward trend in recent years in the balances and ratios of
nonperforming assets. At December 31, 1996, the Bank had no outstanding
commitments to lend additional funds to borrowers whose loans were on nonaccrual
or restructured status. On January 1, 1995, Charter One adopted SFAS No. 114
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures"
which impose certain requirements on the measurement of impaired loans. The
Company had previously measured such loans in accordance with the methods
prescribed in SFAS No. 114 and the Company's method of recording cash receipts
on impaired loans was essentially the same as prescribed by SFAS No. 118.
Therefore, the comparability of the data presented in the tables below has not
been affected by the adoption of SFAS No. 114 and SFAS No. 118.

NONPERFORMING ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonperforming loans and leases:
Nonaccrual loans and leases:
Real estate loans:
One-to-four family ................... $10,264 15,145 18,272 24,314 22,128
Multifamily and commercial ........... 2,372 3,014 4,548 6,595 9,769
Construction and land ................ 827 1,463 2,596 2,717 1,911
------- ------ ------ ------ -------
Total real estate loans ............ 13,463 19,622 25,416 33,626 33,808
Consumer ............................... - 1,525 1,085 1,550 1,585
Business ............................... 95 - 77 610 2,368
Lease financings ....................... - 27 - - -
------- ------ ------ ------ -------
Total nonaccrual loans and leases .. 13,558 21,174 26,578 35,786 37,761
------- ------ ------ ------ -------
Accruing loans and leases delinquent
more than 90 days:
Real estate loans:
One-to-four family ................... 5,961 2,002 2,781 1,228 3,317
Multifamily and commercial ........... - 893 855 1,527 705
Construction and land ................ - - 207 101 208
------- ------ ------ ------ -------
Total real estate loans ............ 5,961 2,895 3,843 2,856 4,230
Consumer ............................... 544 147 255 744 467
Business ............................... 58 - 17 222 372
Lease financings ....................... - - - - -
------- ------ ------ ------ -------
Total accruing loans and leases
delinquent more than 90-days ..... 6,563 3,042 4,115 3,822 5,069
------- ------ ------ ------ -------
Restructured real estate loans ........... 15,294 18,835 18,479 23,609 31,348
------- ------ ------ ------ -------
Total nonperforming loans and leases 35,415 43,051 49,172 63,217 74,178
Real estate acquired through foreclosure
and other repossessed assets ............. 7,030 11,650 15,379 31,053 33,604
------- ------ ------ ------ -------
Total nonperforming assets ......... $42,445 54,701 64,551 94,270 107,782
======= ====== ====== ====== =======
Ratio of:
Nonperforming loans and leases to total
loans and leases ........................ .44% .65% .75% .96% 1.19%
Nonperforming assets to total assets ..... .31 .40 .44 .65 .79
Allowance for loan and lease losses to:
Nonperforming loans and leases ......... 186.14 149.67 131.86 102.37 79.51
Total loans and leases before allowance .81 .96 .97 .98 .94
</TABLE>

Nonperforming assets at December 31, 1996 stood at $42.4 million, or .31% of
total assets. That figure was down 22% from year-end 1995 primarily due to
improvement in the levels of nonperforming real estate loans attributable to a
strong regional economy. This has also contributed to the improvement in the
ratio of nonperforming loans and leases to total loans and leases. That ratio
was .44%, .65% and .75% at December 31, 1996, 1995 and 1994, respectively.
Nonperforming assets to total assets has had a similar trend, ending at .31% of
total assets at year-end 1996. While these trends are favorable, there are
inherent risks and uncertainties related to the operation of a financial
institution. Therefore, the possibility exists that an abrupt downturn in the
economic environment in Ohio and/or Michigan could result in higher levels of
nonperforming assets.

36
<PAGE> 40

At December 31, 1996, there were $25.0 million of loans not reflected in the
table above, where known information about possible credit problems of borrowers
caused management to have doubts as to the ability of the borrower to comply
with present loan repayment terms and that may result in disclosure of such
loans in the future. Included in the total is a $15.6 million loan on apartment
buildings. The apartment buildings have experienced past cash flow shortfalls,
but the loan is current.

Although loans may be classified as nonaccruing, many continue to pay interest
on an irregular basis or at levels less than the contractual amounts due. A
summary of income recorded on nonaccruing and restructured loans versus the
potential income based upon full contractual yields for the past three years
follows:

SUMMARY OF INCOME ON NONACCRUING AND RESTRUCTURED LOANS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income potential based on original contract.......................................... $2,959 3,511 4,252
Actual income........................................................................ 2,178 2,950 3,401
</TABLE>

ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year............................... $ 64,436 64,838 64,715 58,982 50,577
Provision for loan and lease losses...................... 4,001 1,032 2,948 7,549 12,544
Acquired through acquisition............................. - - - 2,022 -
Other.................................................... - 176 - - -
Loans and lease financings charged off:
Mortgage............................................... (1,933) (1,063) (1,094) (1,177) (600)
Consumer............................................... (938) (1,193) (1,783) (2,413) (3,150)
Business............................................... (16) (62) (343) (383) (1,480)
Lease financings....................................... - - - - -
------- ------- ------- ------- -------
Total charge-offs.................................... (2,887) (2,318) (3,220) (3,973) (5,230)
------- ------- ------- ------- -------
Recoveries:
Mortgage............................................... 123 615 200 55 919
Consumer............................................... 249 49 137 79 171
Business............................................... - 44 58 1 1
Lease financings....................................... - - - - -
------- ------- ------- ------- -------
Total recoveries..................................... 372 708 395 135 1,091
------- ------- ------- ------- -------
Net loan and lease charge-offs....................... (2,515) (1,610) (2,825) (3,838) (4,139)
------- ------- ------- ------- -------
Balance, end of year..................................... $ 65,922 64,436 64,838 64,715 58,982
======= ======= ======= ======= =======
Net charge-offs to average loans and leases.............. .03% .02% .04% .06% .07%
Net charge-offs to provision for loan and lease losses... 62.86 156.01 95.83 50.84 33.00
</TABLE>

37
<PAGE> 41

ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C>
Mortgage................................................ $ 53,133 51,607 51,879 50,813 44,766
Consumer................................................ 6,765 7,214 8,239 9,562 10,724
Business................................................ 5,047 4,883 4,720 4,340 3,492
Lease financings........................................ 977 732 - - -
------- ------- ------- ------- -------
Total............................................... $ 65,922 64,436 64,838 64,715 58,982
======= ======= ======= ======= =======
Percent of loans and leases to total loans and leases:
Mortgage.............................................. 84.3% 88.3% 91.6% 93.2% 92.5%
Consumer.............................................. 11.4 8.8 7.2 5.8 6.5
Business.............................................. 1.2 0.9 1.2 1.0 1.0
Lease financings...................................... 3.1 2.0 - - -
------- ------- ------- ------- -------
Total............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= =======
</TABLE>

Net loan and lease charge-offs remained low in 1996 at only .03% of average loan
and lease balances. The allowance for loan and lease losses as a percentage of
ending loan and lease balances was .81%, .96% and .97% at December 31, 1996,
1995 and 1994, respectively. This level has remained fairly consistent despite
recent improvements in the levels of nonperforming loans. The allowance for loan
and lease losses is maintained at levels believed adequate by management to
absorb estimated future losses inherent in the loan and lease portfolio.
Management believes that the allowance for loan and lease losses has been
recorded in accordance with generally accepted accounting principles. Although
management believes that it uses the best information available to make such
determinations and that the allowance for loan losses was adequate at December
31, 1996, future adjustments to the allowance may be necessary, and net income
could be significantly affected, if circumstances and/or economic conditions
differ substantially from the assumptions used in making the determinations
about the levels of the loan and lease allowance. Any significant downturn in
the Ohio and/or Michigan economy could result in the Bank experiencing increased
levels of nonperforming loans and charge-offs, significant provisions for loan
and lease losses and significant reductions in income. Additionally, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses. Such agencies may require
the recognition of additions to the allowance based upon their judgements of
information available to them at the time of their examination.

INVESTMENTS AND MORTGAGE-BACKED SECURITIES

The securities portfolio is comprised primarily of mortgage-backed securities,
including government agency and AAA and AA rated private issues. The following
table details the aggregate carrying value and aggregate fair value at December
31, 1996 of private issue mortgage-backed securities of any single issuer where
the aggregate book value exceeds 10% of year-end shareholders' equity.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
CARRYING FAIR
VALUE VALUE
--------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GE Capital Mortgage Services, Inc.................................................... $352,739 343,448
Residential Funding Mortgage Securities I, Inc....................................... 335,194 332,435
California Federal Bank.............................................................. 271,866 264,994
The Prudential Home Mortgage Securities Company, Inc................................. 230,057 227,558
</TABLE>

Charter One held no investment securities of any single nongovernmental issuer
which were in excess of 10% of shareholders' equity at either December 31, 1996
or 1995.

The present investment policy of the Company provides that new purchases of
mortgage-backed securities have an investment rating of AAA. At December 31,
1996, approximately 80% of the private issue mortgage-backed security portfolio
had an investment rating of AAA and approximately 18% had an investment rating
of AA. Nonmortgage-backed securities are intended to help satisfy the Bank's
legal liquidity requirements and help control interest rate risk. See Notes 3
and 4 to the Consolidated Financial Statements for further information
concerning the composition of the securities portfolio.

38
<PAGE> 42

DEPOSITS AND OTHER SOURCES OF FUNDS

Deposits are generally the most important source of the Bank's funds for use in
lending and general business purposes. Deposit inflows and outflows are
significantly influenced by general interest rates and competitive factors.
Consumer and commercial deposits are attracted principally within the Bank's
primary market areas.

The balance of deposits was $7.8 billion at December 31, 1996, a $828.7 million
increase from year-end 1995. The increase primarily resulted from the
acquisition of First Nationwide Bank's 21 branch offices in the Detroit
Metropolitan area. The deposits of the branches totaled $796.7 million and were
assumed for a cost of $57.0 million. The market areas of four First Nationwide
offices directly overlapped our existing branch office market areas and
therefore were consolidated into the existing branch facilities.

In addition to deposits, the Bank derives funds from different borrowing
sources. The primary source of these borrowings is the Federal Home Loan Bank
("FHLB") system. Those borrowings were $3.2 billion at December 31, 1996 and
1995. The FHLB functions as a central bank providing credit for member financial
institutions. As a member of the FHLB of Cincinnati, Charter One Bank is
required to own capital stock in the FHLB and it is authorized to apply for
advances on the security of such stock and certain home mortgages and other
assets, provided certain standards related to creditworthiness have been met.
Advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based upon either a fixed percentage
of the Bank's assets or on the FHLB of Cincinnati's assessment of the Bank's
creditworthiness. See Note 8 to the Consolidated Financial Statements for
further information as to the make-up, maturities and cost associated with these
advances at December 31, 1996.

In addition to FHLB advances, the Company uses reverse repurchase agreements to
fund operations. Reverse repurchase agreements declined by $539.7 million during
1996 as the financial repositioning to a more retail, as opposed to wholesale,
funding mix was accomplished. See Note 9 to the Consolidated Financial
Statements for further information about the Bank's reverse repurchase agreement
portfolio.

The Company uses its portfolio of investment securities, loans and
mortgage-backed securities as collateral for other borrowings. Other borrowings
were $211.2 million at December 31, 1996, an increase of $2.2 million since
December 31, 1995. See Note 10 to the Consolidated Financial Statements for
further information concerning these borrowings.

LIQUIDITY

The Bank's principal sources of funds are deposits, advances from the FHLB of
Cincinnati, reverse repurchase agreements, repayments and maturities of loans
and securities, proceeds from the sale of securities and funds provided by
operations. While scheduled loan, security and interest-bearing deposit
amortization and maturity are relatively predictable sources of funds, deposit
flow and loan and mortgage-backed security repayments are greatly influenced by
economic conditions, the general level of interest rates and competition. The
Bank utilizes particular sources of funds based on comparative costs and
availability. The Bank generally manages the pricing of its deposits to maintain
a steady deposit balance, but from time to time management may decide not to pay
rates on deposits as high as its competition and, when necessary, to supplement
deposits with longer term and/or less expensive alternative sources of funds
such as FHLB advances and reverse repurchase agreements.

The Bank is required by regulation to maintain specific minimum levels of liquid
investments. Regulations currently in effect require the Bank to maintain
average liquid assets at least equal to 5.0% of the sum of its average daily
balance of net withdrawable accounts and borrowed funds due in one year or less.
This regulatory requirement may be changed from time to time to reflect current
economic conditions. The Bank's average regulatory liquidity ratio for the
fourth quarter of 1996 was 5.81%.

Liquidity management is both a daily and long-term responsibility of management.
The Bank adjusts its investments in cash and cash equivalents based upon
management's assessment of: (i) expected loan demand; (ii) projected security
maturities; (iii) expected deposit flows; (iv) yield available on
interest-bearing deposits; and (v) the objectives of its asset/liability
management program. Excess liquidity is generally invested in federal funds
sold, U.S. Treasury and agency securities and commercial paper. If the Bank
requires funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB of Cincinnati and collateral eligible for
reverse repurchase agreements. Because the Bank has a stable retail deposit
base, management believes that significant borrowings will not be necessary to
maintain its current liquidity position.

39
<PAGE> 43

Management anticipates that the Bank will have sufficient funds available to
meet current and future loan commitments. At December 31, 1996, the Bank and its
subsidiaries had outstanding commitments to originate loans and leases of $409.2
million and unfunded lines of credit totaling $471.0 million (a significant
portion of which normally remains undrawn). Certificates of deposit scheduled to
mature in one year or less at December 31, 1996 totaled $3.5 billion. Management
believes that a significant portion of the amounts maturing in 1997 will remain
with the Bank because they are retail deposits. At December 31, 1996, the Bank
had $1.5 billion of advances from the FHLB system and $175 million in reverse
repurchase agreements which mature in 1997. Management intends to review the
need for these borrowings when they mature and believes it has significant
additional borrowing capacity with the FHLB and investment banking firms to meet
any need for replacement borrowings.

CAPITAL AND DIVIDENDS

The Bank is subject to certain regulatory capital requirements. Management
believes that as of December 31, 1996, the Bank meets all capital requirements
to which it is subject. Refer to Note 14 to the Consolidated Financial
Statements for an analysis of the Bank's regulatory capital.

During 1994, the Board of Directors of the Company authorized management to
purchase up to 1.2 million shares of the Company's common stock. As of June 30,
1996, all of the shares had been purchased under this authorization.

On May 15, 1996, the Board of Directors of the Company authorized management to
purchase 5% of the Company's outstanding common stock in an additional buyback
program. As of that date, the Company had 47,354,637 common shares outstanding
(adjusted for the subsequent stock dividend.) Under the authorization, purchases
shall be made from time to time through open market purchases or unsolicited
negotiated transactions. Shares purchased under this authorization will be held
in treasury and will be available for issuance upon the exercise of outstanding
stock options and other corporate purposes.

On July 24, 1996, the Directors of Charter One Financial, Inc. approved a 5%
stock dividend which was distributed September 30, 1996, to shareholders of
record on September 13, 1996.

The Company's common stock trades on the NASDAQ National Market System under the
symbol COFI. As of February 28, 1997 there were approximately 7,300 shareholders
of record.

Quarterly stock prices and dividends declared are shown in the following table.

FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1996(1)
High..................................... $33.57 36.19 40.56 44.75 44.75
Low...................................... 27.14 29.34 32.03 38.13 27.14
Close.................................... 32.14 33.22 40.00 42.00 42.00
Dividends declared and paid.............. .19 .22 .22 .23 .86

1995(1)
High..................................... $21.08 25.71 29.29 31.79 31.79
Low...................................... 17.98 19.05 23.22 26.79 17.98
Close.................................... 19.28 23.33 28.09 29.17 29.17
Dividends declared and paid.............. .16 .18 .18 .19 .71

<FN>
- ---------------------------

(1) Restated to reflect the 5% stock dividend issued September 30, 1996.
</TABLE>

Cash dividend payout is continually reviewed by management and the Board of
Directors. The Company intends to continue its policy of paying quarterly
dividends; however, the payment will depend upon a number of factors, including
capital requirements, regulatory limitations, the Company's financial condition,
results of operations and the Bank's ability to pay dividends to its parent,
which in turn will pay dividends to the Company. The Company depends
significantly upon such dividends originating from the Bank to accumulate
earnings for payment of cash dividends to its shareholders and for purchases of
its common stock as described above. See Note 13 to the Consolidated Financial
Statements for a discussion of restrictions on the Bank's ability to pay
dividends.

40
<PAGE> 44

IMPACT OF BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

As previously discussed, the Company completed the First Nationwide transaction
in 1996.

Also as previously discussed, on October 31, 1995 Charter One completed the
FirstFed Merger. The merger was effected through the issuance of 1.2 shares of
Company common stock for each share of FirstFed common stock resulting in the
issuance of 22.5 million shares of Company common stock. The merger has been
accounted for as a pooling of interests and accordingly, the financial
statements for the Company for all periods prior to the FirstFed Merger have
been restated to include the results of FirstFed. FirstFed paid dividends of
$.46 per share for the 10 months ending October 31, 1995. For the 12 months
ended December 31, 1994, FirstFed paid dividends per share of $.54. All per
share dividend amounts and share prices shown are those of the Company prior to
the FirstFed Merger. See Note 2 to the Consolidated Financial Statements for
further information concerning this merger.

While the FirstFed Merger was accounted for as a pooling of interests,
periodically in the past the Company has completed other acquisitions where the
purchase method of accounting was applied. When the purchase method is used to
account for a business combination, the acquired assets and liabilities are
stated at fair value as of the acquisition date. In the banking industry
discounts and premiums are recorded to make fair value adjustments. These
premiums and discounts are then amortized over the estimated lives of the
related financial instruments. As shown below, net income for each period
presented was affected due to amortization of valuation adjustments recorded in
connection with the Company's acquisitions.

EFFECT OF PURCHASE ACCOUNTING ADJUSTMENTS ON INCOME

<TABLE>
<CAPTION> YEAR ENDED DECEMBER 31,
-------------------------------------------
NET GAIN OTHER FEDERAL
INTEREST (LOSS) EXPENSE, INCOME NET
INCOME ON SALE NET TAX INCOME
-------- ------- -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996.................................................................. $3,281 3 3,194 32 58
1995.................................................................. 3,168 (432) 1,375 476 885
1994.................................................................. 4,814 (3) 466 1,521 2,824
</TABLE>

The estimated effect in future years of amortization of valuation adjustments
recorded in connection with the Company's acquisitions is set forth below:

FORECASTED EFFECT OF PURCHASE ACCOUNTING ADJUSTMENTS ON INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
FEDERAL
INCOME
NET OTHER TAX
INTEREST EXPENSE, EXPENSE NET
INCOME NET (BENEFIT) INCOME
-------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1997..................................................................... $ 549 (5,070) (1,582) (2,939)
1998..................................................................... 388 (5,033) (1,626) (3,019)
1999..................................................................... 217 (4,805) (1,606) (2,982)
2000..................................................................... (44) (4,783) (1,689) (3,138)
2001..................................................................... (31) (4,752) (1,674) (3,109)
Thereafter............................................................... 2,224 (37,646) (12,398) (23,024)
------ -------- -------- --------
Total.................................................................. $ 3,303 (62,089) (20,575) (38,211)
====== ======== ======== ========
</TABLE>

Amortization of valuation adjustments can be significantly affected by factors
beyond the Company's control, such as changes in prepayment rates. The actual
effect of these valuation adjustments may be materially different than the
estimated effect disclosed herein.

41
<PAGE> 45

Unamortized balances of purchase accounting valuation amounts for all purchase
business combinations and purchase of asset transactions are summarized below:

DECEMBER 31,
-----------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)

<S> <C> <C>
Net discount on interest-earning assets.................................................... $ 1,246 7,281
Premiums on interest-bearing liabilities................................................... 2,057 3,456
Goodwill................................................................................... 64,496 10,602
Other, net................................................................................. 154 167
</TABLE>

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and results of operations in terms
of historical dollars without considering changes in the relative purchasing
power of money over time because of inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services. In the current interest
rate environment, liquidity, maturity structure and quality of the Bank's assets
and liabilities are critical to the maintenance of acceptable performance
levels.

ACCOUNTING AND REPORTING DEVELOPMENTS

A discussion of recently issued accounting pronouncements and their impact on
the Company's consolidated financial statements is provided in Note 1 to the
Consolidated Financial Statements.

FOURTH QUARTER RESULTS

The Company had net income of $42.9 million in the fourth quarter of 1996 as
compared to a net loss of $58.4 million in the last quarter of 1995. As
discussed earlier, the fourth quarter of 1995 included merger-related expenses
and charges due to balance sheet repositioning in conjunction with the FirstFed
Merger. Excluding these items, operating earnings for the 1995 period were $34.2
million. Therefore, earnings from operations increased $8.7 million, or 25.5%.
This increase was primarily due to an increase in net interest income of $9.5
million, as an increase of $3.8 million in recurring fee income was offset by
increases of $2.8 million in other expenses and $742,000 in the provision for
loan losses.

Net interest income was $95.3 million for the three months ended December 31,
1996 as compared to $85.8 million in the 1995 period. This $9.5 million, or
11.1%, increase was primarily due to lower balances of other borrowed funds and
an increase in the interest rate spread. The lower balance of other borrowed
funds was due to the Bank's desire to replace wholesale funds added in the
FirstFed Merger with retail deposits and lower costing FHLB advances. The
average balance of savings deposit accounts was $843.7 million higher in the
1996 period when compared to the fourth quarter of 1995 and the average balance
of FHLB advances was $212.8 million higher in the 1996 period. This was offset
by a $1.2 billion decrease in the other borrowed funds average balance. This
shift in categories and ultimate decrease of $120.4 million in the average
balance of interest-bearing liabilities reduced interest expense by $6.0
million. The interest rate spread was 33 basis points higher at 2.59% for the
fourth quarter of 1996 as compared to 2.26% for the fourth quarter of 1995,
primarily due to the lower cost of interest-bearing liabilities, which
contributed $2.8 million to the increase in net interest income. The cost of
interest-bearing liabilities was 5.01% for the fourth quarter of 1996 as
compared to 5.46% for the same period in 1995.

Loan servicing fees, service fees and charges and leasing operations are
collectively referred to as recurring fee income. The fourth quarter of 1996 had
a $3.8 million increase in recurring fee income when compared to the same period
in 1995. This was primarily due to an increase in the number of checking
accounts and increased balances of loans serviced for others. The increase in
the number of checking accounts was primarily due to the First Nationwide
acquisition. See Note 2 to the Consolidated Financial Statements for further
information on this acquisition. The increase in loans serviced for others
resulted from $330 million of mortgage loans sold in December 1995 as part of
the FirstFed Merger and another $510 million in seasoned 15-to-30 year
fixed-rate mortgage loans sold in June 1996 in order to maintain the Bank's
desired interest rate risk profile. In both cases, the Bank sold these loans
with servicing retained.

42
<PAGE> 46

Other expenses for the fourth quarter of 1996 were $49.2 million as compared to
$46.4 million in the fourth quarter of 1995, excluding the merger-related
expenses of $37.5 million. This $2.8 million increase was primarily attributable
to increased costs associated with the increased retail banking activity and the
acquisition of the Michigan offices and deposits of First Nationwide Bank in
June 1996 as mentioned above.

The following table presents summarized quarterly data for each of the years
indicated.

QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C> <C> <C>
1996
Total interest income............................ $243,048 251,680 254,327 255,423 1,004,478
Net interest income.............................. 92,002 98,907 97,179 95,304 383,392
Provision for loan and lease losses.............. 1,000 1,000 1,001 1,000 4,001
Gains (losses) on loans and
securities and other............................ 577 (2,115) (71) 3,502 1,893
SAIF assessment(1)............................... - - 56,258 - 56,258
Net income....................................... 38,450 41,370 5,031 42,871 127,722
Earnings per share(2)............................ .80 .86 .11 .90 2.67

1995(3)
Total interest income............................ $273,372 275,535 276,782 261,721 1,087,410
Net interest income.............................. 77,253 76,896 77,869 85,798 317,816
Provision for loan and lease losses.............. 258 258 258 258 1,032
Gains (losses) on loans and
securities and other............................ 2,095 3,022 3,263 (24,476) (16,096)
Loss on termination of interest rate
exchange agreements............................. - - - (76,207) (76,207)
Net income (loss)................................ 29,310 31,045 32,107 (58,430) 34,032
Earnings (loss) per share(4)..................... .61 .65 .67 (1.24) .71

<FN>
- ----------------
(1) See Note 21 to the Consolidated Financial Statements for further
information.

(2) Restated to reflect the 5% stock dividend issued September 30, 1996.

(3) The data for the fourth quarter of 1995 includes pretax losses of $101.8
million from charges related to financial repositioning and
restructurings. The after-tax loss for these financial restructurings was
$66.1 million. Also in the fourth quarter of 1995, the Company recorded
merger-related expenses of $37.5 million with an after-tax impact of $26.5
million.

(4) Restated to reflect the 5% stock dividend issued September 30, 1996. Due
to a net loss in the fourth quarter of 1995, the assumed exercise of
stock options is antidilutive.
</TABLE>

43
<PAGE> 47

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)

<S> <C> <C>
ASSETS
Cash and deposits with banks.................................................... $ 152,301 163,123
Federal funds sold and other.................................................... 118,003 495,248
------------ -----------
Total cash and cash equivalents............................................ 270,304 658,371
Investment securities available for sale........................................ 243,632 407,427
Mortgage-backed securities:
Available for sale............................................................ 21,800 1,435,589
Held to maturity (fair value of $4,701,452 and $3,961,326).................... 4,692,996 3,879,160
Loans held for sale............................................................. - 4,340
Loans and leases, net (including allowance for loan and lease losses
of $65,922 and $64,436)........................................................ 8,100,342 6,674,260
Federal Home Loan Bank stock.................................................... 215,815 178,136
Premises and equipment.......................................................... 114,145 96,581
Accrued interest receivable..................................................... 77,193 73,683
Equipment on operating leases................................................... 22,599 32,755
Real estate owned............................................................... 7,337 11,991
Goodwill........................................................................ 64,496 10,602
Other assets.................................................................... 73,904 115,964
------------ -----------
Total assets............................................................... $ 13,904,563 13,578,859
============ ===========

LIABILITIES
Deposits........................................................................ $ 7,841,197 7,012,491
Federal Home Loan Bank advances................................................. 3,194,333 3,163,144
Reverse repurchase agreements................................................... 1,549,778 2,089,520
Other borrowings................................................................ 211,180 209,020
Advance payments by borrowers for taxes and insurance........................... 39,346 47,738
Accrued interest payable........................................................ 35,298 56,955
Accrued expenses and other liabilities.......................................... 104,738 155,593
------------ -----------
Total liabilities.......................................................... 12,975,870 12,734,461
------------ -----------
Commitments and contingencies...................................................
SHAREHOLDERS' EQUITY
Preferred stock - $.01 par value per share; 20,000,000 shares
authorized and unissued....................................................... - -
Common stock - $.01 par value per share; 180,000,000 shares
authorized; 47,472,486 and 45,119,014 shares issued........................... 475 451
Additional paid-in capital...................................................... 321,991 235,889
Retained earnings............................................................... 637,356 642,197
Less 1,029,763 and 101,488 shares of common stock held in
treasury, at cost............................................................. (39,615) (3,061)
Net unrealized gain (loss) on securities, net of tax (expense) benefit of
($4,565) and $15,978........................................................... 8,486 (31,078)
------------ -----------
Total shareholders' equity................................................. 928,693 844,398
------------ -----------
Total liabilities and shareholders' equity................................. $ 13,904,563 13,578,859
============ ===========
</TABLE>

See Notes to Consolidated Financial Statements.

44
<PAGE> 48

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C>
INTEREST INCOME:
Loans and leases................................................. $ 602,432 557,936 532,719
Mortgage-backed securities:
Available for sale............................................. 11,340 23,820 64,482
Held to maturity............................................... 346,635 418,344 364,306
Investment securities available for sale......................... 21,205 59,746 26,122
Other interest-earning assets.................................... 22,866 27,564 18,551
---------- ---------- ----------
Total interest income......................................... 1,004,478 1,087,410 1,006,180
---------- ---------- ----------
INTEREST EXPENSE:
Deposits......................................................... 326,948 346,605 305,494
FHLB advances.................................................... 185,439 177,704 150,744
Other borrowings................................................. 108,699 245,285 237,969
---------- ---------- ----------
Total interest expense........................................ 621,086 769,594 694,207
---------- ---------- ----------
Net interest income........................................... 383,392 317,816 311,973
Provision for loan and lease losses................................ 4,001 1,032 2,948
---------- ---------- ----------
Net interest income after provision for
loan and lease losses........................................ 379,391 316,784 309,025
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Loan servicing fees.............................................. 11,476 8,951 10,173
Service fees and other charges................................... 35,631 26,633 24,404
Leasing operations............................................... 7,421 7,903 -
Net gains (losses):
Loans.......................................................... 2,040 1,578 (1,925)
Mortgage-backed securities..................................... 981 (25,570) 4,191
Investment securities.......................................... (2,025) 6,010 6,955
Termination of interest rate exchange agreements............... - (76,207) (155,364)
Other gains.................................................... 897 1,886 357
Other............................................................ 717 980 820
---------- ---------- ----------
Total other income (expense).................................. 57,138 (47,836) (110,389)
---------- ---------- ----------
ADMINISTRATIVE EXPENSES:
Compensation and employee benefits............................... 90,881 89,141 83,660
Net occupancy and equipment...................................... 27,129 25,015 24,543
Federal deposit insurance premiums............................... 16,112 17,445 17,503
State taxes...................................................... 7,887 6,273 7,809
Merger expenses.................................................. - 37,528 -
Amortization of goodwill......................................... 2,587 774 621
Other administrative expenses.................................... 43,170 39,567 41,825
---------- ---------- ----------
Administrative expenses before federal deposit
insurance special assessment................................ 187,766 215,743 175,961
Federal deposit insurance special assessment..................... 56,258 - -
---------- ---------- ----------
Total administrative expenses................................. 244,024 215,743 175,961
---------- ---------- ----------
Income before federal income taxes and
and extraordinary item........................................... 192,505 53,205 22,675
Federal income taxes............................................... 64,783 19,173 7,056
---------- ---------- ----------
Income before extraordinary item.............................. 127,722 34,032 15,619
Extraordinary item, net of tax benefit of $6,361................... - - (12,348)
---------- ---------- ----------
Net income.................................................... $ 127,722 34,032 3,271
========== ========== ==========

Earnings per common and common equivalent share(1):
Income before extraordinary item................................. $ 2.67 .71 .32
Extraordinary item............................................... - - (.26)
---------- ---------- ----------
Net income.................................................... $ 2.67 .71 .06
========== ========== ==========
Average common and common equivalent shares
outstanding(1)................................................... 47,916,192 48,151,822 48,237,686

<FN>
- ---------------------------

(1) Per share data has been restated to reflect the 5% stock dividend issued
September 30, 1996.
</TABLE>

See Notes to Consolidated Financial Statements.

45
<PAGE> 49

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL NET UNREALIZED SHARE-
COMMON PAID-IN RETAINED TREASURY GAIN (LOSS) HOLDERS'
STOCK CAPITAL EARNINGS STOCK ON SECURITIES EQUITY
----- ---------- -------- ------- ------------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994................. $ 449 233,926 667,864 902,239

Common stock issued in connection
with stock options exercised,
152,285 shares........................ 1 983 - - - 984
Purchase of 48,000 shares of
treasury stock........................ - - - (935) - (935)
Treasury stock reissued, 4,813
common shares at cost, in connection
with stock options exercised.......... - (65) - 94 - 29
Dividends paid ($.56 per share)(1)..... - - (23,405) - - (23,405)
Net unrealized gain (loss) on
securities available for sale,
net of tax benefit.................... - - - - (58,512) (58,512)
Net income............................. - - 3,271 - - 3,271
---- -------- -------- -------- -------- ---------
Balance, December 31, 1994............... 450 234,844 647,730 (841) (58,512) 823,671
Purchase of 718,100 shares of
treasury stock........................ - - - (19,831) - (19,831)
Treasury stock reissued in connection
with stock option exercised,
618,024 shares........................ - - (9,596) 16,796 - 7,200
Common stock canceled in
connection with the FirstFed Merger,
909 shares............................ - (26) - - - (26)
Treasury stock reissued in connection
with the acquisition of ACS,
41,775 shares......................... - - (7) 815 - 808
Common stock issued in connection
with stock options exercised,
88,290 shares......................... 1 1,071 - - - 1,072
Dividends paid ($.71 per share)(1)..... - - (29,962) - - (29,962)
Change in net unrealized gain (loss)
on securities, net of tax benefit..... - - - - 27,434 27,434
Net income............................. - - 34,032 - - 34,032
---- -------- -------- -------- -------- ---------
Balance, December 31, 1995............... 451 235,889 642,197 (3,061) (31,078) 844,398
Stock dividend of 5% issued
September 30, 1996.................... 23 84,711 (83,757) (977) - -
Purchase of 1,288,425 shares of
treasury stock........................ - - - (47,697) - (47,697)
Treasury stock reissued in connection
with stock options exercised,
386,120 shares........................ - - (8,311) 12,120 - 3,809
Common stock issued in connection
with stock options exercised,
101,409 shares........................ 1 1,391 - - - 1,392
Dividends paid ($.86 per share)(1)..... - - (40,495) - - (40,495)
Change in net unrealized gain (loss)
on securities, net of tax benefit..... - - - - 39,564 39,564
Net income............................. - - 127,722 - 127,722
---- -------- -------- -------- -------- ---------
Balance, December 31, 1996............... $ 475 321,991 637,356 (39,615) 8,486 928,693
==== ======== ======== ======== ======== =========

<FN>
- ---------------------------
(1) Restated to reflect the 5% stock dividend issued September 30, 1996.
</TABLE>

See Notes to Consolidated Financial Statements.

46
<PAGE> 50

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 127,722 34,032 3,271
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses.............................. 4,001 1,032 2,948
Net (gains) losses............................................... (1,893) 16,096 (9,578)
Accretion of discounts, amortization of premiums,
amortization of goodwill and depreciation, net.................. 9,977 26,360 6,684
Origination of real estate loans held for sale................... (59,882) (135,456) (137,561)
Proceeds from sale of loans held for sale........................ 61,922 136,655 139,951
Proceeds from sale of mortgage-backed securities
available for sale.............................................. - - 62,008
Loss on termination of interest rate exchange agreements......... 76,207 155,364
Loss on extinguishment of debt................................... - - 18,708
Other............................................................ 18,328 10,220 (37,594)
----------- ----------- -----------
Net cash provided by operating activities...................... 160,175 165,146 204,201
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net principal disbursed on loans and leases........................ (1,915,268) (364,950) (66,765)
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity...................... 737,029 673,991 1,179,950
Mortgage-backed securities available for sale.................... 23,766 32,717 192,112
Investment securities held to maturity........................... - - 1,800
Investment securities available for sale......................... 231,385 864,903 159,849
Proceeds from sale of:
Mortgage-backed securities held to maturity...................... 71,226 - 17,917
Mortgage-backed securities available for sale.................... 832,501 1,188,401 845,215
Investment securities available for sale......................... 255,521 655,601 322,113
Federal Home Loan Bank stock..................................... - - 20,500
Purchases of:
Mortgage-backed securities held to maturity...................... (569,577) (178,010) (1,501,023)
Mortgage-backed securities available for sale.................... - (3,081) (757,769)
Investment securities available for sale......................... (326,252) (1,443,905) (519,832)
Federal Home Loan Bank stock..................................... (30,662) (11,255) (31,883)
Equipment on operating lease..................................... (10,980) (22,011) -
Net cash and cash equivalents (paid) received in connection
with acquisitions................................................. 731,170 (9,857) 83,489
Other.............................................................. (14,275) (5,014) 21,466
----------- ----------- -----------
Net cash provided by (used in) investing activities............ 15,584 1,377,530 (32,861)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings................... (848,033) (510,697) 212,864
Proceeds from long-term borrowings................................. 2,920,137 4,194,081 6,848,988
Repayments of long-term borrowings................................. (2,577,924) (4,713,866) (6,721,256)
Increase (decrease) in, net of acquisitions:
Deposits......................................................... 33,377 (76,238) (277,434)
Advance payments by borrowers for taxes and insurance............ (8,392) (7,364) 1,362
Payment of dividends on common stock............................... (40,495) (29,962) (23,405)
Proceeds from issuance of common stock............................. 1,392 1,072 984
Purchase of treasury stock, net of options exercised............... (43,888) (12,629) (906)
Net payment to terminate interest rate exchange agreements......... - (70,637) (142,245)
----------- ----------- -----------
Net cash used in financing activities.......................... (563,826) (1,226,240) (101,048)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents............. (388,067) 316,436 70,292
Cash and cash equivalents, beginning of year......................... 658,371 341,935 271,643
----------- ----------- -----------
Cash and cash equivalents, end of year............................... $ 270,304 658,371 341,935
=========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

47
<PAGE> 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of Charter One Financial, Inc., ("Charter One" or
the "Company"), a unitary savings and loan holding company, and Charter One
Bank, F.S.B. (the "Bank"), conform to generally accepted accounting
principles and prevailing practices within the banking and thrift industry.
A summary of the more significant accounting policies follows:

NATURE OF OPERATIONS

Charter One is a Delaware Corporation organized as a unitary savings and
loan holding company and owns Charter Michigan Bancorp, Inc. which owns all
of the outstanding capital stock of Charter One Bank, F.S.B. The business
of the Bank is providing consumer and business banking services to certain
major markets in Ohio and, after October 1995, in Michigan. At the end of
1996, the Bank was doing business through 172 full service banking branches
and 9 loan production offices. Loans and deposits are primarily generated
from the areas where banking branches are located. The Company's income is
derived predominantly from interest on loans, leases, and securities and,
to a lesser extent, noninterest income. The Company's principal expenses
are interest paid on deposits and borrowings, and normal operating costs.
The Company's operations are principally in the savings industry, which
constitutes a single industry segment. The Bank's subsidiaries engage
principally in equipment leasing, data processing services, real estate
appraisal, sales of tax deferred annuities, property and casualty
insurance, and the development, operation and sale of real estate. The
Bank's subsidiaries are not a significant part of the business of the Bank.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company,
the Bank and its subsidiaries. All significant intercompany transactions
and balances have been eliminated.

SECURITIES

Securities consist of mortgage-backed securities, U.S. Government and
federal agency obligations, floating rate notes, commercial paper and state
and local government obligations. Securities are classified as trading,
available for sale or held to maturity upon their acquisition. Securities
classified as trading would be carried at estimated fair value with the
unrealized holding gain or loss recorded in the statement of income.
Securities classified as available for sale are carried at estimated fair
value with the unrealized holding gain or loss reflected as a component of
shareholders' equity. Securities classified as held to maturity are carried
at amortized cost. Premiums and discounts are recognized in interest income
over the period to maturity by the level yield method. Realized gains or
losses on the sale of debt securities are recorded based on the amortized
cost of the specific securities sold. Realized gains or losses on the sale
of marketable equity securities are recorded based on the average cost.
Security sales are recorded on a trade date basis.

LOANS

Loans intended for sale are carried at the lower of cost or estimated
market value determined on an aggregate basis. Net unrealized losses are
recognized through a valuation allowance by a charge to income.

Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances. For balance sheet presentation, the
balances are presented net of deferred fees or costs on originated loans or
unamortized premiums or discounts on purchased loans. Discounts and
premiums are accreted or amortized using the interest method over the
remaining period to contractual maturity adjusted for anticipated
prepayments. Unamortized net fees or costs are recognized upon early
repayment of the loans. Unamortized net fees or costs on loans sold are
included in the basis of the loans in calculating gains and losses.

48
<PAGE> 52

On January 1, 1995, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures," which impose certain requirements on
the measurement of impaired loans. The Company has previously measured such
loans in accordance with the methods prescribed in SFAS No. 114.
Consequently, no additional loss provisions were required by the adoption
of these statements. SFAS No. 114 also requires that impaired loans for
which foreclosure is probable should continue to be accounted for as loans.
At the date of adoption, the balance of in-substance foreclosed loans
reclassified to loans receivable was $1.2 million. The adoption of SFAS No.
114 and SFAS No. 118 did not have a material effect on the Company's
results of operations.

The Company's policy for recognition of interest on impaired loans
including how cash receipts are recorded is essentially unchanged as a
result of the adoption of SFAS Nos. 114 and 118. A loan (including a loan
impaired under SFAS No. 114) is classified as nonaccrual when
collectability is in doubt (this is generally when the borrower is 90 days
past due on contractual principal or interest payments). A loan may be
considered impaired, but remain on accrual status, when the borrower
demonstrates (by continuing to make payments) a willingness to keep the
loan current. When a loan is placed on nonaccrual status, unpaid interest
is reversed and an allowance is established by a charge to interest income
equal to all accrued interest. Income is subsequently recognized only to
the extent that cash payments are received. Loans are returned to accrual
status when, in management's judgment, the borrower has the ability and
intent to make periodic principal and interest payments (this generally
requires that the loan be brought current in accordance with its original
contractual terms).

A loan is considered to be impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. In
general, the Bank considers a loan on income-producing properties to be
impaired when the debt service ratio is less than 1.0 and principal
recovery is in doubt. Loans on non-income producing properties are
considered impaired whenever fair value is less than book value. The Bank
performs a review of all loans over $500,000 to determine if the impairment
criteria have been met. If the impairment criteria have been met, a reserve
is calculated according to the provisions of the SFAS No. 114. For loans
which are individually not significant ($500,000 or less) and represent a
homogeneous population, the Bank evaluates impairment based on the level
and extent of delinquencies in the portfolio and the Bank's prior
charge-off experience with those delinquencies. Such loans include all
mortgage loans secured by 1-4 family residential property, all consumer
loans and certain multifamily real estate loans, non-residential real
estate loans, business loans and leases. The Bank charges principal off at
the earlier of (i) when a total loss of principal has been deemed to have
occurred as a result of the book value exceeding the fair value or net
realizable value, or (ii) when collection efforts have ceased.

LEASE ACCOUNTING

The Company classifies leases at the inception of the lease in accordance
with SFAS No. 13, "Accounting for Leases." Estimated residual values are
reviewed at least annually and reduced if necessary.

Direct Financing Leases - At lease inception, the present values of future
rentals and of the residual are recorded as net investment in direct
financing leases. Unearned interest income is amortized to interest income
over the lease term to produce a constant percentage return on the
investment.

Sales-Type Leases - At the inception of the lease, the present value of
future rentals is recorded as equipment sales. Equipment cost less the
present value of the residual is recorded as cost of equipment sold.
Accordingly, a dealer profit is recognized at lease inception. The present
values of future rentals and of the residual are recorded as net investment
in sales-type leases. Unearned income is amortized to interest income over
the lease term to produce a constant percentage return on the investment.

Leveraged Leases - Income on leveraged leases is recognized on a constant
rate of return on the outstanding investment in the lease, net of the
related deferred tax liability.

Operating Leases - Operating lease revenue includes monthly rentals. The
cost of equipment is recorded as equipment on operating leases and is
depreciated over the initial and succeeding lease terms, if any, to an
estimated residual value.

Initial Direct Costs - Sales commissions and other direct costs incurred in
direct financing and operating leases are capitalized and recorded as part
of the net investment in leases and of the equipment on operating leases
and are amortized over the lease term.

49
<PAGE> 53

NONPERFORMING LOANS AND LEASES

Loans and leases considered to be nonperforming include nonaccrual loans
and leases, accruing loans and leases delinquent more than 90 days, and
restructured loans. Loans and leases are classified as nonaccrual when, in
management's judgment, the borrower no longer has the ability and intent to
make periodic interest and principal payments. Loans and leases are
classified as accruing loans or leases delinquent more than 90 days when
the loan or lease is more than 90 days past due and, in management's
judgment, the borrower has the ability and intent to make periodic interest
and principal payments. Loans are classified as restructured when
concessions are made to borrowers with respect to the principal balance,
interest rate or the terms due to the inability of the borrower to meet the
obligation under the original terms.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses is established at a level believed
adequate by management to absorb estimated losses inherent in the loan and
lease portfolio. Management's determination of the adequacy of the
allowance is based upon estimates derived from an analysis of individual
credits, prior and current loss experience, loan and lease portfolio
delinquency levels, overall growth in the loan and lease portfolio and
current economic conditions. Consequently, these estimates are particularly
susceptible to changes that could result in a material adjustment to
results of operations. The provision for loan and lease losses represents a
charge against current earnings in order to maintain the allowance for loan
and lease losses at an appropriate level. Management believes that the
allowance for loan and lease losses has been recorded in accordance with
generally accepted accounting principles.

PREMISES AND EQUIPMENT

Premises and equipment and real estate held for investment are stated at
cost less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the useful lives of the
related assets.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

Interest rate exchange agreements ("swaps"), interest rate floor agreements
("floors"), interest rate collar agreements ("collars"), and interest rate
cap agreements ("caps") used in asset/liability management activities are
accounted for using the accrual method. The net interest received or paid
on swaps, floors, collars and caps is recognized over the lives of the
respective contracts as an adjustment to interest expense. Fees paid or
received at inception of the agreements are amortized or accreted to
interest expense over the lives of the related agreements. Gains and losses
on terminated agreements are deferred and amortized to interest expense
over the remaining original term of the applicable agreement. If the
assigned liability is eliminated, the gain or loss on the terminated
agreement is recognized immediately.

In the ordinary course of business, the Company enters into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit, standby letters of credit and
commitments to purchase or sell assets. The financial instruments are
recorded in the financial statements when they are funded or the related
fees are incurred or received.

REAL ESTATE OWNED

Real estate owned, including property acquired in settlement of foreclosed
loans, is carried at the lower of cost or estimated fair value less
estimated cost to sell at the date of foreclosure. Costs relating to the
development and improvement of real estate owned are capitalized, whereas
costs relating to holding and maintaining the property are charged to
expense.

GOODWILL

Goodwill represents the purchase price of acquired operations in excess of
the fair value of their net identifiable assets at the date of acquisition
and is being amortized using the straight-line method over 15 years.
Management reviews intangible assets for possible impairment if there is a
significant event that detrimentally affects operations.

LOAN FEES

Loan origination fees received for loans, net of direct origination costs,
are deferred and amortized to interest income over the contractual lives of
the loans using the level yield method. Fees received for loan commitments
that are

50
<PAGE> 54

expected to be drawn, based on the Bank's experience with similar
commitments, are deferred and amortized over the lives of the loans using
the level yield method. Fees for other loan commitments are deferred and
amortized over the loan commitment period on a straight-line basis.
Unamortized deferred loan fees or costs related to loans paid off are
included in income. Unamortized net fees or costs on loans sold are
included in the basis of the loans in calculating gains and losses.
Amortization of net deferred fees is discontinued for loans that are deemed
to be nonperforming.

FEDERAL INCOME TAXES

The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. The provision for federal income taxes is based upon
earnings reported for financial statement purposes rather than amounts
reported on the Company's income tax returns. Deferred income taxes, which
result from temporary differences in the recognition of income and expense
for financial statement and tax return purposes, are included in the
calculation of income tax expense. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period
that includes the enactment date.

STATEMENTS OF CASH FLOWS

For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a term of three months or less to be cash
equivalents. Cash flows from interest rate swaps are classified based on
the on-balance-sheet assets or liabilities hedged. Federal Reserve Board
regulations require depository institutions to maintain certain minimum
reserve balances. These reserves, which consisted of vault cash and
deposits at the Federal Reserve Bank, totaled $85.6 million and $67.8
million at December 31, 1996 and 1995, respectively.

EARNINGS PER SHARE

Earnings per share of common stock is based on the weighted average number
of common shares and common share equivalents outstanding during the year.
All shares and per share data has been restated to reflect the 5% stock
dividend issued September 30, 1996.

NEW ACCOUNTING STANDARDS

On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." This statement requires that long-lived assets and certain identified
intangibles held and used by an entity, along with goodwill related to
those assets, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this statement has not had a material effect
on the Company's financial condition or results of operations.

On January 1, 1996, the Company also adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." SFAS No. 122 amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities," to require that a company
recognize, as a separate asset, rights to service mortgage loans for
others, regardless of how those servicing rights are acquired. A company
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with the
servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based upon their relative values, if it is practicable to
estimate those fair values. This statement also requires that a company
periodically assess its capitalized mortgage servicing rights for
impairment based upon the fair value of those rights. The adoption of this
statement has not had a material effect on the Company's financial
condition or results of operations. SFAS 122 will be superseded by SFAS
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," as described below.

Effective January 1, 1996, Charter One adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," which prescribes financial accounting and
reporting standards for stock-based employee compensation plans. The
statement defines a fair value based method of accounting for employee
stock options or similar equity instruments and encourages all entities to
adopt that method of accounting for all employee stock compensation plans.
However, the statement also allows an entity to continue to measure
compensation cost for these plans using an intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion ("APB") No.
25. Entities electing to retain the accounting treatment under APB No. 25
must make pro forma footnote disclosures of net income and earnings per
share as if the fair value based method of accounting defined in SFAS No.
123 has been applied. Management has elected to continue using the APB No.
25 accounting method and include pro forma disclosures. See Note 17 to the
Consolidated Financial Statements.

51
<PAGE> 55

In June 1996, the FASB issued SFAS No. 125. SFAS No. 125 amends portions of
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," amends and extends to all servicing assets and liabilities the
accounting standards for mortgage servicing rights now in SFAS No. 65, and
supersedes SFAS No. 122. SFAS No. 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. Those standards are based upon consistent
application of a financial components approach that focuses on control. The
statement also defines accounting treatment for servicing assets and other
retained interests in the assets that are transferred. SFAS No. 125 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to
be applied prospectively. The FASB has recently issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125," that defers the effective date of certain provisions of SFAS No. 125
related to secured borrowings and collateral, repurchase agreements, dollar
rolls, securities lending, and similar transactions until after December
31, 1997. Management has not completed the process of evaluating this
statement and therefore has not determined the impact, if any, that
adopting this statement will have on the financial position and results of
operations.

RECLASSIFICATIONS

Certain items in the consolidated financial statements for 1995 and 1994
have been reclassified to conform to the 1996 presentation.

2. BUSINESS COMBINATIONS, ASSET ACQUISITIONS AND DIVESTITURES

On June 28, 1996, the Company completed the acquisition of First Nationwide
Bank's 21 branch offices in the Detroit Metropolitan area. The market areas
of four First Nationwide offices directly overlapped those of existing
branch offices and therefore were consolidated into the existing branch
facilities. The deposits of the branches totaled $796.7 million and were
assumed for a cost of $57.0 million. Such cost has been reflected as
goodwill in the accompanying financial statements.

On October 31, 1995, the Company completed a merger with FirstFed Michigan
Corporation ("FirstFed"), the holding company for First Federal of
Michigan, a federally chartered savings and loan association (the "FirstFed
Merger.") The FirstFed Merger was effected through the issuance of 1.2
shares of Company common stock for each share of FirstFed common stock
resulting in the issuance of 22,506,201 shares of Company common stock. The
merger has been accounted for as a pooling of interests and, accordingly,
the financial statements of the Company for all periods prior to the merger
have been restated to include the results of FirstFed. FirstFed paid
dividends of $8,612,000 for the 10 months ended October 31, 1995 and
$10,079,000 in 1994. All per share dividend amounts are those of the
Company prior to the merger.

Total assets and shareholders' equity of FirstFed as of October 31, 1995
(unaudited) were $7,675,952,000 and $417,555,000, respectively. Total
income and net income of the Company and FirstFed after restatement to
conform the adoption dates of changes in accounting practices and
reclassifications to conform presentation included in the 1995 and 1994
results of operations are as follows:

<TABLE>
<CAPTION>
TOTAL INCOME NET INCOME (LOSS)
------------------------------- ----------------------------------
JANUARY 1, 1995 JANUARY 1, 1995
TO YEAR ENDED TO YEAR ENDED
OCTOBER 31, 1995 DECEMBER 31, 1994 OCTOBER 31, 1995 DECEMBER 31, 1994
----------------------------------- -------------------------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Company................................. $ 420,528 423,686 54,684 67,613
FirstFed................................ 448,022 472,105 (31,707) (64,342)
-------- --------- ------- --------
Total................................ $ 868,550 895,791 22,977 3,271
======== ========= ======= ========
</TABLE>

52
<PAGE> 56

A reconciliation of amounts previously reported by the Company and FirstFed
to the amounts included in the restated statements of the Company for 1994
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
NET INCOME
TOTAL INCOME (LOSS)
------------ ----------
(DOLLARS IN THOUSANDS)

<S> <C> <C>
As reported by the Company...................................................... $ 423,686 67,613
As reported by FirstFed......................................................... 470,302 (96,290)
Adjustment to conform adoption date of
accounting change............................................................. - 31,948
Reclassifications to conform presentation....................................... 1,803 -
-------- --------
Total, as restated............................................................ $ 895,791 3,271
======== ========
</TABLE>

The adjustment to conform the adoption date of the accounting change shown
in the table above is made to conform FirstFed's adoption date of an
accelerated method of accounting for goodwill from January 1, 1994 to
January 1, 1990.

In January 1995, the Company acquired a leasing company (ICX Corporation)
and purchased a controlling interest in a computer service bureau
(Accredited Computer Services) in which it previously had an equity
investment. ICX Corporation had $135.8 million in assets, primarily
financing leases and assets held under operating leases. Accredited
Computer Services had $2.7 million in assets comprised primarily of
computer equipment.

3. INVESTMENT SECURITIES

Investment securities classified as available for sale at December 31,
1996, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities............................ $ 238,195 550 610 238,135
Corporate notes and commercial paper........................... 1,123 2,984 - 4,107
Other.......................................................... 1,389 1 - 1,390
--------- ------ ---- --------
Total....................................................... $ 240,707 3,535 610 243,632
========= ====== ==== ========
</TABLE>

Investment securities classified as available for sale at December 31,
1995, are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities............................. $ 375,263 1,969 - 377,232
Corporate notes and commercial paper............................ 27,584 2,449 - 30,033
Other........................................................... 162 - - 162
-------- ------ ---- --------
Total........................................................ $ 403,009 4,418 - 407,427
======== ====== ==== ========
</TABLE>

The weighted average interest rate on investment securities was 6.89% and
6.76% at December 31, 1996 and 1995, respectively.

53
<PAGE> 57

Investment securities available for sale by contractual maturity, repricing
or expected call date are shown below:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
AMORTIZED FAIR AVERAGE
COST VALUE RATE
---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Due in one year or less............................................... $ 186,095 186,570 7.06%
Due after one year through two years.................................. 1,000 1,075 6.72
Due after two years through five years................................ 44,345 43,745 6.17
Due after five years through ten years................................ 540 531 6.10
Due after ten years................................................... 8,727 11,711 6.96
-------- --------
Total.............................................................. $ 240,707 243,632 6.89%
======== ========
</TABLE>

At December 31, 1996 and 1995, total adjustable-rate investment securities
were $8.6 million and $8.9 million, respectively.

Gains on sales were $6.0 million and $7.9 million for the years ended
December 31, 1995 and 1994, respectively. Losses were $2.0 million and $1.0
million for the years ended December 31, 1996 and 1994, respectively.

4. MORTGAGE-BACKED SECURITIES

The amortized cost, unrealized gains and losses of mortgage-backed
securities and the fair values at December 31, 1996 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Participation certificates:
Government agency issues:
FHLMC.................................................... $ 13,404 6 75 13,335
Collateralized mortgage obligations:
Government agency issues:
FNMA..................................................... 1,293 - 10 1,283
Private issues............................................. 9,214 - 2,032 7,182
---------- ------- ------- ----------
Total mortgage-backed securities available for sale.... 23,911 6 2,117 21,800
---------- ------- ------- ----------
HELD TO MATURITY
Participation certificates:
Government agency issues:
FNMA..................................................... 1,246,398 11,202 10,515 1,247,085
FHLMC.................................................... 636,228 18,006 381 653,853
GNMA..................................................... 188,057 4,232 421 191,868
Private issues............................................. 407,564 2,757 8,943 401,378
Collateralized mortgage obligations:
Government agency issues:
FNMA..................................................... 427,238 8,447 1,688 433,997
FHLMC.................................................... 434,106 4,903 1,782 437,227
Private issues............................................. 1,353,405 5,180 22,541 1,336,044
---------- ------- ------- ----------
Total mortgage-backed securities held to maturity...... 4,692,996 54,727 46,271 4,701,452
---------- ------- ------- ----------
Total................................................ $ 4,716,907 54,733 48,388 4,723,252
========== ======= ======= ==========
</TABLE>

54
<PAGE> 58

At December 31, 1995, the amortized cost, unrealized gains and losses of
mortgage-backed securities and the fair values were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- --------- -----
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Participation certificates:
Government agency issues:
FNMA.................................................... $ 329,317 196 2,366 327,147
FHLMC................................................... 20,307 85 - 20,392
Private issues............................................ 116 - - 116
Collateralized mortgage obligations:
Government agency issues:
FNMA.................................................... 262,206 4,413 25 266,594
FHLMC................................................... 348,830 3,759 79 352,510
Private issues............................................ 464,604 4,624 398 468,830
--------- -------- ------- ----------
Total mortgage-backed securities
available for sale.................................... 1,425,380 13,077 2,868 1,435,589
--------- -------- ------- ----------
HELD TO MATURITY
Participation certificates:
Government agency issues:
FNMA.................................................... 1,546,206 27,541 1,570 1,572,177
FHLMC................................................... 891,638 30,613 26 922,225
GNMA.................................................... 224,938 5,863 - 230,801
Private issues............................................ 498,631 4,275 3,911 498,995
Collateralized mortgage obligations:
Government agency issues:
FNMA.................................................... 180,013 9,108 3 189,118
FHLMC................................................... 83,708 5,147 106 88,749
Private issues............................................ 454,026 6,808 1,573 459,261
--------- -------- ------- ----------
Total mortgage-backed securities
held to maturity...................................... 3,879,160 89,355 7,189 3,961,326
--------- -------- ------- ----------
Total............................................... $5,304,540 102,432 10,057 5,396,915
========= ======== ======= ==========
</TABLE>

In July 1996, the Bank sold $510.4 million of FNMA fixed-rate
participation certificates which were made up of seasoned 15- to
30-year fixed-rate mortgage loans originated by the Bank and swapped to
FNMA for participation certificates in June 1996. The sale resulted in
a $289,000 net loss and recognition of $2.7 million of originated
mortgage servicing rights, both of which were recorded on the trade
date in June 1996. Recognition of the servicing rights was in
accordance with SFAS No. 122 which Charter One adopted as of January 1,
1996.

In September 1996, the Bank reclassified $10.9 million of
mortgage-backed securities from held to maturity to available for sale
in response to significant deterioration in the issuer's
creditworthiness uncovered during a routine review of the portfolio.
Subsequently, $8.1 million of these securities were sold for a loss of
$1.4 million, which was recorded in the third quarter of 1996.

In December 1996, the Bank sold $68.7 million of mortgage-backed
securities held to maturity with outstanding balances less than 15% of
the principal outstanding at acquisition. A $2.6 million gain was
recorded on the sale.

On November 15, 1995, the FASB staff issued a special report, "A Guide
to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." In accordance with
provisions in that special report, management chose to reclassify
certain securities from the available for sale portfolio to the held to
maturity portfolio. At December 31, 1995, the date of the transfer, the
fair value of those securities was $77.3 million and the unrealized
loss on those securities was $2.3 million. Such loss will be amortized
through equity over the remaining life of the securities.

Additionally, in accordance with implementation of the same special
report, management chose to reclassify certain securities that were
classified as held to maturity to the available for sale portfolio. At
December 31, 1995, the date

55
<PAGE> 59

of the transfer, the amortized cost of those securities was $1.1
billion and the unrealized gain on those securities was $12.3 million.
In 1994, certain of those securities had been transferred from
available for sale to held to maturity with an unrealized loss of $50.2
million. At December 31, 1995, it was management's intent to reclassify
these same securities back to the held to maturity portfolio after a
sufficient period of market value risk. On January 31, 1996, such a
reclassification was made and an after-tax increase of $42.2 million in
equity was recorded.

During the fourth quarter of 1995, management also chose to reclassify
$945.7 million of fixed, low-rate mortgage-backed securities from held
to maturity to available for sale. This transfer was made as a
component of the FirstFed Merger repositioning in order to maintain the
Company's existing interest rate risk position. The mortgage-backed
securities were sold and a loss on the sale of $17.5 million was
recorded in the fourth quarter of 1995.

Sales of mortgage-backed securities available for sale and held to
maturity resulted in gains of $6.3 million in 1996, $1.8 million in
1995 and $10.1 million in 1994. Losses, including write-downs to fair
value, were $5.3 million in 1996, $27.4 million in 1995 and $5.9
million in 1994.

Mortgage-backed securities are classified by type of interest payment
as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1996 1995
---------------------------------- -------------------------------
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE RATE COST VALUE RATE
--------- ----- ------ --------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
Adjustable rate:
Collateralized
mortgage obligations............ $ 9,214 7,182 7.25% $ 1,072,890 1,085,208 7.23%
--------- ---------- ---------- ----------
Total adjustable rate.......... 9,214 7,182 7.25 1,072,890 1,085,208 7.23
--------- ---------- ---------- ----------
Fixed rate:
Participation
certificates.................... 13,404 13,335 6.03 349,740 347,655 6.23
Collateralized
mortgage obligations............ 1,293 1,283 5.09 2,750 2,726 5.30
--------- ---------- ---------- ----------
Total fixed rate.............. 14,697 14,618 5.94 352,490 350,381 6.22
--------- ---------- ---------- ----------
Total available for
sale.................... 23,911 21,800 6.45 1,425,380 1,435,589 6.98
--------- ---------- ---------- ----------
HELD TO MATURITY
Adjustable rate:
Participation
certificates.................... 1,019,324 1,026,902 7.16 1,279,124 1,297,319 7.08
Collateralized
mortgage obligations............ 1,361,493 1,365,960 7.00 357,816 372,972 7.48
--------- ---------- ---------- ----------
Total adjustable rate......... 2,380,817 2,392,862 7.07 1,636,940 1,670,291 7.17
--------- ---------- ---------- ----------
Fixed rate:
Participation
certificates.................... 1,458,923 1,467,282 7.51 1,882,289 1,926,879 7.56
Collateralized
mortgage obligations............ 853,256 841,308 7.15 359,931 364,156 7.32
--------- ---------- ---------- ----------
Total fixed rate.............. 2,312,179 2,308,590 7.38 2,242,220 2,291,035 7.52
--------- ---------- ---------- ----------
Total held to
maturity.................. 4,692,996 4,701,452 7.22 3,879,160 3,961,326 7.37
--------- ---------- ---------- ----------
Total mortgage-backed
securities.......................... $4,716,907 4,723,252 7.22% $ 5,304,540 5,396,915 7.27%
========= ========== ========== ==========
</TABLE>

56
<PAGE> 60

Adjustable-rate mortgage-backed securities are further classified by
type of repricing index as follows:

<TABLE>
<CAPTION>
1996
---------------------------------
AMORTIZED FAIR AVERAGE
COST VALUE RATE
---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Available for sale:
Collateralized mortgage obligations:
Six-month LIBOR....................................................... $ 5,296 3,352 7.12%
Other................................................................. 3,918 3,830 7.48
---------- ----------
Total adjustable rate available for sale.............................. 9,214 7,182 7.25
---------- ----------

Held to maturity:
Participation certificates:
One-year constant maturity treasury................................... 443,109 454,117 7.39
FHLB 11th District cost of funds...................................... 410,859 406,594 6.62
Other................................................................. 165,356 166,191 7.88
Collateralized mortgage obligations:
One-month LIBOR....................................................... 1,324,872 1,331,447 7.00
Other................................................................. 36,621 34,513 7.21
---------- ----------
Total adjustable rate held to maturity.............................. 2,380,817 2,392,862 7.07
---------- ----------
Total adjustable rate............................................. $ 2,390,031 2,400,044 7.07%
========== ==========
</TABLE>

The weighted average lifetime cap rate of the adjustable-rate
collateralized mortgage obligation portfolio and the adjustable-rate
participation certificate portfolio were 9.27% and 11.87, respectively,
at December 31, 1996.

5. LOANS AND LEASES

Loans and leases held for investment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real Estate:
Permanent:
One-to-four family............................................................ $ 6,072,927 5,140,857
Multifamily................................................................... 290,195 359,056
Commercial.................................................................... 348,787 368,372
Construction:
One-to-four family............................................................ 268,766 132,776
Multifamily................................................................... 14,517 11,495
Commercial.................................................................... 19,122 38,592
---------- ----------
Total real estate........................................................... 7,014,314 6,051,148
Consumer.......................................................................... 929,204 594,609
Business.......................................................................... 100,302 65,747
Lease financings.................................................................. 251,133 131,352
---------- ----------
Total loans and leases........................................................ 8,294,953 6,842,856
---------- ----------
Less:
Loans in process.............................................................. 134,880 83,845
Unamortized net discount...................................................... 1,169 4,150
Allowance for loan and lease losses........................................... 65,922 64,436
Deferred loan (costs)/fees, net............................................... (7,360) 16,165
---------- ----------
Total....................................................................... 194,611 168,596
---------- ----------
Loans and leases, net..................................................... $ 8,100,342 6,674,260
========== ==========
</TABLE>

Loans with adjustable rates included above totaled $3.0 billion and
$2.3 billion at December 31, 1996 and 1995, respectively. Substantially
all such loans have contractual interest rates that increase or
decrease at periodic intervals no greater than three years, or have
original terms to maturity of three years or less. Adjustable-rate
loans reprice primarily based upon U.S. Treasury security rates.

57
<PAGE> 61

The Bank's primary lending areas are within the states of Ohio and
Michigan. At December 31, 1996 and 1995, $7.6 billion and $6.3 billion,
respectively, of the Bank's gross loans were to borrowers located
within these two states. Although the Bank has a diversified loan
portfolio, its borrowers' ability to honor their contracts is
substantially dependent upon general economic conditions of the region.

The Bank originates or purchases commercial real estate and business
loans. These loans are considered by management to be of somewhat
greater risk of uncollectibility than single-family residential real
estate loans due to the dependency on income production or future
development of real estate. The following table sets forth the Bank's
commercial real estate and commercial construction loan portfolios by
type of collateral.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
------------------- ------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Strip shopping centers......................................... $ 133,758 36.4% $ 139,905 34.4%
Office buildings............................................... 54,835 14.9 63,573 15.6
Warehouses..................................................... 53,439 14.5 57,800 14.2
Developed and undeveloped land................................. 54,891 14.9 57,290 14.1
Hotel property................................................. 24,960 6.8 36,939 9.1
Mobile home parks.............................................. 19,774 5.4 18,630 4.6
Other.......................................................... 26,252 7.1 32,827 8.0
--------- ------ -------- ------
Total........................................................ $ 367,909 100.0% $ 406,964 100.0%
========= ====== ======== ======
</TABLE>

Business loans include loans to companies located in Ohio and Michigan
totaling $99.4 million and $64.0 million at December 31, 1996 and 1995,
respectively.

Business loans are collateralized by accounts receivable, inventory and
other assets used in the borrowers' business. Substantially all of the
consumer loans, including consumer lines of credit, are secured by
equity in the borrowers' residence.

At December 31, 1996, 1995 and 1994, loans serviced for the benefit of
others, not included in the detail above, totaled $1.5 billion, $1.2
billion and $883 million, respectively. Included in these totals were
loans sold on a recourse basis of $17.0 million, $23.0 million and
$29.4 million, respectively. Custodial escrow balances maintained in
connection with the foregoing loan servicing were $26.1 million and
$18.6 million at December 31, 1996 and 1995, respectively.

The Company normally has outstanding a number of commitments to extend
credit. At December 31, 1996, there were outstanding commitments to
originate $217.9 million of fixed-rate mortgage loans and other loans
and leases and $191.3 million of adjustable-rate loans, all at market
rates. Terms of the commitments extend up to nine months, but are
generally less than two months.

At December 31, 1996, there were also outstanding unfunded consumer
lines of credit of $434.5 million and business lines of credit of $36.4
million. The Company does not expect all of these lines to be used by
the borrowers.

A summary of the investment in lease financings is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Direct financing leases............................................................... $ 167,623 76,713
Sales-type............................................................................ 69,334 54,639
Leveraged leases...................................................................... 14,176 -
-------- --------
Total lease financings............................................................. $ 251,133 131,352
======== ========
</TABLE>

58
<PAGE> 62

The components of the investment in lease financings are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total future minimum lease rentals................................................... $ 224,654 125,773
Estimated residual value of leased equipment......................................... 86,947 32,451
Initial direct costs................................................................. 2,597 987
Less unearned income on minimum lease rentals and estimated residual value
of leased equipment................................................................ (63,065) (27,859)
--------- --------
Total lease financings........................................................... $ 251,133 131,352
========= ========
</TABLE>

At December 31, 1996, future minimum lease rentals on direct financing,
sales type and leveraged leases are as follows: $61.0 million in 1997;
$49.9 million in 1998, $38.6 million in 1999; $28.0 million in 2000;
$21.3 million in 2001, and $25.8 million thereafter.

At December 31, 1996, future minimum lease rentals on noncancelable
operating leases are as follows: $12.4 million in 1997; $3.0 million in
1998; $214,000 in 1999, and $88,000 in 2000.

ALLOWANCE FOR LOAN AND LEASE LOSSES

Changes in the allowance for loan and lease losses are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.................................................... $ 64,436 64,838 64,715
Provision................................................................... 4,001 1,032 2,948
Amounts charged off......................................................... (2,887) (2,318) (3,220)
Recoveries.................................................................. 372 708 395
Other....................................................................... - 176 -
------- ------- -------
Balance, end of year.......................................................... $ 65,922 64,436 64,838
======= ======= =======
</TABLE>

Nonperforming loans and leases were $35.4 million, $43.1 million and
$49.2 million at December 31, 1996, 1995 and 1994, respectively.

As of December 31, 1996, the total investment in impaired loans was
$10.4 million. The entire $10.4 million was subject to allowances for
credit losses of $615,000 as of December 31, 1996. The average recorded
investment in impaired loans during 1996 was $11.5 million, and
interest income recognized in 1996 was $807,000. The interest income
potential based upon the original terms of the contracts for these
impaired loans was $1.0 million for 1996.

As of December 31, 1995, the total investment in impaired loans was
$1.7 million. The entire $1.7 million was subject to allowances for
credit losses of $1.0 million as of December 31, 1995. The average
recorded investment in impaired loans during 1995 was $1.7 million, and
interest income recognized in 1995 was $114,000. The interest income
potential based upon the original terms of the contracts for these
impaired loans was $160,000 for 1995.

6. REAL ESTATE OWNED

Real estate owned consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Acquired in settlement of loans.......................................................... $ 7,030 11,650
Held for investment and acquired for development......................................... 307 341
------ -------
Total.................................................................................. $ 7,337 11,991
====== =======
</TABLE>

59
<PAGE> 63

7. DEPOSITS

Deposits consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995
----------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Checking accounts:
Interest-bearing....................................... $ 558,753 1.86% $ 513,933 1.98%
Noninterest-bearing.................................... 300,685 - 220,029 -
Savings accounts......................................... 868,361 2.42 1,007,178 2.41
Money market accounts.................................... 1,344,973 3.52 829,087 3.19
Certificates of deposit.................................. 4,766,369 5.85 4,438,831 5.97
---------- ----------
Total deposits....................................... 7,839,141 4.56 7,009,058 4.65
Plus unamortized premium on
deposits purchased..................................... 2,056 3,433
---------- ----------
Total deposits, net.................................. $ 7,841,197 $ 7,012,491
========== ==========
Including the annualized effect of applicable swaps,
floors and amortization of deferred gains on
terminated swaps....................................... 4.48% 4.61%
</TABLE>

A summary of certificates of deposit by maturity follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Within 12 months.......................................................................... $ 3,489,052
12 months to 24 months.................................................................... 686,145
24 months to 36 months.................................................................... 241,609
36 months to 48 months.................................................................... 99,320
Over 48 months............................................................................ 250,243
----------
Total................................................................................... $ 4,766,369
==========
</TABLE>

At December 31, 1996, the Bank had no brokered certificates of deposit.

8. FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank advances at December 31, 1996, are secured by
Charter One's investment in the stock of the Federal Home Loan Bank, as
well as certain real estate loans aggregating $4.5 billion and
mortgage-backed securities aggregating $641 million. FHLB advances are
composed of the following:

60
<PAGE> 64

The variable-rate advances reprice based upon three-month LIBOR at
three-month intervals, and included $83 million with a 6.00% LIBOR cap,
and $573 million which are callable, at par, by the FHLB.

Charter One has also entered into stand-alone interest rate cap
agreements applicable to certain variable-rate and short-term
fixed-rate FHLB advances. Reference is made to Note 11, "Interest Rate
Risk Management," for additional discussion.

FHLB advances mature as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
FIXED-RATE ADVANCES VARIABLE-RATE ADVANCES
----------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturing in:
1997.................................................. $ 387,300 5.94% $ 1,128,000 5.55%
1998.................................................. 285,000 6.50 75,000 5.59
1999.................................................. 475,000 6.23 200,000 5.60
2000.................................................. 400,000 5.98
2001.................................................. 205,000 4.88
2005.................................................. 5,000 6.52
2006.................................................. 319 3.98
2007.................................................. 31,868 5.82
2009.................................................. 525 5.00
2010.................................................. 509 1.00
2011.................................................. 658 3.50
2016.................................................. 153 3.75
---------- ----------
Total 1,791,332 5.99% 1,403,000 5.56%
Unamortized premium.................................... 1 -
---------- ----------
Total FHLB advances, net............................ $ 1,791,333 $ 1,403,000
========== ==========
</TABLE>

Certain advances require periodic amortization of principal. At
December 31, 1996, scheduled repayments of advances are as follows:
$1.5 billion in 1997, $362.4 million in 1998, $677.5 million in 1999,
$402.7 million in 2000, $207.8 million in 2001, and $26.3 million
thereafter.

At December 31, 1996, $200 million of the fixed rate agreements
maturing in 2001 are convertible, at the counterparty's option, to a
floating rate of three-month LIBOR, beginning in February 1999 and
quarterly thereafter.

61
<PAGE> 65

9. REVERSE REPURCHASE AGREEMENTS

Securities sold under agreements to repurchase are composed of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short term:
Mortgage-backed securities of $822 million, with fair value approximating
$844 million, sold with agreements to repurchase the same securities, with
a weighted average interest rate of 5.86% and matured in 1996................. $ - 798,783
U.S. Treasury securities of $50 million, with fair value approximating
$50 million, sold with agreements to repurchase the same securities, with
a weighted average interest rate of 5.82% and matured in 1996................. - 49,250
---------- ----------
Total short term.......................................................... - 848,033
---------- ----------
Long term:
Mortgage-backed securities of $1.6 billion, with fair value approximating
$1.7 billion, sold with agreements to repurchase the same securities.
(1995-$1.3 billion sold with fair value of $1.3 billion):
With a weighted average interest rate of 5.95% at December 31, 1995,
resetting quarterly based on three-month LIBOR and capped at
6.06% through 1996, due in 1998, and converted to fixed-rate in 1996....... - 491,487
With an interest rate of 5.67% and 6.17% at December 31, 1996 and
1995, respectively, resetting quarterly based on three-month LIBOR
and capped at 6.06%, due in 1997........................................... 175,000 175,000
With a weighted average interest rate of 4.96%, due in 1996,
callable by the Company at par............................................. - 275,000
With a weighted average interest rate of 5.89% and 5.44% at December 31,
1996 and 1995, respectively, due in 1998................................... 804,778 200,000
With a weighted average interest rate of 5.16% and 5.84% at December 31, 1996
and 1996 and 1995, respectively, due in 1999............................... 570,000 100,000
---------- ----------
Total long term......................................................... 1,549,778 1,241,487
---------- ----------
$ 1,549,778 2,089,520
========== ==========
Weighted average interest cost including amortization of fees.................... 5.62% 5.80%
===== =====
Weighted average interest cost including the annualized effect of the
applicable swaps, caps and amortization of deferred net gains
on terminated swaps............................................................ 5.59% 5.68%
===== =====
</TABLE>

At December 31, 1996 and 1995, $200 million of the fixed-rate
agreements maturing in 1998 were convertible, at the counterparty's
option, to a floating rate of three-month LIBOR, beginning in June 1997
and quarterly thereafter.

At December 31, 1996, $150 million of the fixed-rate agreements
maturing in 1999 were convertible, at the counterparty's option, to a
floating rate of three-month LIBOR, beginning in October 1997 and
quarterly thereafter.

At December 31, 1996, $120 million and $100 million of the fixed-rate
agreements maturing in 1999 were convertible, at the counterparty's
option, to a floating rate of three-month LIBOR less 10 basis points,
beginning in August 1997 and October 1997 respectively, and quarterly
thereafter.

The securities sold under agreements to repurchase were delivered to
the primary dealers who arranged, or were party to, the transactions.
They may have sold, loaned, or otherwise disposed of such securities to
other parties and have agreed to resell the same securities back to the
Company at maturity of the agreements.

At December 31, 1996 there were no amounts at risk with any
counterparties exceeding 10% of shareholders' equity. The amount at
risk is equal to the excess of the carrying value of the securities
sold under agreements to repurchase over the amount of the repurchase
liability.

The maximum month-end balance of outstanding agreements to repurchase
the same securities was $2.0 billion in 1996 and $3.6 billion in 1995.
The average balance was $1.6 billion and $3.2 billion during 1996 and
1995, respectively.

62
<PAGE> 66

10. OTHER BORROWINGS

Other borrowings consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Zero coupon bonds of $407 million due February 2005,
with yield to maturity of 11.39%.................................................... $ 162,435 145,684
Mortgage loan sale agreement.......................................................... 9,902 10,351
Variable-rate bonds, due December 1, 2015, interest payable semi-
annually at 4.75% with a ceiling of 9.5%............................................ 10,000 10,000
Installment obligations without recourse.............................................. 23,157 35,663
Other................................................................................. 5,686 7,322
-------- --------
Total............................................................................ $ 211,180 209,020
======== ========
</TABLE>

The zero coupon bonds are collateralized by mortgage-backed securities
of $359 million and $354 million at December 31, 1996 and 1995,
respectively.

The installment obligations are collateralized by leased equipment and
future lease revenues. The Company assigned the rentals under many
leases on a nonrecourse basis. In the event of a default by a lessee,
there is no recourse against the Company.

11. INTEREST RATE RISK MANAGEMENT

The Company utilizes various types of interest rate contracts in
managing its interest rate risk on certain of its deposits and FHLB
advances. The Company has utilized fixed payment swaps to convert
certain of its floating-rate or short-term, fixed-rate liabilities into
longer term, fixed rate instruments. Under these agreements, the
Company has agreed to pay interest to the counterparty on a notional
principal amount at a fixed rate defined in the agreement, and receive
interest at a floating rate indexed to LIBOR. The amounts of interest
exchanged are calculated on the basis of notional principal amounts.
The Company also utilizes fixed receipt swaps to convert certain of its
longer-term callable certificates of deposit into short-term variable
instruments. Under these agreements the Company has agreed to receive
interest from the counterparty on a notional amount at a fixed rate
defined in the agreement, and to pay interest at a floating rate
indexed to LIBOR.

Information on the swaps, by maturity date, follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
NOTIONAL RECEIVING PAYING NOTIONAL RECEIVING PAYING
PRINCIPAL INTEREST INTEREST PRINCIPAL INTEREST INTEREST
AMOUNT RATE RATE AMOUNT RATE RATE
--------- -------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FIXED PAYMENT AND VARIABLE RECEIPT
1999....................................... $ 100,000 5.77% 10.0% $ 100,000 6.02% 10.09%
======== ==== ==== ======== ==== =====
VARIABLE PAYMENT AND FIXED RECEIPT
1997....................................... $ 45,000 6.30% 5.63%
1998....................................... $ 115,000 6.40% 5.53% - - -
2000....................................... 110,000 7.06 5.54 110,000 7.08 5.63
2001....................................... 140,000 7.28 5.53 - - -
-------- ---- ---- -------- ---- -----
Total................................... $ 365,000 6.93% 5.53%(1) $ 155,000 6.86% 5.63%(1)
======== ==== ==== ======== ==== =====

<FN>
- ---------------------------

(1) Rates are based upon LIBOR.
</TABLE>

The Company also utilized swaps to hedge a special class of
certificates of deposit. These swaps provide for the receipt of
variable interest based upon changes in the S&P 500 Index, and the
payment of either fixed or variable interest. The notional principal
amount outstanding at December 31, 1996 of these agreements was $32.2
million

63
<PAGE> 67

with a weighted average receipt rate of 19.58% and payment rate of
5.59% at that date. As of December 31, 1995, the outstanding principal
was $24.2 million with receipt and pay rates of 14.28% and 5.85%
respectively.

In March 1995, the Company entered into $300 million of four-year
interest rate floor agreements maturing in March 1999, which provide
for receipt of interest when six-month LIBOR falls below 6.00%. The
Company receives the difference between 6.00% and LIBOR at the time of
repricing, calculated on the $300 million notional amount. At December
31, 1996, interest received based on a 5.80% LIBOR rate was partially
offset by a .07% per annum fee cost.

In the fourth quarter of 1995, as part of a balance sheet repositioning
due to the merger with FirstFed, the Company terminated $600 million of
swaps which were scheduled to mature in 1999, resulting in a pretax
loss of $72.0 million. The loss was recognized immediately in the
statement of operations, as the liabilities to which the agreements
were assigned were eliminated in connection with the repositioning. The
Company also terminated a $150 million swap which resulted in a gain of
$1.0 million. The gain was deferred and is being amortized straight
line over the original life of the agreement, as the liability to which
it was assigned remains outstanding. An additional pretax loss of $4.2
million was also recognized in the fourth quarter of 1995 when $800
million of 8% interest rate caps were terminated and the corresponding
liabilities were eliminated.

The unamortized net gains on terminated swaps were deferred if the
liabilities to which they were assigned remained outstanding. The gains
are being amortized over the original lives of the agreements. The
unamortized net gain on terminated swaps was $2.1 million at December
31, 1996. Amortization of deferred net gains against interest expense
totaled $6.1 million, $6.8 million and $6.6 million in 1996, 1995 and
1994, respectively. Amortization of the $2.1 million of remaining
deferred net gains at December 31, 1996, is expected to be $1.1 million
in 1997, $643,000 in 1998, and $313,000 in 1999.

The interest rate exchange agreements have been entered into with three
nationally recognized primary dealers. The payments on these agreements
have been collateralized with $23.4 million of mortgage-backed
securities at December 31, 1996, held by the counterparties. In the
event of a counterparty default, the Company is subject to risk to the
extent that the value of the collateral exceeds the Company's net
obligations under the agreements, and to the extent that any agreements
have to be replaced under market conditions which are not favorable to
the Company. The Company does not currently anticipate a default by any
of the counterparties.

The Company has entered into caps with primary dealers to limit its
exposure to rising rates on certain of its variable-rate and
short-term, fixed-rate liabilities. These stand-alone agreements
supplement the cap provisions which have been incorporated into some of
the Company's borrowings. The agreements provide for receipt of
interest when three-month LIBOR exceeds an agreed-upon base rate. The
Company receives a rate of interest equal to the excess of three-month
LIBOR at the time of repricing over the 6.00% base rate, calculated on
a notional principal amount. The agreements reprice quarterly. Fees
paid at inception of the agreements are being amortized over the terms
of the agreements. Unamortized fees totaled $328,000 at December 31,
1996.

Outstanding caps are described in the following table:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
PER PER
NOTIONAL INTEREST ANNUM NOTIONAL INTEREST ANNUM
PRINCIPAL BASE RATE COST OF PRINCIPAL BASE RATE COST OF
MATURING IN AMOUNT RATE RECEIVED FEE AMOUNT RATE RECEIVED FEE
----------- --------- ---- -------- ------- --------- ---- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996........................ $ 200,000 6.00% -% .21%

1997........................ $ 650,000 6.00% -% .31% 650,000 6.00 - .31
--------- ----- --- --- -------- ----- --- ---
Total.................... $ 650,000 6.00% -% .31% $ 850,000 6.00% -% .28%
========= ===== === === ======== ===== === ===
</TABLE>

The Company is exposed to credit loss in the event of nonperformance by
the counterparties to the swaps, floors and caps. The Company, however,
does not currently anticipate nonperformance by the counterparties.

64
<PAGE> 68

The cost of interest rate exchange, cap and floor positions, including
amortization of gains and losses on terminated positions, was included
in interest expense as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest expense:
Deposits............................................................. $ (9,515) 18,745 41,561
FHLB advances........................................................ 1,760 2,201 2,202
Reverse repurchase agreements........................................ (2,048) 30,914 73,014
------- ------- --------
Total............................................................. $ (9,803) 51,860 116,777
======= ======= ========
</TABLE>

12. FEDERAL INCOME TAXES

In accordance with SFAS No. 109, deferred income tax assets and
liabilities are computed annually for differences between financial
statement and tax basis of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
period adjusted for the change during the period in deferred tax assets
and liabilities.

The provision for federal income taxes consists of the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current.......................................................... $ 32,222 26,581 (4,806)
Deferred......................................................... 32,561 (7,408) 11,862
------- ------- -------
Total......................................................... $ 64,783 19,173 7,056
======= ======= =======
</TABLE>

A reconciliation from tax at the statutory rate to the income tax
provision is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
DOLLARS RATE DOLLARS RATE DOLLARS RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate............................. $ 67,377 35.0% $ 18,622 35.0% $ 7,937 35.0%

Increase (decrease) due to:
Bad debt deduction ............................. - - - 4,000 17.6
Purchase accounting ............................ - - - (3,877) (17.1)
Other .......................................... (2,594) (1.3) 551 1.0 (1,004) (4.5)
------- ---- ------- ----- ------- -----
Income tax provision ......................... $ 64,783 33.7% $ 19,173 36.0% $ 7,056 31.0%
======= ==== ======= ===== ======= =====
</TABLE>

Significant components of the deferred tax assets and liabilities are
as follows. No valuation allowance was considered necessary.

65
<PAGE> 69

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Book allowance for loan losses.................................... $ 21,201 21,483 22,323
Accrued and deferred compensation................................. 4,258 3,062 2,661
Allowance for uncollected interest................................ 823 946 970
Net unrealized loss on securities................................. - 15,978 30,647
Other............................................................. 5,250 20,566 19,088
-------- ------- -------
Total deferred tax assets...................................... 31,532 62,035 75,689
-------- ------- -------

Deferred tax liabilities:
Leasing activities, net........................................... 22,831 5,422 -
FHLB stock dividends.............................................. 15,124 12,668 10,928
Tax allowance for loan losses..................................... 5,840 7,987 9,094
Net unrealized gain on securities................................. 4,565 - -
Depreciation...................................................... 3,783 2,690 6,318
Purchase accounting............................................... 894 1,738 1,647
Mark-to-market.................................................... 339 678 2,295
Other............................................................. 3,384 2,976 914
-------- ------- -------
Total deferred tax liabilities................................. 56,760 34,159 31,196
-------- ------- -------
Net deferred tax asset (liability)........................... $ (25,228) 27,876 44,493
======== ======= =======
</TABLE>

During 1996, legislation was passed that repealed Section 593 of the
Internal Revenue Code for taxable years beginning after December 31,
1995. Section 593 allowed thrift institutions, including Charter One,
to use the percentage-of-taxable income bad debt accounting method, if
more favorable than the specific charge-off method, for federal income
tax purposes. The excess reserves (deduction based on the
percentage-of-taxable income less the deduction based on the specific
charge-off method) accumulated post-1987 are required to be recaptured
ratably over a six-year period beginning in 1996. The recapture has no
effect on the Company's statement of operations as taxes were provided
for in prior years in accordance with SFAS 109, "Accounting for Income
Taxes." The timing of this recapture may be delayed for a one or
two-year period to the extent that Charter One originates more
residential loans than the average originations in the past six years.
Charter One will meet the origination requirement for 1996 and,
therefore, will delay recapture at least until the six-year period
beginning in 1997. The recapture amount of $17.1 million will result in
payments totaling $6.0 million which has been previously accrued. The
pre-1988 reserve provisions are subject only to recapture requirements
in the case of certain excess distributions to, and redemptions of
shareholders or if the Bank no longer qualifies as a "bank". Tax bad
debt deductions accumulated prior to 1988 by the Bank are approximately
$168 million. No deferred income taxes have been provided on these bad
debt deductions and no recapture of these amounts is anticipated.

13. SHAREHOLDERS' EQUITY

The Bank may not declare or pay cash dividends on its shares of common
stock if the effect thereof would cause shareholders' equity to be
reduced below applicable regulatory capital maintenance requirements or
if such declaration and payment would otherwise violate regulatory
requirements. At December 31, 1996, approximately $155.9 million of the
Company's retained earnings was available to pay dividends to
shareholders, to purchase shares, or to be used for other corporate
purposes.

During 1994, the Board of Directors of the Company authorized
management to purchase up to 1.2 million shares of its outstanding
common stock. As of June 30, 1996, all of the shares had been purchased
under this authorization.

On May 15, 1996, the Board of Directors of the Company authorized
management to purchase 5% of the Company's outstanding common stock in
an additional buyback program. As of that date, the Company had
47,354,637 common shares outstanding (adjusted for subsequent stock
dividend). Under the authorization, repurchases are to be made from
time to time through open market purchases or unsolicited negotiated
transactions. Shares purchased under this authorization will be held in
treasury and will be available for issuance upon the exercise of
outstanding stock options and for other corporate purposes.

Under these two buyback programs, 1,288,425 shares of stock were
repurchased in 1996 for an aggregate price of $47.7 million, and
718,100 shares were purchased in 1995 for an aggregate price of $19.8
million.

66
<PAGE> 70

On July 24, 1996, the Board of Directors of Charter One Financial, Inc.
approved a 5% stock dividend which was distributed September 30, 1996,
to shareholders of record on September 13, 1996.

14. REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. The regulations require the Bank to meet specific capital
adequacy guidelines and the regulatory framework for prompt corrective
action that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital classification is
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total risk-based, Tier 1 risk-based, Tier 1 leverage and tangible
capital as set forth in the tables below.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------------------------------------
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)... $ 741,904 10.62% $559,080 8.0% $698,850 10.0%
Tier 1 capital (to risk-weighted assets).. 679,967 9.73 N/A N/A 419,310 6.0

Tier 1 capital (to adjusted tangible assets) 679,967 5.00 407,700 3.0 679,500 5.0
Tangible capital (to adjusted
tangible assets)........................ 679,967 5.00 203,850 1.5 N/A N/A
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
------------------------------------------------------------------
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)... $ 875,176 14.29% $489,835 8.0% $612,294 10.0%
Tier 1 capital (to risk-weighted assets).. 822,670 13.44 N/A N/A 367,376 6.0
Tier 1 capital (to adjusted tangible assets) 822,670 6.11 404,053 3.0 673,422 5.0
Tangible capital (to adjusted
tangible assets)........................ 822,670 6.11 202,027 1.5 N/A N/A
</TABLE>

As of December 31, 1996, the most recent notification from the Office
of Thrift Supervision categorized the Bank as well capitalized under
the regulatory framework for Prompt Corrective Action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table above. There are no conditions or events since that
notification that have changed the Bank's category.

Management believes, as of December 31, 1996, that the Bank meets all
capital requirements to which it is subject. Events beyond management's
control, such as fluctuations in interest rates or a downturn in the
economy in areas in which the Bank's loans and securities are
concentrated, could adversely affect future earnings and, consequently,
the Bank's ability to meet its future capital requirements.

15. STOCK PURCHASE RIGHTS

Each share of the Company's common stock outstanding entitles the
shareholder to one stock purchase right. Each right will entitle the
registered holder to purchase one one-hundredth of a share of a new
series of preferred stock at a price of $40.00 (subject to adjustment).
The rights have additional provisions which, subject to the approval of
the Board of Directors, (1) will entitle the holder to purchase the
Company's authorized and unissued common stock at a price below its
market value (as defined in the agreement) in the event that any person
or group acquires 20% or more of the common stock of the Company
without the consent of the Company, and (2) will entitle the holder to
purchase shares of common stock of the acquiring company at a price
below the market value (as defined in the

67
<PAGE> 71

agreement) in the event that the Company is acquired in a merger or
other business combination transaction or 50% or more of its
consolidated assets or earnings power (as defined) are sold.

The rights expire on December 1, 1999, and may be redeemed by the
Company for $.01 per right at any time prior to an acquisition of 20%
or more of the common stock of the Company and thereafter under certain
circumstances, including in connection with a business combination
consented to by the Company. There are 46,442,723 rights outstanding at
December 31, 1996 and 600,000 shares of preferred stock reserved for
these rights.

16. BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP AND PENSION PLANS

The Company has an Employee Stock Ownership Plan ("ESOP") and had a
noncontributory defined benefit pension plan ("Pension Plan") through
April 30, 1994. Effective April 30, 1994, the Bank's Board of Directors
approved an amendment to provide for 100% vesting of accrued benefits
and to freeze benefits accrued under the Pension Plan. The effect of
this curtailment was not material. The Pension Plan was terminated and
all assets were distributed in the fourth quarter of 1995. FirstFed
also had a noncontributory defined benefit pension plan ("FirstFed
Pension Plan"). Effective October 31, 1995, the FirstFed Board of
Directors approved an amendment to provide for 100% vesting of accrued
benefits and to freeze benefits accrued under the FirstFed Pension Plan
in anticipation of termination. The effect of this curtailment was not
material.

Benefits accrued through October 31, 1995 under the FirstFed Pension
Plan will be paid to plan participants in the form of annuity contracts
or lump sum payments, at the participant's option. Assets remaining
after distribution of the accrued benefits will be allocated among
participants at October 31, 1995, and distributed in the same manner as
accrued benefits.

The Company's funding policy for the ESOP is to make discretionary
contributions to the plan. Contributions to the ESOP were $1.6 million,
$250,000, and $2 million for the years ended December 31, 1996, 1995
and 1994, respectively. The Company's funding policy prior to the
freeze of Pension Plan benefits was to contribute to the Pension Plan
amounts necessary, after consideration of ESOP contributions, to
satisfy the funding requirements of federal law and regulations. The
funding policy for the FirstFed Pension Plan was to contribute amounts
necessary to satisfy the funding requirements of federal law and
regulations.

ESOP assets consist principally of Company stock. At December 31, 1996
and 1995, the ESOP held approximately 3.1% and 3.4%, respectively, of
the total outstanding shares of Company stock. The FirstFed Pension
Plan assets consisted principally of fixed-income and listed equity
securities.

The Bank has a trusteed employee savings plan covering substantially
all salaried employees. Under the terms of the Trust Agreement, the
Bank's annual contribution to the plan is based on matching
contributions of participating employees up to 9% of base salary.
Contributions totaled $1.6 million and $757,000 for the years ended
December 31, 1996 and 1995, respectively. The Bank may terminate the
plan at any time.

In the past, FirstFed voluntarily provided health care and life
insurance benefits to substantially all retired employees, on an
unfunded, noncontributory basis. The cost of providing these benefits
was expensed as paid. In 1992, the plan was amended for employees
retiring after September 30, 1992, and now requires the employees to
pay the full cost of health care benefits after retirement. In 1993,
FirstFed adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." SFAS No. 106 requires
that the cost of providing such benefits be recognized over the
employee's service periods rather than on a cash basis. FirstFed
elected to amortize the accumulated postretirement benefit obligation
of $9.3 million over 20 years.

68
<PAGE> 72

Net periodic postretirement benefit cost included the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the period......................... $ - 10 16
Interest cost on accumulated postretirement benefit obligation........... 563 714 694
Amortization of unrecognized transition obligation....................... 410 464 464
Curtailment loss......................................................... 196 - -
Amortization of net loss................................................. - - 9
----- ------ ------
Total................................................................. $1,169 1,188 1,183
===== ====== ======
</TABLE>

The following table sets forth the amount reported in the Company's
consolidated statements of financial condition:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................................... $(8,047) (8,939)
Fully eligible active plan participants........................................... - (136)
Other active plan participants.................................................... - (169)
------ ------
Total.......................................................................... (8,047) (9,244)
Plan assets at fair value........................................................... - -
------ ------
Accumulated postretirement benefit obligation in excess of plan assets.............. (8,047) (9,244)
Unrecognized net (gain) loss........................................................ (240) 129
Unrecognized transition obligation.................................................. 6,565 7,893
------ ------
Accrued postretirement benefit cost included in other liabilities................ $(1,722) (1,222)
====== ======
</TABLE>

A discount rate of 7.50% was used to measure the accumulated
postretirement benefit obligation as of December 31, 1996. The rate of
increase in health care costs was assumed to be 9.38% in 1997, grading
down uniformly to 5.50% in 2003 and all years thereafter. A 1.00%
increase in the health care cost trend rate assumptions would increase
the December 31, 1996, accumulated postretirement benefit obligation by
$604,400 and would increase the aggregate of the service and interest
cost components of 1996 net periodic postretirement benefit cost by
$40,700.

17. STOCK OPTION PLANS

At December 31, 1996, the Company has five stock option plans under
which 3,370,074 shares of common stock are reserved for grant to
directors, officers and key employees. The Plans provide that option
prices will not be less than the fair market value of the stock at the
grant date. The date on which the options are first exercisable is
determined by the Stock Option Committee of the Board of Directors (the
"Committee"). The options expire no later than 10 years from the grant
date. The Company applies APB No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost of the
Company's five stock option plans been determined based on the fair
value at the grant dates for awards under those plans consistent with
the method of SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income:
As reported.................................................................... $127,722 34,032
Pro forma...................................................................... 124,675 33,935

Earnings per share:
As reported.................................................................... 2.67 .71
Pro forma...................................................................... 2.60 .70
</TABLE>

69
<PAGE> 73

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996,
respectively: dividend yield of 2.5% for all years; expected volatility
of 34% for the 1995 option grants and 31 to 34% percent for the 1996
grants; risk-free interest rates of 6.48 to 7.71 percent for the 1995
option grants and 5.48% to 6.56% for the 1996 grants; and expected
lives of seven years for both plans.

The following is an analysis of the stock option activity for each of
the years in the three-year period ended December 31, 1996 and the
stock options outstanding at the end of the respective periods. Amounts
have been restated to reflect the 5% stock dividend.

<TABLE>
<CAPTION>
EXERCISE PRICE
--------------------------------
NUMBER
OF SHARES PER SHARE TOTAL
--------- --------------- ------------
<S> <C> <C> <C>
Outstanding at January 1, 1994........................ 2,404,458 $ 2.97 -$ 19.84 $ 26,128,084
Granted............................................... 28,350 19.29 - 21.55 571,500
Exercised............................................. (157,339) 3.39 - 14.76 (915,122)
Canceled - stock appreciation rights exercised........ (4,410) 6.15 (27,125)
Forfeited............................................. (13,316) 2.97 - 18.20 (208,679)
---------- -----------
Outstanding at December 31, 1994...................... 2,257,743 2.97 - 21.55 25,548,658
Granted............................................... 72,450 18.33 - 25.48 1,401,375
Exercised............................................. (737,217) 3.39 - 19.29 (8,231,201)
Canceled - stock appreciation rights exercised........ (3,969) 6.15 (24,413)
Forfeited............................................. (29,317) 14.76 - 18.20 (441,058)
---------- -----------
Outstanding at December 31, 1995...................... 1,559,690 2.97 - 25.48 18,253,361
Granted............................................... 1,591,057 28.33 - 42.00 45,419,678
Exercised............................................. (501,568) 3.39 - 21.55 (5,052,015)
Forfeited............................................. (75,936) 16.80 - 28.33 (1,965,169)
---------- -----------

Outstanding at December 31, 1996...................... 2,573,243 $ 2.97 -$ 42.00 $ 56,655,855
========== ===== ====== ===========

Exercisable at December 31, 1996...................... 929,854 $ 2.97 -$ 25.48 $ 10,856,983
========== ===== ====== ===========

Shares available for future grants
at December 31, 1996................................. 796,831
==========
</TABLE>

As of December 31, 1996, the weighted average exercise price for
options outstanding was $22.02 with a weighted average remaining
contractual life of 7.4 years.

Stock appreciation rights may be granted alone or in conjunction with
options granted to officers and key employees. Upon exercise, the
payment may be made in cash, shares or partly in each. The Company
accrues compensation expense for the amount by which the market value
of the shares exceed the exercise price of the appreciation rights. All
appreciation rights expire on January 29, 1998. Costs of the
appreciation rights are accrued and charged to salaries and employee
benefits expense.

The following is an analysis of the stand-alone stock appreciation
rights activity for each of the years in the three-year period ended
December 31, 1996 and the stock appreciation rights outstanding at the
end of the respective periods. Amounts have been restated to reflect
the 5% stock dividend.

<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER -------------------------
OF RIGHTS PER SHARE TOTAL
--------- --------- ----------
<S> <C> <C> <C>
Outstanding at December 31, 1993........................... 170,104 $ 3.39 $ 576,000
Exercised.................................................. (42,526) 3.39 (144,000)
-------- ---------
Outstanding at December 31, 1994........................... 127,578 3.39 432,000
Exercised.................................................. (67,923) 3.39 (230,000)
-------- ---------
Outstanding at December 31, 1995........................... 59,655 3.39 202,000
Exercised ................................................. (6,498) 3.39 (22,000)
3.39
-------- ---------
Outstanding at December 31, 1996........................... 53,157 $ 3.39 $ 180,000
======== ===== =========
Exercisable at December 31, 1996........................... 53,157 $ 3.39 $ 180,000
======== ===== =========
</TABLE>

70
<PAGE> 74

The Committee may also award restricted shares of common stock and
performance units to officers and key employees. The terms of the
grants are determined by the Committee at the date of the award. As of
December 31, 1996 no awards of restricted shares of common stock or
performance units had been made.

INCENTIVE COMPENSATION PLAN

The Bank maintains an incentive compensation plan (the "Incentive
Plan") which provides for annual cash bonuses to certain management
employees as a means of recognizing achievement on the part of such
employees. The bonuses are determined based on a combination of the
Bank's and the individual employee's performance during the year.
Amounts are accrued and charged to expense during the year pursuant to
the Incentive Plan.

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments have been determined by
the Company using available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.

Cash, Cash Equivalents, Accrued Interest Receivable and Payable and
Advance Payments by Borrowers for Taxes and Insurance - The carrying
amount as reported in the Consolidated Statement of Financial Condition is
a reasonable estimate of fair value.

Mortgage-Backed and Investment Securities - Fair values are based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services.

Loans and Leases - The fair value is estimated by discounting the future
cash flows using the current market rates for loans and leases of similar
maturities with adjustments for market and credit risks.

Federal Home Loan Bank Stock - The fair value is estimated to be the
carrying value which is par. All transactions in the capital stock of the
Federal Home Loan Bank are executed at par.

Deposits - The fair value of demand deposits, savings accounts and money
market deposit accounts is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is
estimated using rates currently offered for deposits of similar remaining
maturities.

Federal Home Loan Bank Advances, Reverse Repurchase Agreements, and Other
Borrowings - Rates currently available to the Bank for borrowings with
similar terms and remaining maturities are used to estimate fair value of
existing borrowings.

Interest Rate Swap, Cap and Floor Agreements - The fair value is estimated
as the difference in the present value of future cash flows between the
Company's existing agreements and current market rate agreements of the
same duration.

71
<PAGE> 75

The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1996 and 1995.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents....................... $ 270,304 270,304 658,371 658,371
Investment securities........................... 243,632 243,632 407,427 407,427
Mortgage-backed securities...................... 4,714,796 4,723,252 5,314,749 5,396,915
Loans and leases................................ 8,100,342 8,169,149 6,678,600 6,739,819
Federal Home Loan Bank stock.................... 215,815 215,815 178,136 178,136
Accrued interest receivable..................... 77,193 77,193 73,683 73,683
Liabilities:
Deposits:
Checking, savings and money
market accounts............................. 3,072,772 3,072,772 2,570,227 2,570,227
Certificates of deposit....................... 4,768,425 4,775,352 4,442,264 4,472,956
Federal Home Loan Bank advances................. 3,194,333 3,185,864 3,163,144 3,169,582
Reverse repurchase agreements................... 1,549,778 1,546,397 2,089,520 2,088,142
Other borrowings................................ 211,180 256,613 209,020 300,156
Advance payments by borrowers for
taxes and insurance........................... 39,346 39,346 47,738 47,738
Accrued interest payable........................ 35,298 35,298 56,955 56,955
Off-Balance-Sheet Items:
Interest rate swaps in a net
receivable position........................... - 9,259 - 5,450
Interest rate swaps in a net
payable position.............................. - (7,191) - (12,243)
Interest rate cap and floor agreements.......... - 1,325 - (1,738)
</TABLE>

19. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE

Supplemental disclosures of cash flow information are summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings ................................. $ 644,379 707,868 639,066
Income taxes ........................................................ 34,000 2,280 29,360
Supplemental schedule of noncash activities:
Loans exchanged for mortgage-backed securities ........................ 510,435 331,426 28,692
Securities transferred from held to maturity to
available for sale ................................................... 10,861 1,961,199 17,413
Securities transferred from available for sale to
held to maturity ..................................................... 1,064,722 79,618 1,032,733
Securities transferred from held for sale to trading classification ... - - 33,213
Transfers from loans to real estate owned ............................. 6,712 5,702 5,083
</TABLE>

<PAGE> 76
20. PARENT COMPANY FINANCIAL INFORMATION

The summarized financial statements of Charter One Financial, Inc. (parent
company only) as of December 31, 1996 and 1995 and for the years ended December
31, 1996, 1995 and 1994 follow:

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Deposits with subsidiary................................................ $ 67 28,596
Cash equivalents........................................................ 36,551 -
Investment in subsidiary, at equity..................................... 880,995 814,817
Securities and other.................................................... 11,257 1,446
--------- -------
Total................................................................. $ 928,870 844,859
========= =======
Liabilities:
Total liabilities....................................................... $ 177 461
--------- -------
Shareholders' equity:
Common stock............................................................ 475 451
Additional paid-in capital.............................................. 321,991 235,889
Retained earnings....................................................... 637,356 642,197
Treasury stock, at cost................................................. (39,615) (3,061)
Net unrealized gain (loss) on securities, net of tax expense/benefit.... 8,486 (31,078)
--------- -------
Total shareholders' equity.............................................. 928,693 844,398
--------- -------
Total................................................................. $ 928,870 844,859
========= =======

</TABLE>

STATEMENTS OF INCOME

YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
Income:
<S> <C> <C> <C>
Dividends from subsidiary.............................................. $100,000 47,500 36,250
Interest and dividends on securities................................... 2,081 2,068 857
------- ------ ------
Total income......................................................... 102,081 49,568 37,107

Expenses................................................................ 998 12,064 1,120
------- ------ ------

Income before undistributed net earnings of subsidiary................. 101,083 37,504 35,987
Equity in undistributed net (loss) earnings of subsidiary.............. 26,639 (3,472) (32,716)
-------- ------ -------
Net income........................................................... $127,722 34,032 3,271
======== ====== =======

</TABLE>
73
<PAGE> 77

STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $127,722 34,032 3,271
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net loss (earnings) of subsidiary...... (26,639) 3,472 32,716
Other.......................................................... (343) 2,350 (658)
-------- ------ ------
Net cash provided by operating activities.................... 100,740 39,854 35,329
-------- ------ ------
Cash flows from investing activities:
Purchase of securities.......................................... (44,362) (233,756) (1,374)
Maturity of securities.......................................... 34,635 247,900 1,800
-------- ------ ------
Net cash provided by (used in) investing activities............ (9,727) 14,144 426
-------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of corrunon stock........................ 1,392 1,072 984
Payment of dividends on conunon stock........................... (40,495) (29,962) (23,405)
Net purchases of treasury stock................................. (43,888) (11,823) (906)
-------- ------ ------
Net cash used in financing activities.......................... (82,991) (40,713) (23,327)
-------- ------ ------
Increase in deposits with subsidiary and
cash equivalents............................................. $8,022 13,285 12,428
======== ====== ======
</TABLE>

21. SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT

On September 30, 1996, the President signed into law an omnibus
appropriations act for fiscal year 1997 that included, among other things, the
recapitalization of the Savings Association Insurance Fund (" SAEF") in a
section entitled the Deposit @ance Funds Act of 1996 CACT"). The Act included a
provision where all insured depository institutions would be charged a one-time
special assessment on their SAEF assessable deposits as of March 31, 1995. The
Company recorded a pretax charge of $56.3 million ($37.1 million after tax),
which represented 65.7 basis points of the March 31, 1995 assessable deposits.
This charge was recorded upon enactment of the Act on September 30, 1996, and
paid on November 29, 1996. The annual deposit insurance rate in effect prior to
this recapitalization has been reduced to 6.5 basis points of insured deposits.

74
<PAGE> 78

DELOITE &
TOUCHE LLP
- ---------------
[LOGO]

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
Charter One Financial, Inc.

We have audited the accompanying consolidated statements of financial
condition of Charter One Financial, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management Our responsibility is to express an opuuon on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger of Charter One Financial, Inc. and FirstFed
Michigan Corporation which has been accounted for as a pooling of interests as
described in Note 2 to the consolidated financial statements. We did not audit
the statements of income, shareholders' equity, and cash flows of F@ed Nfichigan
Corporation for the year ended December 31, 1994, which statements reflect a net
loss of $96.3 million. Those financial statements were audited by other auditors
whose report has been @shed to us, and our opinion, insofar as it relates to the
amounts included for F@ed Nfichigan Corporation for such period, is based solely
on the report of such other auditors. As described in Note 2 to the consolidated
financial statements, subsequent to the issuance of the report of the other
auditors, the financial statements of FirstFed Nfichigan Corporation were
restated to conform to the accounting practices of Charter One Financial, Inc.
for the year ended December 31, 1994.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes e g, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and sipfficant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Charter One Financial, hic. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

We also audited the adjustments described in Note 2 that were applied to
restate the 1994 financial statements of both FhVed Mchigan Corporation and
Charter One Financial, Inc. In our opinion, such adjustments are appropriate and
have been properly applied.

DELOITTE & TOUCHE LLP

Cleveland, Ohio
January 22, 1997

75
<PAGE> 79

[LOGO]

CHARTER-ONE FINANCIAL, INC.(R)

Charter One Financial, Inc. * Charter One Bank Building

1215 Superior Avenue * Cleveland, Ohio 44114

<PAGE> 80
DETACH HERE CHA 2

REVOCABLE PROXY CHARTER ONE FINANCIAL, INC. REVOCABLE PROXY
ANNUAL MEETING, APRIL 24, 1997
PROXY SOLICITED BY BOARD OF DIRECTORS

The undersigned hereby appoints Charles John Koch and Jerome L.
P Schostak, and each of them, proxies with power of substitution to vote on
behalf of the shareholders of Charter One Financial, Inc. on April 24,
R 1997, and any adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the following:
O
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
X REVERSE HEREOF, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF DIRECTORS AND FOR APPROVAL OF PROPOSAL NO. 2 AND
Y PROPOSAL NO. 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER
MATTERS WHICH MAY COME BEFORE THE MEETING.

THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC.,
PRIOR TO THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING AND A PROXY
STATEMENT DATED MARCH 18, 1997.

|SEE REVERSE|
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SIDE |

<PAGE> 81
<TABLE>
<S> <C> <C>
DETACH HERE CHA, CHE, CHK 2

[x] Please mark ----
votes as in |
this example. |
FOR AGAINST ABSTAIN
1. Election of Directors 2. Voting to approve the Charter One [ ] [ ] [ ]
NOMINEES: Mark D. Grossi, Richard J. Jacob, John D. Koch Financial, Inc. 1997 Stock Option
and Philip J. Meathe and Incentive Plan.
FOR WITHHELD 3. Voting on selection of Deloitte & [ ] [ ] [ ]
[ ] [ ] Touche LLP as Independent Audi-
tors of the Company.
-------------------------------------- 4. Transaction of such other business as may properly come
For all nominees except as noted above before the meeting and any adjournments thereof.

MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT

A majority of the proxies or substitutes present at the meeting
may exercise all powers granted hereby.

Please date and sign as name is imprinted hereon, including
designation as executor, trustee, etc. If applicable, a
corporation should sign in its name by the president or other
authorized officers. All co-owners must sign.

Signature: _________________ Date: ____________ Signature: _________________ Date: ____________
</TABLE>

<PAGE> 82
DETACH HERE CHE 2

CHARTER ONE FINANCIAL, INC. ESOP

1997 ANNUAL MEETING OF SHAREHOLDERS

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHARTER ONE FINANCIAL, INC. FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS

P As a participant in the Charter One Bank Employee Stock Ownership Plan
(the "Plan"), I hereby direct the trustee of the Plan in which I
R participate to vote all vested shares allocated to my account under such
Plan as of February 28, 1997 in accordance with the instructions on the
O reverse side of this proxy card or, if no instructions are given, in
accordance with the Board of Directors recommendations, on all items of
X business to come before the Annual Meeting of Shareholders to be held on
April 24, 1997 or any adjournment thereof. Your vote shall be
Y confidential and will be seen only by The First National Bank of Boston
in the tabulation of the votes.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS
AND FOR PROPOSAL NO. 2 AND PROPOSAL NO. 3.

THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC.,
PRIOR TO THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING AND A
PROXY STATEMENT DATED MARCH 18, 1997.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SEE REVERSE |
| SIDE |

<PAGE> 83
<TABLE>
<S> <C> <C>
DETACH HERE CHA, CHE, CHK 2

[x] Please mark ----
votes as in |
this example |
FOR AGAINST ABSTAIN
1. Election of Directors 2. Voting to approve the Charter One [ ] [ ] [ ]
NOMINEES: Mark D. Grossi, Richard J. Jacob, John D. Koch Financial, Inc. 1997 Stock Option
and Philip J. Meathe and Incentive Plan.
FOR WITHHELD 3. Voting on selection of Deloitte & [ ] [ ] [ ]
[ ] [ ] Touche LLP as Independent Audi-
tors of the Company.
-------------------------------------- 4. Transaction of such other business as may properly come
For all nominees except as noted above before the meeting and any adjournments thereof.

MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT

A majority of the proxies or substitutes present at the meeting
may exercise all powers granted hereby.

Signature: _______________ Date: _________ Signature: _______________ Date: _________
</TABLE>

<PAGE> 84
DETACH HERE CHK 2
CHARTER ONE FINANCIAL, INC. 401K

1997 ANNUAL MEETING OF SHAREHOLDERS

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHARTER ONE FINANCIAL, INC. FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS

As a participant in the Charter One Bank Employee Savings Plan (the
P "Plan"), I hereby direct the trustee of the Plan in which I participate
to vote all vested shares allocated to my account under such Plan as of
R February 28, 1997 in accordance with the instructions on the reverse side
of this proxy card or, if no instructions are given, in accordance with
O the Board of Directors recommendations, on all items of business to come
before the Annual Meeting of Shareholders to be held on April 24, 1997 or
X any adjournment thereof. Your vote shall be confidential and will be seen
only by The First National Bank of Boston in the tabulation of the votes.
Y
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS
AND FOR PROPOSAL NO. 2 AND PROPOSAL NO. 3.

THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC.,
PRIOR TO THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING AND A
PROXY STATEMENT DATED MARCH 18, 1997.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SEE REVERSE |
| SIDE |

<PAGE> 85

<TABLE>
DETACH HERE CHA, CHE, CHK 2

<S> <C> <C>
[x] Please mark ----
votes as in |
this example |
FOR AGAINST ABSTAIN
1. Election of Directors 2. Voting to approve the Charter One [ ] [ ] [ ]
NOMINEES: Mark D. Grossi, Richard J. Jacob, John D. Koch Financial, Inc. 1997 Stock Option
and Philip J. Meathe and Incentive Plan.
FOR WITHHELD 3. Voting on selection of Deloitte & [ ] [ ] [ ]
[ ] [ ] Touche LLP as Independent Audi-
tors of the Company.
-------------------------------------- 4. Transaction of such other business as may properly come
For all nominees except as noted above before the meeting and any adjournments thereof.

MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT

A majority of the proxies or substitutes present at the meeting
may exercise all powers granted hereby.

Signature: ___________ Date: __________ Signature: ___________ Date: __________
</TABLE>