CHARTER ONE FINANCIAL INC, 10-K405, 1999-03-19

CHARTER ONE FINANCIAL INC
10-K405, 1999-03-19
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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<PAGE> 1
annual report 1998

$24 billion
in assets
and still pushing

[PICTURE CALCULATOR]

[LOGO] CHARTER ONE FINANCIAL, INC.
1
<PAGE> 2
ten years of high
performance

[PICTURE MAN/COMPUTER]

Charter One's earnings have been accelerated through mergers. Based on
originally reported operating earnings, we have posted compounded annual
earnings growth of 18% since 1988.

2
<PAGE> 3

FINANCIAL OVERVIEW
- ---------------------------------------------------------------------------------------
At and for the Years Ended December 31,
---------------------------------------
(Dollars in thousands, except per share data) 1998 1997(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $ 729,072 $ 672,984

Revenues 919,754 821,265

Adjusted pretax core earnings(2) 453,433 376,796

Net income 215,361 194,393
- ---------------------------------------------------------------------------------------
Earnings per share(3):

Operating earnings(4) 1.86 1.57

Earnings before extraordinary items 1.62 1.17

Net income 1.26 1.15

Adjusted return on average equity(4) 16.97% 16.00%

Adjusted return on average assets(4) 1.31% 1.17%
- ---------------------------------------------------------------------------------------
Efficiency ratio(5) 46.03% 48.52%
- ---------------------------------------------------------------------------------------
Total assets $ 24,467,255 $ 24,207,748

Loans and leases, net 17,502,729 15,521,812

Deposits 15,165,064 14,029,725

Shareholders' equity 1,875,112 1,761,897
- ---------------------------------------------------------------------------------------
Total shareholders' equity to total assets 7.66% 7.28%
- ---------------------------------------------------------------------------------------
Nonperforming assets to total assets(6) .48% .46%
- ---------------------------------------------------------------------------------------

</TABLE>

(1) Restated for poolings of interest with ALBANK Financial Corporation and CS
Financial Corporation.

(2) Amounts are computed using income before extraordinary items, excluding the
impact of merger expenses, other special charges, and gains and losses on
the sale of assets. Pretax amounts excluded were as follows: 1998 -- $55.7
million in merger expenses and $21.0 million in net gains on sale; 1997 --
$60.6 million in merger expenses, $32.0 million in other special charges,
and $2.4 million in net losses on sales.

(3) Per share data have been adjusted for the 2-for-1 stock split issued May 20,
1998 and the 5% stock dividend issued September 30, 1998.

(4) Amounts are computed using income before extraordinary items, excluding the
impact of merger expenses and other special charges.

(5) The ratio of administrative expenses, excluding merger expenses, other
special charges and goodwill amortization, to net interest income and other
income exclusive of net gains and losses on sale of assets.

(6) Excludes government guaranteed portion of nonperforming loans.

about the company

Headquartered in Cleveland, Ohio, Charter One Financial, Inc. is the publicly
traded parent company of Charter One Bank. With nearly $25 billion in total
assets, Charter One Bank is one of the largest thrifts in the country. The Bank
currently has 340 branch locations in Ohio, Michigan, New York, Massachusetts
and Vermont. Additionally, Charter One Mortgage Corp., the Bank's mortgage
banking subsidiary, operates loan production offices in 11 other states, and
Charter One Auto Finance, the Bank's indirect auto finance subsidiary, generates
loans in seven states. Charter One has a proven track record of applying its
business model and sales culture to new geographic areas, having closed 16
acquisitions since 1989. The most significant transactions include: November
1998 -- ALBANK Financial Corporation (Albany, New York), assets of $4 billion,
109 offices in upstate New York, Massachusetts and Vermont; October 1997 -- RCSB
Financial, Inc. (Rochester, New York), assets of $4 billion, 38 offices in
Rochester and Buffalo; and October 1995 -- FirstFed Michigan Corporation
(Detroit, Michigan), assets of $7 billion, 61 offices primarily in Metropolitan
Detroit. RCSB added indirect auto finance and mortgage banking subsidiaries to
Charter One's stable of operations.

3
<PAGE> 4

[PICTURE BUD KOCH]
Chairman and Chief Executive Officer Bud Koch, who became president in 1980, has
led 16 mergers and acquisitions since our initial public offering in 1988.

[PICTURE PAPER]
Comparing results* for 1998, we performed on a par with the Lehman Brothers
Regional Bank Index in key performance measures. *Computed from income before
extraordinary items, excluding merger expenses and other special charges.

[PICTURE SUE OUTMAN]
Albany Branch Manager Sue Outman is one of the 1,100 staff members who are
serving customers in upstate New York, Massachusetts and Vermont following our
merger with ALBANK.

TO OUR SHAREHOLDERS: Chief executive officers in the ranks of publicly traded
companies know how difficult it is to sustain record-breaking operating earnings
year after year after year. What made 1998 - our 10th full year as a public
company - so noteworthy was the fact that it also represented our 10th
consecutive year of such earnings increases. But 1998 was outstanding for more
than our record results. It marked the realization of our plan to evolve into a
regional retail bank with market reach and product depth. We initiated this
strategy nearly two decades ago

an exceptional year

when I became president of what was then a small neighborhood thrift. That
strategic plan formed the platform for our initial public offering in January
1988. Since that time, it has served us - and our shareholders - extraordinarily
well. * In sharpening our resolve to become more bank like, these years have
seen us increasingly improve operating return on assets and equity, reduce our
cost of deposits and increase fee income, all the while continuing to protect
our low credit-risk profile and hone our operating efficiency to a level
rivaling the most stellar industry performers. *Accretive acquisitions play a
central role in achieving our plan. We've completed 16 over the past decade,
including the addition of CS Financial's Cleveland

WE COMPLETED OUR 10TH YEAR AS A PUBLIC COMPANY WITH EXCEPTIONAL PERFORMANCE AND
STRONG MOMENTUM.

[PICTURE OF A PAINTER]

4
<PAGE> 5
expanding
market
area

[PICTURE MAN/BILLBOARD]

With an ever larger brush, we're painting a broad swath across a big part of
America. Our greatest business concentration is in five states -- stretching
from Michigan to Massachusetts -- comprising our retail banking markets, where
we operate some 340 banking centers. But we're also found in attractive markets
in 11 other states where we have residential lending offices and in still others
where we originate auto and consumer finance loans. New markets come as the
result of accretive acquisitions combined with a logical geographic strategy.

5
<PAGE> 6

[PICTURE OF BROCHURES]
Beginning in 1999, we'll target businesses with the marketing techniques proven
successful in our consumer products programs.

[PICTURE JOHN ZEEK]
Working with our banking center staff is a small cadre of business development
officers, like John Zeek in our Eastern Ohio Division.

[PICTURE DEBIT CARD]
Our business debit card is a popular account accessory that has helped increase
customer interest in the small business checking product.

operations in 1998. However, a defining moment in our evolution to become a
regional retail bank developed during the year with the acquisition of ALBANK
Financial Corporation and its franchise of 109 banking centers in upstate New
York, Massachusetts and Vermont. With ALBANK, we also gained stronger corporate
and commercial banking expertise along with such new services as cash management
and proof of deposit. *We entered 1999 with 340 retail banking/lending
operations in five states. This virtually continuous market stretches from
western

smartbusiness (R)

New England through upstate New York to northeastern Ohio and deep
into the thriving heart of Michigan. Already a powerhouse in consumer lending
and a remarkable generator of new checking households in our retail areas, we
possess the added strength of mortgage lending in 11 other states, a consumer
finance subsidiary in key markets, a significant indirect auto finance presence
in the East, and a successful leasing company serving capital-equipment markets
across the country. *Shifting the proportion of our loan/lease portfolio from
traditional residential mortgages to higher yielding assets is a fundamental
part of our lending

WE'RE ADDING MUSCLE
TO OUR EFFORT TO ATTRACT
THE SMALL BUSINESS
CUSTOMER'S CORE
DEPOSITS.
[PICTURE OF GARDENER]

6
<PAGE> 7
planting
opportunities
for businesses

[PICTURE MAN/FLOWER]

Neighborhood florists, like other small business owners, want their enterprises
to blossom. They know, like we do, that margins are fed by keeping operating
costs low. It's no surprise, then, that our newly developed SmartBusiness(R)
checking accounts are sized and priced right for the neighborhood business, a
market largely underserved by most banks. We launched this product set in
earnest in 1998 and entered 1999 with 26,000 of these accounts.

<PAGE> 8
[PICTURE DEBIT CARD]
Increasingly popular, our MasterMoney(TM) debit card and regular ATM cards
account for 19% of total revenue per checking account, up from 16% in 1994. One
of MasterCard's top 10 issuers, we'll also offer a gold debit card in the year
ahead.

[PICTURE MIKE DERITA]
Manager Mike Derita and the team of our Clinton Township, Michigan, supermarket
branch achieved a record first year deposit base of nearly $14 million.

[PICTURE CHECKS]
We'll expand our product offerings again in 1999. Plans for the year include
offering a new high-end checking account that offers a premium interest rate for
a high average daily balance.

strategy. In 1998, we learned how to "piggyback" on our large mortgage
base to sell lines of credit on top of first mortgages. Lines of credit belong
to the asset group of loans other than single family, which we've labeled
Energized Assets(sm). While our total portfolio grew a substantial 13% over the
prior year to $17.5 billion, Energized Assets increased to 40% of the whole.
That's up from less than 32% the year before. Tremendous internal sales momentum
in our established markets and future opportunities related to our recent
acquisitions allow us to conclude that the best is yet

totally free(tm) checking

to come. *We believe that our energized indirect auto lending and consumer
lending asset products will post significant increases in portfolio growth in
1999. In addition, our leasing business stands poised for another record year,
and our commercial and industrial business units should see meaningful growth.
*The year just past was a stellar year for growing core deposits, which
increased 14%, or $740 million, over 1997's level. Core deposits are the heart
of the franchise value of regional banks, and our core checking, savings and
money market deposits constitute 43% of Charter One's total deposits at an
attractive cost of funds. We have targeted this product category for a minimum
goal of 50% of total deposits

[PICTURE WOMAN]
WE ADDED MORE THAN 180,000 NEW
CHECKING HOUSEHOLDS IN 1998,
DUE LARGELY TO OUR SUCCESSFUL
TOTALLY FREE(TM) CAMPAIGN.

<PAGE> 9
fresh
checking
solutions

[PICTURE LADY/CONTAINERS]

Our niche is the great middle market of American households, people who want
high value checking convenience at low cost. We draw them with this attractive
selling proposition and then reward them with a contempory consumer product. We
give these gifts away as a "thank you" for opening a Totally Free(TM) or any of
our other consumer checking accounts. In 1998, we brought out-of-pocket
acquisition costs down to below $30 per account, including all marketing
expenses and gifts.

9
<PAGE> 10

[PICTURE LARRY BATES]
Hundreds of branch managers, like Larry Bates of Cleveland, helped close $2.1
billion in consumer loans in 1998. Overall, our banking centers were 82% over
their goal in this Energized Assets product category.

[PICTURE COMPUTER SCREEN]
Through charterone.com, we offer online visitors premium rates or gifts for
opening accounts. We also provide telephone and PC banking services to 19,000
customers who use our direct dialup bill payment service.

[PICTURE CANNIZZARO]
Jennifer Cannizzaro is among our Rochester, New York auto finance subsidiary
sales representatives calling on auto dealers in eastern seaboard states. Our
auto loan portfolio expanded to more than $2 billion in 1998.

over the next three years and intend to get there by continuing to emphasize
consumer checking (more than 180,000 accounts were opened in 1998 for a total
base approaching 750,000 accounts at year's end). We expect to add another
190,000 checking households in 1999. Our core deposit strategy also includes
expanding our base of SmartBusiness(R) checking accounts (we began 1999 with
26,000 business accounts). By marketing to the underserved small end of the
business market, we are attracting substantial average deposits per account and
developing new

energized assets(sm)

opportunities to grow the business lending portfolio as well. *Fee income
growth remains a high priority. Driven by our retail banking and mortgage
banking operations, fee income equalled 19% of total revenue versus 15% the year
before. At the branch level, the average revenue per checking account stood at
$158 in 1998, up 22% from 1997 and 82% over the number of four years ago. We
look for additional increases next year, as our newly merged banking
institutions come into their own. Of course, it's not enough to have superior
products and an efficient delivery mechanism. Our strong focus on operating
efficiency enabled us to achieve a ranking before the latest merger of just 42%
of expenses to income.

[PICTURE MAN]
THANKS TO A RECORD $4.2 BILLION
IN ORIGINATIONS, OUR ENERGIZED
ASSETS PORTFOLIO INCREASED TO
$7.1 BILLION, UP 39% FROM 1997.

10
<PAGE> 11
a leasing
business
on the roll

[PICTURE MAN/TRAIN]

We work with the nation's Fortune 1000 companies and upper middle-market
customers to keep their businesses on track. From railcars and highway grading
equipment to sophisticated medical monitors and communications gear, our ICX
Corporation leasing subsidiary serves up a big menu of capital equipment. When
we acquired the company in 1995, it had balances of $100 million. Today, its
Energized Assets portfolio stands at $730 million.

<PAGE> 12

[PICTURE NANCY THOMAS]
Nancy Thomas, a mortgage loan officer in Michigan, is representative of our 330
loan originators who have helped substantially increase line of credit closings
on top of new first mortgages.

[PICTURE DIRECT MAIL]
While we make special offers to our own customers using personalized direct
mail, we prospect for new checking customers using colorful mailers that blanket
the neighbor- hoods around our banking centers.

[PICTURE DREMA BALLOU]
From our residential loan servicing center in Richmond, Virginia, supervisor
Drema Ballou and her Insurance Department staff track insurance coverage on an
$18 billion portfolio of loans.

The culture we've developed makes us pragmatic in product design and
implementation. It makes us nimble in responding to changes in the marketplace.
It makes us work smarter and more productively. Without increasing the number of
employees, the average Charter One banking center more than doubled fee revenue
and consumer lending volume between 1994 and 1998. It's no accident that our
cost-control culture enables us to do more with less. * Looking ahead, I see
1999 as a time to further expand our successful community lending program, which
allows

selling systems

low-to-moderate income borrowers to benefit from a menu of specially designed
loan programs. The year will also be a time to absorb and grow our latest
acquisitions, and to expand our existing operations to achieve the aggressive
sales and profitability targets we've set. We'll also complete our preparations
for the Year 2000. With those accomplishments behind us, we'll enter the new
year, the next decade and a new millennium well positioned to continue
maximizing shareholder value. To all our shareholders, customers and employees,
I want to say, thank you for your dedication and your support.

/s/Charles John Koch
--------------------
Charles John Koch
Chairman and Chief Executive Officer
March 9, 1999

EFFECTIVE SALES AND
MARKETING EFFORTS LED
TO 14% GROWTH IN CORE
DEPOSITS DURING THE YEAR.

[PICTURE GIRL/BAGS]

<PAGE> 13
our bag is
cross-selling

[PICTURE GIRL/BAGS]

From supermarkets to traditional branches and our mortgage lending offices,
cross-selling is key to our success. By cross-selling and upgrading checking
customers to our MasterMoney debit card, card-related fee income has more than
doubled every year since 1995. Our strategy to cross-sell home equity lines of
credit at the time a home buyer signs for a mortgage resulted in a line of
credit on top of 27% of all first mortgages originated in 1998. Database
marketing to selected customers, many of them without previous deposits at
Charter One, helped us bring core deposits up to 43% of total deposits for the
year.

13
<PAGE> 14

[PICTURE MAP]

These professionals are representative of the entire Charter One team of 6,400
men and women whose hard work and dedication made 1998 a record year in every
respect.

14
<PAGE> 15
<TABLE>
<CAPTION>

Table of Contents

Financial Review

<S> <C>
Five-Year Summary.............................................................14

Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................16

Consolidated Statements of Financial Condition................................29

Consolidated Statements of Income.............................................30

Consolidated Statements of Shareholders' Equity...............................31

Consolidated Statements of Cash Flows.........................................32

Notes to Consolidated Financial Statements....................................33

Independent Auditors' Report..................................................48

Form 10-K.....................................................................49

</TABLE>
<PAGE> 16

FIVE-YEAR SUMMARY Charter One Financial, Inc.

The five-year summary of operations presented below is not necessarily
indicative of future results due to the effect of acquisitions. For a discussion
of acquisitions see Note 2 to the Consolidated Financial Statements. Per share
data has been restated to reflect the 5% stock dividend issued September 30,
1998 and the 2-for-1 stock split issued May 20, 1998. Dividend information
represents historical amounts declared and paid by the company, as adjusted for
stock splits and stock dividends and is not adjusted for mergers accounted for
as pooling of interests. Total assets as initially reported represents the
amount we reported in the respective year's annual report to shareholders.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
At and For the Year Ended December 31,
------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income........................................... $1,760,371 $1,672,580 $1,567,147 $1,591,552 $1,468,519
Interest expense.......................................... 1,031,299 999,596 923,540 1,037,455 917,843
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME....................................... 729,072 672,984 643,607 554,097 550,676
Provision for loan and lease losses....................... 29,465 48,293 23,484 13,260 23,659
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES.................................................. 699,607 624,691 620,123 540,837 527,017
Other income:
Net gain (loss)......................................... 20,963 (2,351) 2,178 (94,385) (116,279)
Other................................................... 190,682 131,623 128,022 101,436 93,249
Administrative expenses................................... 492,513 472,156 460,328 399,504 380,416
- ------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM......... 418,739 281,807 289,995 148,384 123,571
Income taxes.............................................. 141,720 84,686 95,303 46,479 33,519
- ------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM.......................... 277,019 197,121 194,692 101,905 90,052
Extraordinary item--early extinguishment of debt, net of
tax benefit............................................. 61,658 2,728 12,348
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME................................................ $ 215,361 $ 194,393 $ 194,692 $ 101,905 $ 77,704
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
Income before extraordinary item........................ $ 1.67 $ 1.21 $ 1.18 $ .58 $ .50
Extraordinary item--early extinguishment of debt........ (.37) (.02) (.07)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME................................................ $ 1.30 $ 1.19 $ 1.18 $ .58 $ .43
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Income before extraordinary item........................ $ 1.62 $ 1.17 $ 1.12 $ .56 $ .49
Extraordinary item--early extinguishment of debt........ (.36) (.02) (.07)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME................................................ $ 1.26 $ 1.15 $ 1.12 $ .56 $ .42
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends declared and paid per common share.............. $ .53 $ .45 $ .39 $ .32 $ .25
Common stock price range:
High.................................................... 34.89 30.48 20.30 14.42 10.37
Low..................................................... 17.63 18.65 12.31 8.15 7.67
Close................................................... 27.75 30.06 19.05 13.23 8.20
Dividend payout ratio..................................... 42.06% 41.48% 32.21% 100.00% *%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Not meaningful.

14
<PAGE> 17

FIVE-YEAR SUMMARY Charter One Financial, Inc.

15
<PAGE> 18

FINANCIAL REVIEW

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.

HOLDING COMPANY BUSINESS
Headquartered in Cleveland, Ohio, Charter One Financial, Inc. is now a bank
holding company, having converted from a unitary savings institution holding
company on November 30, 1998. The conversion was undertaken in conjunction with
our November 30, 1998 acquisition of ALBANK Financial Corporation, which
included the acquisition of ALBANK Commercial, a New York chartered commercial
bank. Charter One is a Delaware corporation and owns all of the outstanding
capital stock of Charter Michigan Bancorp, Inc. and ALBANK Commercial. Charter
Michigan Bancorp owns all of the outstanding capital stock of Charter One Bank,
F.S.B., a federally chartered thrift. The primary business of the company is
operating these financial institutions. Their operations are jointly referred to
in the following discussion as the bank. The bank's primary business is
providing consumer and business banking services to certain major markets in
Ohio, Michigan and New York and, as of November 1998, in some markets of
Massachusetts and Vermont. At the end of 1998, the bank and its subsidiaries
were doing business through 340 full-service branches and 39 loan production
offices.

ACQUISITIONS
The company completed two acquisitions during 1998. On November 30, 1998, the
company completed the acquisition of ALBANK Financial Corporation, a $4.1
billion publicly-traded bank holding company. On October 16, 1998, Charter One
completed the acquisition of CS Financial, Inc., a $400 million privately-owned
thrift holding company. Both mergers were accounted for as pooling of interests
which required restatement of the company's financial statements for periods
prior to the mergers. See Note 2 to the Consolidated Financial Statements for
additional information on recent mergers and acquisitions.

RESULTS OF OPERATIONS
For the year ended December 31, 1998, the company reported net income of $215.4
million, compared to $194.4 million and $194.7 million for the years ended
December 31, 1997 and 1996, respectively. On a diluted per share basis, net
income was $1.26, $1.15 and $1.12 in 1998, 1997 and 1996 respectively. As
discussed below, 1998 and 1997 operating results were affected by merger-related
and other special charges. In addition, the 1996 results were adversely affected
by the Savings Association Insurance Fund ("SAIF") assessment discussed below.

1998 MERGER-RELATED CHARGES

1997 MERGER-RELATED AND OTHER SPECIAL CHARGES

<TABLE>
<CAPTION>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Effect on Year Ended
December 31, 1997
---------------------
(Dollars in thousands) Pretax After Tax
- ---------------------------------------------------------------
<S> <C> <C>
RCSB Financial, Inc. merger-related
charges:
Transaction costs..................... $ 16,807 $13,872
Severance and other termination
costs............................... 22,227 14,892
Duplicate assets, lease terminations
and other costs to combine
operations.......................... 21,583 14,461
- ---------------------------------------------------------------
Merger-related charges.............. 60,617 43,225
- ---------------------------------------------------------------
Other special charges:
Valuation adjustment on loan servicing
assets.............................. 18,277 12,246
Additional loan loss reserves provided
primarily on auto finance
portfolio........................... 11,244 7,533
Asset/liability management actions and
other special charges............... 12,369 8,204
- ---------------------------------------------------------------
Other special charges............... 41,890 27,983
- ---------------------------------------------------------------
Total merger-related charges and
other special charges............. $102,507 $71,208
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>

1996 Special Charges-During 1996, Congress recapitalized the SAIF through a
one-time special assessment of member institutions. The bank's share of the
assessment resulted in an after-tax charge of $43.3 million. Due to the
recapitalization, the bank's deposit insurance rate was reduced to 6.5 basis
points in 1997 from 23 basis points in 1996.

Performance Overview-The company's reported results in each of the last three
years were significantly affected by merger-related and other special charges.
Excluding these charges presents more comparable pretax core earnings for the
periods being reviewed. The following table summarizes the components of
adjusted pretax core earnings.

In general, this comparison reflects consistent growth in net interest income
and an increasing percentage of core earnings being derived from non interest
income. Additionally, our efforts to control overhead costs are illustrated by
an efficiency ratio (excluding the

16
<PAGE> 19

SAIF assessment, merger-related charges, and special charges) of 46.03%, 48.52%
and 50.02% for 1998, 1997 and 1996, respectively. The historical efficiency
ratios have been restated for pooling of interests mergers. 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-Our net income generally depends upon our net interest
income, which is the difference between the interest and dividend income earned
on our loans and investments and the interest expense on our deposits and
borrowings. Net interest income is our principal source of earnings. This 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 as well as general economic conditions and
regulatory policies.
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. Nonaccrual loans are included in the average balance of loans.
The mark-to-market adjustments on securities available for sale are included in
noninterest-earning assets.

AVERAGE BALANCES, INTEREST AND YIELDS/COSTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
Average Average Average Average
(Dollars in thousands) Balance Interest Yield/Cost Balance Interest Yield/Cost
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans and lease
financings............ $16,734,188 $1,311,251 7.84% $14,333,092 $1,154,431 8.05%
Mortgage-backed
securities:
Available for sale.... 1,949,982 137,912 7.07 1,384,192 95,439 6.89
Held to maturity...... 3,384,804 238,837 7.06 4,831,936 342,789 7.09
Investment securities:
Available for sale.... 455,177 27,317 6.00 722,303 45,650 6.32
Held to maturity...... 62,307 4,110 6.60 56,760 3,670 6.46
Other interest-earning
assets................ 604,432 40,944 6.68 452,017 30,601 6.68
- -------------------------------------------------------------------------------------------------------
Total
interest-earning
assets.......... 23,190,890 1,760,371 7.59 21,780,300 1,672,580 7.68
- -------------------------------------------------------------------------------------------------------
Allowance for loan and
lease losses.......... (142,721) (121,925)
Noninterest-earning
assets................ 1,286,834 1,038,518
- -------------------------------------------------------------------------------------------------------
Total assets...... $24,335,003 $22,696,893
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Deposits:
Checking accounts..... $ 1,896,307 15,002 .79 $ 1,464,947 15,130 1.03
Money market
accounts............ 2,225,710 74,381 3.34 1,933,831 68,019 3.52
Savings accounts...... 1,895,273 43,834 2.31 2,115,545 54,307 2.57
Certificates of
deposit............. 8,573,410 480,277 5.60 8,106,094 458,413 5.66
- -------------------------------------------------------------------------------------------------------
Total deposits.... 14,590,700 613,494 4.20 13,620,417 595,869 4.37
- -------------------------------------------------------------------------------------------------------
FHLB advances........... 5,416,492 297,069 5.48 4,019,735 233,757 5.80
Other borrowings........ 1,897,221 120,736 6.29 2,821,670 169,970 5.95
- -------------------------------------------------------------------------------------------------------
Total
borrowings...... 7,313,713 417,805 5.69 6,841,405 403,727 5.86
- -------------------------------------------------------------------------------------------------------
Total
interest-bearing
liabilities..... 21,904,413 1,031,299 4.70 20,461,822 999,596 4.87
- -------------------------------------------------------------------------------------------------------
Noninterest-bearing
liabilities........... 522,615 546,945
- -------------------------------------------------------------------------------------------------------
Total
liabilities.......... 22,427,028 21,008,767
Corporation-obligated
mandatorily redeemable
capital securities of
subsidiary trust...... 31,960 28,630
Shareholders' equity.... 1,876,015 1,659,496
- -------------------------------------------------------------------------------------------------------
Total liabilities
and
shareholders'
equity.......... $24,335,003 $22,696,893
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Net interest income..... $ 729,072 $ 672,984
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Interest rate spread.... 2.89 2.81
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Net yield on average
interest-earning
assets................ 3.14 3.09
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Average interest-earning
assets to average
interest-bearing
liabilities........... 105.87% 106.44%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------

<CAPTION>
- ------------------------ -------------------------------------
- ------------------------ -------------------------------------
Year Ended December 31,
-------------------------------------
1996
-------------------------------------
Average Average
(Dollars in thousands) Balance Interest Yield/Cost
- ------------------------ -------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans and lease
financings............ $12,120,210 $ 994,043 8.20%
Mortgage-backed
securities:
Available for sale.... 1,409,761 96,354 6.83
Held to maturity...... 5,565,477 394,888 7.10
Investment securities:
Available for sale.... 756,115 47,996 6.35
Held to maturity...... 67,025 4,026 6.01
Other interest-earning
assets................ 465,041 29,840 6.42
- ---------------------------------------------------------------
Total
interest-earning
assets.......... 20,383,629 1,567,147 7.69
- ---------------------------------------------------------------
Allowance for loan and
lease losses.......... (92,905)
Noninterest-earning
assets................ 929,115
- ---------------------------------------------------------------
Total assets...... $21,219,839
- ---------------------------------------------------------------
- ---------------------------------------------------------------
INTEREST-BEARING
LIABILITIES:
Deposits:
Checking accounts..... $ 1,285,843 15,036 1.17
Money market
accounts............ 1,580,377 54,865 3.47
Savings accounts...... 2,290,505 60,223 2.63
Certificates of
deposit............. 7,737,427 434,075 5.61
- ---------------------------------------------------------------
Total deposits.... 12,894,152 564,199 4.38
- ---------------------------------------------------------------
FHLB advances........... 3,595,453 206,946 5.76
Other borrowings........ 2,623,725 152,395 5.81
- ---------------------------------------------------------------
Total
borrowings...... 6,219,178 359,341 5.78
- ---------------------------------------------------------------
Total
interest-bearing
liabilities..... 19,113,330 923,540 4.83
- ---------------------------------------------------------------
Noninterest-bearing
liabilities........... 496,480
- ---------------------------------------------------------------
Total
liabilities.......... 19,609,810
Corporation-obligated
mandatorily redeemable
capital securities of
subsidiary trust......
Shareholders' equity.... 1,610,029
- ---------------------------------------------------------------
Total liabilities
and
shareholders'
equity.......... $21,219,839
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net interest income..... $ 643,607
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Interest rate spread.... 2.86
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net yield on average
interest-earning
assets................ 3.16
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Average interest-earning
assets to average
interest-bearing
liabilities........... 106.65%
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>

17
<PAGE> 20

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. Changes not solely attributable to volume or
rate have been allocated in proportion to the changes due to volume and rate.

RATE/VOLUME ANALYSIS

Our net interest income for 1998 was $729.1 million, an increase of $56.1
million, or 8.3%, over the $673.0 million of net interest income in 1997. This
increase was primarily due to growth in interest-earning assets and a shift to
higher yielding interest-earning assets (primarily loans and leases). These
activities resulted in the spread increasing by 8 basis points in 1998 to 2.89%
from 2.81% and the net yield on interest-earning assets increasing by 5 basis
points during 1998 to 3.14% from 3.09%.
Interest income was $1.8 billion for 1998 as compared to $1.7 billion during
1997. This $88 million, or 5.3%, increase was primarily due to higher balances
of interest-earning assets. The average balance of interest-earning assets was
$1.4 billion higher for the 12 months ended December 31, 1998 than for the same
period in 1997. The higher balance of interest-earning assets was achieved
primarily with growth in the loan and lease portfolio. The higher balance of
interest-earning assets caused interest income to increase by $127.7 million for
the 12 months ended December 31, 1998. This increase was partially offset by a 9
basis point decrease in the yield on interest-earning assets to 7.59% for 1998
from 7.68% for 1997. The lower yield on assets caused interest income to
decrease by $39.9 million. The decrease in the yield on interest-earning assets
was mitigated by shifting the portfolio towards the higher yielding loan and
lease portfolio from the mortgage-backed securities and investment securities
portfolio. The table below illustrates this shift.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
For the Years Ended December 31,
-----------------------------------------
1998 1997
------------------- -------------------
% of % of
(Dollars in thousands) Balance Total Balance Total
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average balances:
Interest-earning
assets:
Loans and leases.... $16,734,188 72.2% $14,333,092 65.8%
Other
interest-earning
assets............. 6,456,702 27.8 7,447,208 34.2
- ------------------------------------------------------------------
Total.............. $23,190,890 100.0% $21,780,300 100.0%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>

The growth in the loan and lease portfolio was achieved by record loan
originations in 1998. The company originated $10.7 billion in loans and leases
in 1998 as compared to $7.6 billion in 1997.
The growth in interest-earning assets was funded by a $1.4 billion increase in
interest-bearing liabilities. The higher balance of interest-bearing liabilities
was the primary reason interest expense increased by 3.2% to $1.0 billion in
1998. The growth of interest-bearing liabilities was primarily in deposit
accounts. The average

18
<PAGE> 21

balance of deposit accounts was $970.3 million higher in 1998 than in 1997.
Borrowings also increased during 1998. The average balance of borrowings was
$472.3 million higher in 1998. The cost of interest-bearing liabilities
decreased 17 basis points to 4.70% for 1998 from 4.87% for 1997. The primary
reason for this decrease in the cost of interest-bearing liabilities was the
overall decline in market interest rates. Also, in the fourth quarter of 1998,
the company took advantage of these lower market interest rates by refinancing
$2.8 billion of borrowings. This refinancing activity resulted in a $61.7
million extraordinary after-tax charge to earnings in 1998 primarily related to
prepayment penalties on Federal Home Loan Bank advances and market premiums to
retire other borrowings.
Net interest income for 1997 was $673.0 million, an increase of $29.4 million,
or 4.6% from 1996. The primary reason for this increase was higher balances of
interest-earning assets. The average balance of interest-earning assets during
1997 was $1.4 billion higher than for 1996. This growth was primarily in the
loan and lease portfolio. The growth was funded by increases in interest-
bearing liabilities. The average balance of interest-bearing liabilities was
$1.3 billion higher for 1997 as compared to 1996. The increases in these
balances caused net interest income to increase by $53.6 million. This was
partially offset by a lower interest rate spread in 1997 as compared to 1996.
The interest rate spread was 2.81% during 1997 and 2.86% for 1996. This 5 basis
point decrease reduced net interest income by $24.3 million, partially
offsetting the increase from higher balances. The primary reasons for this
decline were due to market interest rates, funding of a portion of incremental
asset growth by borrowings, and the flattening of the yield curve.

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 adequate to absorb estimated
future loan and lease charge-offs. The provision for loan and lease losses was
$29.5 million in 1998, $48.3 million in 1997 and $23.5 million in 1996. The
higher provision in 1997 was primarily due to consumer credit (primarily in the
auto finance area) and auto repossession loss trends in the second half of 1997.
Due to those loss trends, management shifted the mix of new indirect auto
financing business to a higher concentration of prime credits than originated
prior to 1998. As a result, management lowered the provision in 1998 as compared
to 1997. Nonperforming loans and leases as a percentage of loans and leases was
.70% at December 31, 1998. This was an increase of 11 basis points from December
31, 1997 when the ratio was .59%. That same ratio was .67% at December 31, 1996.
Net loan and lease charge-offs remained low. They were .17%, .20% and .19% of
average loan and lease balances for 1998, 1997 and 1996, respectively. See
"Financial Condition -- Loans and Leases" for further discussion about
nonperforming assets and the allowance for loan and lease losses.

Other Income-Other income for 1998 was $211.6 million, an increase of $82.3
million, or 63.7%, from the 1997 amount of $129.3 million. This increase was
primarily due to a $30.1 million increase in retail banking income, a $23.3
million increase in gains on sale and a $22.5 million increase in mortgage
banking income due in part to a pretax valuation charge of $18.3 million on the
loan servicing assets at the bank's mortgage banking subsidiary, Charter One
Mortgage Corp., taken in the fourth quarter of 1997 as a result of the then
current interest rate environment and projected increases in mortgage
prepayments. Loan servicing assets had a net book value of $90.8 million at
December 31, 1998 and $82.4 million at December 31, 1997 on a portfolio of loans
serviced for others of $9.3 billion as of December 31, 1998 and 1997. Retail
banking income increased by $30.1 million, or 36.5%, to $112.7 million for 1998.
Checking account fee income was the primary reason for this increase in retail
banking income. The bank's campaigns to increase checking accounts resulted in a
net increase of 69,500 checking accounts during 1998. At December 31, 1998 the
bank had 747,000 checking accounts. The $23.3 million increase in gains on sale
was primarily due to the sale of mortgage-backed securities from the available
for sale portfolio to fund loan and lease portfolio growth in 1998 and to manage
interest rate risk.
Other income was $129.3 million for 1997 as compared to $130.2 million in
1996. Other income for 1997 was impacted by the valuation adjustment of $18.3
million recorded on the loan servicing assets at the bank's mortgage banking
subsidiary as discussed above. Excluding this valuation adjustment, mortgage
banking income increased by $2.5 million in 1997 as a result of increases in the
loans serviced for others. Retail banking fee income increased by $19.2 million
in 1997 primarily as a result of the bank rolling out its checking account and
tax deferred annuity products along with brokerage services to the western New
York market in 1997.

Administrative Expenses-Administrative expenses for 1998 were $492.5 million as
compared to $472.2 million for 1997. Each year had significant merger-related
expenses. There were $55.7 million in merger-related expenses recorded in 1998
and $60.6 million of merger-related expenses in 1997. Excluding these
transactions, administrative expenses were $436.9 million in 1998, an increase
of $25.4 million, or 6.2%, as compared to $409.0 million for 1997. Expanded
operations as a result of loan and deposit growth in 1998 and acquisitions in
the second half of 1997 accounted for as purchases are the primary reason for
the increase in administrative expenses. Overall, our operating expenses to
average assets, excluding the merger expenses, was 1.80% in 1998 and 1.81% in
1997.

19
<PAGE> 22

Administrative expenses for 1997 were $472.2 million as compared to $460.3
million in 1996. Again, each year had some large nonrecurring expenses. There
were $60.6 million in merger-related expenses recorded in 1997 and $66.7 million
of expenses related to the SAIF recapitalization in 1996. Excluding these costs,
administrative expenses were $411.5 million in 1997, an increase of $17.9
million, or 4.5%, as compared to $393.7 million for 1996. Expansion of
operations and asset growth were the primary reasons for this increase in
administrative expenses. Overall, our operating expenses to average assets,
excluding the merger expenses and the SAIF assessment, was 1.81% in 1997 and
1.86% in 1996.

Income Tax Expense-The provision for income taxes was $141.7 million, $84.7
million and $95.3 million for 1998, 1997 and 1996 respectively. The effective
tax rate was 33.8%, 30.1% and 32.8 % for 1998, 1997 and 1996, respectively. For
a further analysis of effective tax rates see Note 12 to the Consolidated
Financial Statements.

Extraordinary Item-The company recast a significant amount of liabilities during
the fourth quarter of 1998. The actions taken included: replacing $2.5 billion
in FHLB advances and reverse repurchase agreements; repurchasing $200 million in
accreted balance of our zero coupon bonds; and purchasing ALBANK's $50 million
in outstanding trust preferred securities. These actions resulted in a $61.7
million extraordinary after-tax charge to earnings during the fourth quarter and
contributed to the increase in overall net yield.

FINANCIAL CONDITION
Consolidated assets of the company were $24.5 billion at December 31, 1998, a
slight increase of $259.5 million, or 1.1%, from December 31, 1997. Although
total assets remained relatively flat, the mix of assets has changed reflecting
the company's strategy of emphasizing higher yielding assets.

Loans and Leases-Total loans and leases at December 31, 1998 were $17.7 billion,
up from $15.9 billion at December 31, 1997. The $1.8 billion, or 11.4%, increase
was primarily due to significant growth in loan and lease originations as the
bank originated $10.7 billion of new loans and leases in 1998, representing a
40.8% increase over the $7.6 billion of loan and lease originations in 1997.
During 1998 the retail consumer loan portfolio grew by $1.2 billion, or 66.3%,
and the auto loan portfolio grew by $410.4 million, or 25.5%, over 1997. Over
the past few years, we have emphasized growth in the consumer and auto loan
portfolio due to the shorter terms and higher yields of these loans. Our
consumer loan portfolio is primarily secured by residential real estate
properties.
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,
------------------------------------
(Dollars in thousands) 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Originations:
Real estate mortgage:
Permanent:
One-to-four family.... $5,991,876 $4,485,760 $4,402,307
Multifamily........... 31,053 27,523 51,659
Commercial............ 120,175 110,972 96,801
- ---------------------------------------------------------------
Total permanent...... 6,143,104 4,624,255 4,550,767
- ---------------------------------------------------------------
Construction:
One-to-four family.... 456,512 394,652 333,024
Multifamily........... 40,869 28,519 7,410
Commercial............ 54,583 25,871 32,667
- ---------------------------------------------------------------
Total construction... 551,964 449,042 373,101
- ---------------------------------------------------------------
Total real estate
mortgage loans
originated.......... 6,695,068 5,073,297 4,923,868
- ---------------------------------------------------------------
Retail consumer......... 2,143,966 928,171 778,627
Automobile.............. 1,213,760 1,120,336 642,162
Leases.................. 369,287 256,114 205,789
Corporate banking....... 261,088 211,785 158,856
- ---------------------------------------------------------------
Total loans and lease
financings
originated.......... 10,683,169 7,589,703 6,709,302
- ---------------------------------------------------------------
Loans purchased.......... 29,413 346,871 386,759
- ---------------------------------------------------------------
Sales and principal
reductions:
Loans sold.............. 2,069,929 1,752,431 2,026,058
Loans exchanged for
MBS.................... 1,816,088 510,435
Principal reductions.... 5,022,074 3,318,003 2,442,884
- ---------------------------------------------------------------
Total sales and
principal
reductions.......... 8,908,091 5,070,434 4,979,377
- ---------------------------------------------------------------
Increase before net
items.................. $1,804,491 $2,866,140 $2,116,684
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>

The following table sets forth certain information concerning our nonperforming
assets as of the past five year ends. The table illustrates that there has been
consistent balances and ratios of nonperforming assets. While the balances and
ratios are stable, 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 could result in higher levels of
nonperforming assets. In 1998 the company changed the accrual policy on
one-to-four family loans to stop accruing on loans delinquent 90 or more days.
The change in the accrual policy did not have a material impact on interest
income.

20
<PAGE> 23

NONPERFORMING ASSETS

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
and leases:
Nonaccrual loans and
leases:
Real estate mortgage
loans:
One-to-four
family(1)........ $ 73,175 $ 47,871 $ 35,744 $ 44,816 $ 42,560
Multifamily and
commercial....... 3,958 5,561 9,922 6,584 10,151
Construction and
land............. 1,178 1,943 873 1,463 2,596
- ----------------------------------------------------------------------------
Total real estate
mortgage loans... 78,311 55,375 46,539 52,863 55,307
Retail consumer.... 21,032 993 1,767 2,644 2,529
Automobile......... 327
Corporate banking... 8,810 6,790 4,028 372 501
Leases............. 27
- ----------------------------------------------------------------------------
Total nonaccrual
loans and leases.. 108,480 63,158 52,334 55,906 58,337
- ----------------------------------------------------------------------------
Accruing loans and
leases delinquent
more than 90 days:
Real estate mortgage
loans:
One-to-four
family........... 10,986 12,330 6,183 7,130
Multifamily and
commercial....... 127 1,269 855
Construction and
land............. 3 207
- ----------------------------------------------------------------------------
Total real estate
mortgage loans... 10,989 12,457 7,452 8,192
Retail consumer.... 3,878 8,499 4,421 5,851 5,299
Automobile......... 5,873 3,679 1,555 2,641 546
Corporate banking... 904 960 376 1,621
Leases............. 17
- ----------------------------------------------------------------------------
Total accruing
loans and leases
delinquent more
than 90 days..... 10,655 24,127 18,809 15,944 15,675
- ----------------------------------------------------------------------------
Restructured real
estate mortgage
loans.............. 3,936 6,722 15,294 18,835 18,479
- ----------------------------------------------------------------------------
Total nonperforming
loans and leases.. 123,071 94,007 86,437 90,685 92,491
Real estate acquired
through foreclosure
and other.......... 17,803 17,400 20,201 19,514 24,690
- ----------------------------------------------------------------------------
Total nonperforming
assets........... 140,874 111,407 106,638 110,199 117,181
Less government
guaranteed loans.. 22,429
- ----------------------------------------------------------------------------
Nonperforming
assets net of
guaranteed loans.. $118,445 $111,407 $106,638 $110,199 $117,181
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of:
Nonperforming loans
and leases to total
loans and leases... .70% .59% .67% .83% .88%
Nonperforming assets
to total assets.... .58 .46 .49 .53 .55
Allowance for loan
and lease losses to:
Nonperforming loans
and leases........ 117.47 152.10 136.78 117.41 115.23
Total loans and
leases before
allowance.......... .81 .89 .90 .97 1.01
- ----------------------------------------------------------------------------
Ratio of (excluding
guaranteed
nonperforming loans):
Nonperforming loans
and leases to total
loans and leases... .57% .59% .67% .83% .88%
Nonperforming assets
to total assets.... .48 .46 .49 .53 .55
Allowance for loan
and lease losses to:
Nonperforming loans
and leases......... 143.64 152.10 136.78 117.41 115.23
Total loans and
leases before
allowance.......... .81 .89 .90 .97 1.01
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>

(1) Includes $22.4 million of government guaranteed loans at December 31, 1998.

At December 31, 1998, there were $47.9 million of loans not reflected in the
table above, which are fully performing but where known information about
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrowers to comply with present loan repayment terms and that
may result in disclosure of such loans in the future.
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. Income
recorded on nonaccruing and restructured loans amounted to $469,000 and the
potential income based upon full contractual yields was $5.4 million for the
year ended December 31, 1998.

21
<PAGE> 24

ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
year................ $142,985 $118,226 $106,476 $106,573 $103,700
Provision for loan and
lease losses........ 29,465 48,293 23,484 13,260 23,659
Adjustment to convert
RCSB to a calendar
year end............ 650
Acquired through
acquisition......... 4,963 11,310 151
Other................ 176
Allowance of
subsidiary sold..... (4,718)
Charge-offs:
Mortgage............ (6,296) (9,159) (13,266) (9,126) (11,913)
Automobile.......... (25,597) (19,071) (11,092) (6,620) (4,704)
Retail consumer..... (3,599) (5,243) (4,884) (4,684) (4,573)
Leases..............
Corporate banking... (1,430) (1,471) (646) (94) (345)
- ----------------------------------------------------------------------------
Total charge-offs.. (36,922) (34,944) (29,888) (20,524) (21,535)
- ----------------------------------------------------------------------------
Recoveries:
Mortgage............ 2,748 705 1,760 3,797 2,714
Automobile.......... 4,925 3,845 3,826 2,246 1,633
Retail consumer..... 970 1,032 1,169 898 911
Leases..............
Corporate banking... 395 215 89 50 58
- ----------------------------------------------------------------------------
Total recoveries... 9,038 5,797 6,844 6,991 5,316
- ----------------------------------------------------------------------------
Net loan and lease
charge-offs......... (27,884) (29,147) (23,044) (13,533) (16,219)
- ----------------------------------------------------------------------------
Balance, end of
year................ $144,566 $142,985 $118,226 $106,476 $106,573
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Net charge-offs to:
Average loans and
leases............. .17% .20% .19% .12% .15%
Provision for loan
and lease losses... 94.63 60.35 98.13 102.06 68.55
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>

ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES

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. These reserves are available to absorb any losses in the
portfolio as required. Although we believe we use the best information available
to make these determinations and that the allowance for loan and lease losses
was adequate at December 31, 1998, 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.
Additionally, various regulatory agencies, as an integral part of their
examination process, periodically review our allowance for losses. These
agencies may require the recognition of additions to the allowance based upon
their judgments 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, 1998 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, 1998
---------------------
Carrying Fair
(Dollars in thousands) Value Value
- --------------------------------------------------------------
<S> <C> <C>
The Prudential Home Mortgage Securities
Company, Inc......................... $343,079 $347,044
GE Capital Mortgage Services, Inc...... 258,914 261,392
Residential Funding Mortgage Securities
I, Inc............................... 200,303 200,526
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>

Charter One held no investment securities of any single nongovernmental issuer
which were in excess of 10% of shareholders' equity at December 31, 1998.
The present investment policy of the company provides that new purchases of
mortgage-backed securities have an investment rating of AAA. At December 31,
1998, approximately 88% of the private issue mortgage-backed security portfolio
had an investment rating of AAA and approximately 12% had an investment rating
of AA. See Notes 3 and 4 to the Consolidated Financial Statements for further
information concerning the composition of the securities portfolio.

Deposits, Borrowings and Other Sources of Funds-Deposits are generally the most
important source of our funds for use in lending and for 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 our primary market areas. Deposits totaled $15.2
billion at December 31, 1998.
In addition to deposits, the bank obtains funds from different borrowing
sources. The primary source of these borrowings is the FHLB system. Those
borrowings were $6.2 billion and $5.4 billion at December 31, 1998 and 1997,
respectively. The FHLB functions as a central bank providing credit for member
financial institutions. As a member of the FHLB of Cincinnati, the bank is
required to own capital stock in the FHLB and it is authorized to apply for
advances on the security of this 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. See Note 8 to the
Consolidated Financial Statements for further information as to the make-up,

22
<PAGE> 25

maturities and cost associated with these advances at December 31, 1998.
In addition to FHLB advances, we use reverse repurchase agreements to fund
operations. Reverse repurchase agreements decreased by $1.4 billion during 1998.
We use our portfolio of investment securities, loans and mortgage-backed
securities as collateral for borrowings. Other borrowings were $130.3 million at
December 31, 1998, a decrease of $117.2 million since December 31, 1997. See
"Results of Operations -- Extraordinary Item" and Notes 9 and 10 to the
Consolidated Financial Statements for further information concerning these
borrowings.
The following table summarizes short-term borrowings, based upon original
issue date, at the end of and during the periods indicated. Our short-term
borrowings consisted of FHLB advances and reverse repurchase agreements during
1998. Interest rates shown do not include the annualized effect of interest rate
risk management instruments. Average borrowings are computed on a daily basis.

Liquidity-Our 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 loans and securities, and funds
provided by operations. While scheduled loan, security and interest-bearing
deposit amortization and maturity are relatively predictable sources of funds,
deposit flows and loan and mortgage-backed security repayments are greatly
influenced by economic conditions, the general level of interest rates and
competition. We utilize particular sources of funds based on comparative costs
and availability. We generally manage the pricing of deposits to maintain a
steady deposit balance, but from time to time may decide not to pay rates on
deposits as high as our 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 4.0% of the sum of the 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 1998 was 8.34%.
We anticipate that we will have sufficient funds available to meet current and
future loan commitments. At December 31, 1998, we had outstanding commitments to
originate loans and leases, unfunded lines of consumer credit and unfunded lines
of commercial (business loans) credit. See Note 5 to the Consolidated Financial
Statements for further information concerning commitments. Outstanding letters
of credit totaled $41.6 million as of December 31, 1998. Certificates of deposit
scheduled to mature in one year or less at December 31, 1998 totaled $6.9
billion. We believe that a significant portion of the amounts maturing in 1999
will remain with the bank because they are retail deposits. At December 31,
1998, we had $803 million of advances from the FHLB system and $685 million in
reverse repurchase agreements which mature in 1999. We intend to replace the
majority of these borrowings when they mature with new borrowings and believe we
have significant additional borrowing capacity with the FHLB and investment
banking firms to meet any need for additional borrowings.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We realize income principally from the difference or spread between the interest
earned on loans, investments and other interest-earnings assets and the interest
paid on deposits and borrowings. Loan volumes and yields, as well as the volume
of and rates on investments, deposits and borrowings, are affected by market
interest rates. Additionally, because of the terms and conditions of many of our
loan documents and deposit accounts, a change in interest rates could also
affect the projected maturities of the loan portfolio and/or the deposit base
which could alter our sensitivity to future changes in interest rates.
Accordingly, we consider interest rate risk to be our most significant market
risk.
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board-approved policy limits while taking into
consideration, among other factors, our overall credit, operating income,
operating cost, and capital profile. Our Asset/Liability Management Committee,
which includes senior management representatives and reports to the Board of
Directors, together with the Investment Committee of the Board, monitors and
manages interest rate risk to maintain an acceptable level of change to net
interest income as a result of changes in interest rates.
We use an internal earnings simulation model as our primary method to identify
and manage our interest rate risk profile. The model is based on actual cash
flows and repricing characteristics for all financial instruments and
incorporates market-based assumptions regarding the impact of changing interest
rates on future volumes and the prepayment rate of applicable financial
instruments. Assumptions based on the historical behavior of deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure net interest income or precisely predict the impact of
fluctuations in interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes as well as changes in market conditions and management
strategies.
Using this internal simulation model, net earnings projections reflect
continued growth in net income when applying the interest rate environment as of
December 31, 1998. Our base case shows our present estimated net earnings
sensitivity profile as of

23
<PAGE> 26

December 31, 1998, assumes no changes in the operating environment or operating
strategies, but assumes interest rates increase/decrease gradually over the next
year and then remain unchanged. The table indicates the estimated impact on net
income under the various interest rate scenarios as a percentage of base case
earnings projections.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Estimated Percentage Change
in Future Net Income
---------------------------
Changes in Interest Rates (basis points) 12 Months 24 Months
- ---------------------------------------------------------------------
<S> <C> <C>
Base Case..............................
+100 over one year..................... 1.34% .87%
+200 over one year..................... 3.75 3.14
- -100 over one year..................... (4.66) (7.79)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>

A secondary method used to identify and manage our interest rate risk profile is
the static gap analysis. Interest sensitivity 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 periods, 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 precisely 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 portion of our adjustable-rate assets have limits on
their maximum yield, whereas most of our interest-bearing liabilities are not
subject to these 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 our interest-sensitivity gap
position at December 31, 1998. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of 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, our historical
experience, and the repricing and prepayment characteristics of portfolios
acquired through merger.

MATURITY/RATE SENSITIVITY

Money market accounts............. 1,252,923 1,252,923 2,505,846

Certificates of deposit........... 4,234,807 2,201,026 1,529,148 441,254 202,214 2,811 8,611,260

FHLB advances....................... 877,916 401,300 2,385,569 2,006,240 514,839 254 6,186,118

Reverse repurchase agreements....... 585,024 100,000 685,024

Other borrowings.................... 8,401 4,984 19,620 8,300 87,481 1,549 130,335
- ------------------------------------------------------------------------------------------------------------------- ----------
Total....................... 7,129,009 2,841,857 8,180,779 3,229,441 804,534 4,614 $22,190,234
- ------------------------------------------------------------------------------------------------------------------- ----------
----------
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities...... 120,668 927,385 (1,720,786) (617,983) 1,739,419 785,940
Impact of hedging................... 8,209 (1,306) (6,359) (544)
- -------------------------------------------------------------------------------------------------------------------
Adjusted interest-sensitivity gap... $ 128,877 $ 926,079 $(1,727,145) $ (618,527) $1,739,419 $ 785,940
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities...... $ 128,877 $1,054,956 $ (672,189) $(1,290,716) $ 448,703 $1,234,643
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap
as a percentage of total assets at
December 31, 1998................. .53% 4.31% (2.75%) (5.28%) 1.83% 5.05%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

24
<PAGE> 27

Our goal is to manage our interest rate risk by maintaining the gap between
interest-earning assets and interest-bearing liabilities repricing in a one-year
period within a range of plus to minus 5% of total assets.

CAPITAL AND DIVIDENDS
Charter One Financial, Charter One Bank and ALBANK Commercial are subject to
certain regulatory capital requirements. We believe that as of December 31,
1998, Charter One Financial, Charter One Bank and ALBANK Commercial met all
capital requirements to which they are subject. Refer to Note 13 to the
Consolidated Financial Statements for an analysis of our regulatory capital.
On April 22, 1998 the company declared a 2-for-1 stock split in the form of a
stock dividend. The dividend was payable on May 20, 1998 to shareholders of
record as of May 6, 1998.
On July 22, 1998, the company approved a 5% stock dividend which was
distributed September 30, 1998, to shareholders of record on September 14, 1998.
On August 20, 1997, the company approved a 5% stock dividend which was
distributed October 31, 1997, to shareholders of record on October 17, 1997. On
July 24, 1996, the company approved a 5% stock dividend which was distributed on
September 30, 1996 to shareholders of record on September 13, 1996.
During 1998, the company authorized management to purchase up to 2.5 million
shares of our common stock in a systematic program of open market or privately
negotiated purchases. We purchased 2.1 million shares of common stock under the
buyback program, which was rescinded upon the close of our acquisition of CS
Financial. The shares were reissued in connection with the 5% stock dividend and
employee benefit plans.
Our common stock trades on the Nasdaq Stock Market under the symbol COFI. As
of March 2, 1999 there were approximately 15,800 shareholders of record.
Quarterly stock prices and dividends declared are shown in the following
table. All prices have been restated to reflect the 5% stock dividend issued
September 30, 1998 and the 2-for-1 stock split issued May 20, 1998.

MARKET PRICE AND DIVIDENDS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
High.................. $32.44 $34.89 $34.17 $30.56 $34.89
Low................... 22.86 28.57 21.84 17.63 17.63
Close................. 31.88 32.09 24.88 27.75 27.75
Dividends declared and
paid................ .13 .13 .13 .14 .53
- ------------------------------------------------------------------------
1997
High.................. $22.73 $24.49 $27.89 $30.48 $30.48
Low................... 18.65 19.16 23.36 25.77 18.65
Close................. 19.90 24.43 26.81 30.06 30.06
Dividends declared and
paid................ .11 .11 .11 .12 .45
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>

We continually review the amount of our cash dividend and our policy of paying
quarterly dividends. This payment will depend upon a number of factors,
including capital requirements, regulatory limitations, our financial condition,
results of operations and Charter One Bank's ability to pay dividends to its
parent, which in turn will pay dividends to Charter One Financial. Charter One
Financial depends significantly upon dividends originating from Charter One Bank
to accumulate earnings for payment of cash dividends to our shareholders. See
Note 13 to the Consolidated Financial Statements for a discussion of
restrictions on Charter One Bank's ability to pay dividends.

ACCOUNTING AND REPORTING DEVELOPMENTS
A discussion of recently issued accounting pronouncements and their impact on
our Consolidated Financial Statements is provided in Note 1 to the Consolidated
Financial Statements.

FOURTH QUARTER RESULTS
We reported a net loss of $18.3 million, or $.10 per share, for the fourth
quarter of 1998. We had net income of $4.0 million, or $.02 per share, for the
fourth quarter of 1997. The primary reason for the loss in the 1998 period
relates to an extraordinary loss of $61.7 million in the fourth quarter of 1998.
This extraordinary loss related to the refinancing of $2.8 billion of debt as
discussed in "Results of Operations -- Extraordinary Item." Both periods were
affected by merger-related expenses and the 1997 period also had other special
charges. See "Results of Operations" for a discussion of these expenses and
other special charges.
The following table presents summarized quarterly data for each of the years
indicated. Earnings per share have been restated to reflect the 5% stock
dividend issued September 30, 1998 and the 2-for-1 stock split issued May 20,
1998.

25
<PAGE> 28

QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1998
------------------------------------------------------
(Dollars in thousands, First Second Third Fourth Total
except per share data) Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest
income.............. $441,923 $440,253 $443,655 $434,540 $1,760,371
Net interest income.. 181,081 181,123 180,468 186,400 729,072
Provision for loan and
lease losses........ 6,613 7,155 7,555 8,142 29,465
Net gains............ 4,264 4,348 5,813 6,538 20,963
Merger expenses...... 55,657 55,657
Income before
extraordinary item.. 74,053 79,359 80,230 43,377 277,019
Net income (loss).... 74,053 79,359 80,230 (18,281) 215,361
Basic earnings per
share:
Income before
extraordinary item.. .45 .48 .48 .26 1.67
Extraordinary item.. (.37) (.37)
Net income (loss)... .45 .48 .48 (.11) 1.30
Diluted earnings per
share:
Income before
extraordinary item.. .43 .46 .47 .26 1.62
Extraordinary item.. (.36) (.36)
Net income (loss)... $ .43 $ .46 $ .47 $ (.10) $ 1.26
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1997
------------------------------------------------------
(Dollars in thousands, First Second Third Fourth Total
except per share data) Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest
income.............. $399,708 $410,690 $420,859 $441,323 $1,672,580
Net interest income.. 164,050 166,976 167,445 174,513 672,984
Provision for loan and
lease losses........ 6,703 6,676 18,219 16,695 48,293
Net gains (losses)... 671 373 2,024 (5,419) (2,351)
Merger expenses...... 60,617 60,617
Income before
extraordinary item.. 61,803 65,032 63,553 6,733 197,121
Net income........... 61,803 65,032 63,553 4,005 194,393
Basic earnings per
share:
Income before
extraordinary item.. .38 .40 .39 .04 1.21
Extraordinary item.. (.02) (.02)
Net income.......... .38 .40 .39 .02 1.19
Diluted earnings per
share:
Income before
extraordinary item.. .37 .39 .38 .04 1.17
Extraordinary item.. (.02) (.02)
Net income.......... $ .37 $ .39 $ .38 $ .02 $ 1.15
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>

YEAR 2000
State of Y2K Readiness-Preparing for the Year 2000 ("Y2K") is the result of the
century date change issue caused by computer systems and related technology
which are designed to recognize only the last two digits of a year and may
recognize the date change from 12/31/99 to 01/01/00 as January 1, 1900, rather
than January 1, 2000. The company has made substantial progress in the
implementation of our Y2K plan, which includes the remediation, testing and, if
required, the implementation of upgrades or replacements of those systems and
equipment which may be impacted by the century date change.
We have identified the following components of our Y2K project:
Awareness Phase: Activities to identify the scope of our Y2K project have been
completed.
Inventory Phase: Computer systems and related technology were inventoried and
the analysis of potential areas of Y2K risk have been identified and
completed.
Assessment Phase: The Y2K compliance status assessment of computer systems and
related technology has been completed. Also, the analysis of risks of major
customers, vendors, suppliers of information and electronic data exchange
partners has been determined and completed.
Conversion Phase: The methodology for the conversion of non-Y2K mission
critical compliant systems and equipment has been completed.
Implementation Phase: Mission critical systems and related technology will be
upgraded or replaced, where required, and fully tested to ensure their Y2K
compliance.
Post Implementation: Follow-up and the monitoring of the problem resolution of
Y2K solutions will be performed through December 31, 1999.
With the exception of the Advance Loan System ("ALS"), we will test and
certify Y2K compliance of all mission critical systems and related technologies
by March 31, 1999. ALS, which is used by both our consumer loan department and
Charter One Auto Finance for loan servicing, will be in user test certification
by March 15, 1999 with anticipated completion by April 30, 1999. Alltel, the
software vendor, has certified ALS as being Y2K compliant. We do not believe
that there currently is a need to implement an alternative system to ALS, due to
the testing not being completed by March 31, 1999.
The impact of Y2K upon the company has been assessed in all significant areas
of its business, including Y2K readiness of the critical systems such as demand
deposits, consumer lending, and branch operations. In addition, the impact posed
by major customers, vendors, suppliers of information and electronic data
exchange partners has been assessed. As these assessments resulted in the
identification of specific Y2K exposures, specific action plans were developed
to either eliminate or reduce the risk to an acceptable level. These plans have
either been, or are in the process of being, implemented.
As of December 31, 1998, we have successfully completed 80% of our Y2K
remediation, testing and implementation for mission critical systems. It is
anticipated that 100% of the Y2K remediation and 98% of the testing and
implementation for mission critical systems will be completed by March 31, 1999.
Finally, it is anticipated that 100% of the testing and implementation for
mission critical systems will be completed by April 30, 1999.

26
<PAGE> 29

As of December 31, 1998, 50% of the PC computer systems requiring replacement
or upgrade have been fixed or replaced. It is anticipated that 75% of the PC
computer systems requiring replacement or upgrade will be completed by March 31,
1999, with the balance being completed during the second quarter of 1999.
In addition, efforts are underway to ensure that ATMs and non-information
technology systems, such as branch offices and our other facilities are prepared
for Y2K. Thus far, three quarters of our non-Y2K compliant ATM units and
facilities equipment, such as telephone switches and security monitoring
systems, have been upgraded or replaced with Y2K compliant equipment. Testing
and, if required, replacement of ATM units and facilities equipment will be
completed by March 31, 1999.
For most operations, the merger with ALBANK will result in our current
operating procedures and systems being implemented in all ALBANK locations;
however, the merger has resulted in the addition of both a student loan
processing system and an ATM front-end processing system to our inventory of
mission critical applications. Currently, there are no additional Y2K issues
requiring consideration due to the ALBANK merger. If there are enhancements or
changes to be made to our processes, full Y2K testing will be performed prior to
their implementation.

Costs to Address Y2K Issues-We estimate the out-of-pocket Y2K initiative to cost
approximately $4 million. This will provide for the replacement or upgrade of PC
hardware, software and the use of consultants. The cost of internal resources
for the Y2K initiative has not been estimated. Other Y2K-related costs are being
accounted for as operating expenditures. With the remediation, testing and
implementation phases being substantially complete, we believe that there will
not be any additional expenses which will have a material impact on the
operations, cash flow, or financial condition of future periods.

Risks of Y2K Issues-Corporate-wide efforts have been taken to identify and
assess the risk and adequacy of systems and equipment for Y2K readiness. In
addition, efforts continue to be made toward Y2K compliance of all systems and
equipment that have been deemed critical to continued operations.
The risk of major customers impacting the company was determined not to be
material, as we have a widely diversified portfolio of major customers. To avoid
future impact, credit approval procedures for large lending relationships have
been implemented which take into account the Y2K risks prior to the loan being
approved.
The Y2K risks presented by vendors and suppliers of information have been
assessed and, where applicable, corrective actions taken. These actions ranged
from replacement to reducing the risk to an acceptable level.
Testing with electronic data exchange partners, identified as being critical
to continued operations, is scheduled to be completed in the first quarter of
1999. We are participating with the Mortgage Bankers Association and Alltel as
part of a nationwide
test for several software applications used for mortgage origination and
servicing as well as interfacing with third party investors such as Fannie Mae
and Ginnie Mae.
As a result of the above, it is our belief that any of the most reasonably
likely worst case Y2K scenarios would not have a material effect on the company.
We recognize that if certain government-regulated third-party providers
experience significant Y2K failures, the result could create a disruption to our
business operations. We have received written assurances from these providers
that they will be Y2K compliant, it is our opinion these types of disruptions
are unlikely to occur.

Contingency Plan-In the event the onset of Y2K causes business operations or
customer service to not properly function or prevents them from completely
functioning, we are prepared to implement contingency plans which are
continually being refined by the various corporate departments of the company.
These contingency plans provide the departments with the ability to implement
either alternative computer systems and equipment or manual procedures or
outsourcing activities to reduce the potential impact of a Y2K problem upon
business operations or customer service.
In preparation for January 1, 2000, branch offices and corporate departments
at the company will finalize preparations for potential failures of computer
systems and equipment at branch locations, ATM units and corporate offices.
Methods or preparation include setting up alternative systems, manual procedures
or outsourcing activities to provide alternative means for servicing customers
and processing data.
We are also addressing global facilities issues such as electrical and heating
needs through a systematic review of all locations and, if warranted, the
development of contracts with alternate source vendors.
To ensure Y2K preparedness of branches and corporate departments, training
will be performed during the fourth quarter of 1999. This training will furnish
our employees with transition procedures to alternative methods of servicing
customers and maintaining business activity as needed.

Customer and Employee Awareness-Our marketing department has implemented a
series of notifications to our customers via statement inserts. Future plans for
increasing customer and employee awareness include a more aggressive campaign in
the third and fourth quarters of 1999.

27
<PAGE> 30

DISCUSSION OF FORWARD-LOOKING STATEMENTS
When used or incorporated by reference in disclosure documents, the words
"anticipate," "estimate," "expect," "project," "target," "goal" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions, including those set
forth below. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, expected or projected. These
forward-looking statements speak only as of the date of the document. We
expressly disclaim any obligation or undertaking to publicly release any updates
or revisions to any forward-looking statement contained herein to reflect any
change in our expectation with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. Additional
discussion of factors affecting our business and prospects is contained in our
periodic filings with the Securities and Exchange Commission.

Economic Conditions and Real Estate Risk-Our lending operations (exclusive of
its mortgage banking and auto finance operations) are primarily concentrated in
Ohio, Michigan, New York, Vermont and Massachusetts. As a result, the financial
condition and results of operations of the company will be subject to general
economic conditions prevailing in those states. If economic conditions in those
states worsen, we may experience higher default rates in its existing portfolio
as well as a reduction in the value of collateral securing individual loans.
Separately, our ability to originate the volume of loans or achieve the level of
deposits currently anticipated could be affected. As a result, the occurrence of
any of these events could affect the accuracy of previously made forward-looking
statements.

Interest Rate Risk-We realize income principally from the differential or spread
between the interest earned on loans, investments and other interest-earning
assets and the interest paid on deposits and borrowings. Loan volumes and
yields, as well as the volume of and rates on investments, deposits and
borrowings, are affected by market interest rates. Additionally, because of the
terms and conditions of many of our loan documents and
deposit accounts, a change in interest rates could also affect the duration of
the loan portfolio and/or the deposit base, which could alter our sensitivity to
future changes in interest rates. As a result, significant shifts in interest
rates could affect the accuracy of previously made forward-looking statements.
See MD&A -- "Quantitative and Qualitative Discussion About Market Risk."

Year 2000 Preparedness-As discussed in MD&A -- "Year 2000", we are aware of the
importance of preparing for the potential effect the Year 2000 may have on our
operations and have taken what we consider to be adequate measures to be
prepared. However, there is a possibility that unforeseen factors may have an
impact on our operations. If computer systems are not modified in order to be
able to identify Y2K, many computer applications could fail or create erroneous
results. As a result, many calculations which rely on date field information,
such as interest, payment or due dates and other operating functions, could
generate results which are significantly misstated, we could experience an
inability to process transactions, prepare statements or engage in similar
normal business activities. Likewise, under certain circumstances, a failure to
adequately address the Y2K issue could adversely affect the viability of our
suppliers and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Y2K issue could result in a significant adverse impact
on our operations and, in turn, our financial condition and results of
operations.

28
<PAGE> 31

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION Charter One Financial, Inc.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
December 31,
--------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and deposits with banks................................ $ 334,054 $ 312,105
Federal funds sold and other................................ 65,453 100,000
- ----------------------------------------------------------------------------------------
Total cash and cash equivalents....................... 399,507 412,105
Investment securities:
Available for sale........................................ 253,317 875,818
Held to maturity (fair value of $42,554 and $67,929)...... 42,256 67,684
Mortgage-backed securities:
Available for sale........................................ 2,299,204 1,545,521
Held to maturity (fair value of $2,716,740 and
$4,302,157)............................................. 2,668,980 4,242,536
Loans and leases, net....................................... 17,502,729 15,521,812
Loans held for sale......................................... 175,107 341,671
Federal Home Loan Bank stock................................ 319,993 388,055
Premises and equipment...................................... 218,788 215,936
Accrued interest receivable................................. 117,493 138,018
Real estate and other collateral owned...................... 18,094 17,711
Loan servicing assets....................................... 90,838 82,361
Goodwill.................................................... 158,709 170,752
Other assets................................................ 202,240 187,768
- ----------------------------------------------------------------------------------------
TOTAL ASSETS................................................ $24,467,255 $24,207,748
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
LIABILITIES
Deposits.................................................... $15,165,064 $14,029,725
Federal Home Loan Bank advances............................. 6,186,118 5,437,564
Reverse repurchase agreements............................... 685,024 2,117,621
Other borrowings............................................ 130,336 247,511
Advance payments by borrowers for taxes and insurance....... 60,383 159,954
Accrued interest payable.................................... 45,584 54,633
Accrued expenses and other liabilities...................... 319,634 348,843
- ----------------------------------------------------------------------------------------
Total liabilities................................... 22,592,143 22,395,851
- ----------------------------------------------------------------------------------------
Commitments and contingencies...............................
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust............................ 50,000
SHAREHOLDERS' EQUITY
Preferred stock -- $.01 par value per share; 20,000,000
shares authorized and unissued............................
Common stock -- $.01 par value per share; 360,000,000 shares
authorized; 165,399,180 and 168,875,195 shares
issued(1)................................................. 1,654 1,689
Additional paid-in capital.................................. 1,130,398 888,981
Retained earnings........................................... 704,661 977,147
Less 9,773,297 shares of common stock held in treasury in
1997, at cost(1).......................................... (121,731)
Borrowings of employee investment and stock ownership
plan...................................................... (5,288) (7,377)
Accumulated other comprehensive income...................... 43,687 23,188
- ----------------------------------------------------------------------------------------
Total shareholders' equity.......................... 1,875,112 1,761,897
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL SECURITIES, AND SHAREHOLDERS'
EQUITY.................................................... $24,467,255 $24,207,748
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>

(1) As restated for the 2-for-1 stock split issued on May 20, 1998.

See notes to consolidated financial statements.

29
<PAGE> 32

CONSOLIDATED STATEMENTS OF INCOME Charter One Financial, Inc.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and leases.......................................... $ 1,311,251 $ 1,154,431 $ 994,043
Mortgage-backed securities:
Available for sale...................................... 137,912 95,439 96,354
Held to maturity........................................ 238,837 342,789 394,888
Investment securities:
Available for sale...................................... 27,317 45,650 47,996
Held to maturity........................................ 4,110 3,670 4,026
Other interest-earning assets............................. 40,944 30,601 29,840
- -------------------------------------------------------------------------------------------------------
Total interest income............................... 1,760,371 1,672,580 1,567,147
- -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits.................................................. 613,494 595,869 564,199
FHLB advances............................................. 297,069 233,757 206,946
Other borrowings.......................................... 120,736 169,970 152,395
- -------------------------------------------------------------------------------------------------------
Total interest expense.............................. 1,031,299 999,596 923,540
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME......................................... 729,072 672,984 643,607
Provision for loan and lease losses......................... 29,465 48,293 23,484
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES.................................................... 699,607 624,691 620,123
- -------------------------------------------------------------------------------------------------------
OTHER INCOME:
Retail banking............................................ 112,687 82,578 63,418
Mortgage banking.......................................... 61,847 39,383 55,127
Leasing operations........................................ 8,188 8,043 7,421
Net gains (losses)........................................ 20,963 (2,351) 2,178
Other..................................................... 7,960 1,619 2,056
- -------------------------------------------------------------------------------------------------------
Total other income.................................. 211,645 129,272 130,200
- -------------------------------------------------------------------------------------------------------
ADMINISTRATIVE EXPENSES:
Compensation and employee benefits........................ 204,788 206,627 191,273
Net occupancy and equipment............................... 69,870 69,357 60,628
Federal deposit insurance premiums........................ 6,264 6,628 21,138
Federal deposit insurance special assessment.............. 66,655
Merger expenses........................................... 55,657 60,617
Amortization of goodwill.................................. 13,454 9,752 7,697
Other administrative expenses............................. 142,480 119,175 112,937
- -------------------------------------------------------------------------------------------------------
Total administrative expenses....................... 492,513 472,156 460,328
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM........... 418,739 281,807 289,995
Income taxes................................................ 141,720 84,686 95,303
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM............................ 277,019 197,121 194,692
EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $33,200 AND
$1,468.................................................... 61,658 2,728
- -------------------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 215,361 $ 194,393 $ 194,692
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Basic earnings per share(1):
Income before extraordinary item.......................... $ 1.67 $ 1.21 $ 1.18
Extraordinary item........................................ (.37) (.02)
- -------------------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 1.30 $ 1.19 $ 1.18
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Diluted earnings per share(1):
Income before extraordinary item.......................... $ 1.62 $ 1.17 $ 1.12
Extraordinary item........................................ (.36) (.02)
- -------------------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 1.26 $ 1.15 $ 1.12
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Average common shares outstanding(1)........................ 165,508,690 163,280,283 163,141,650
Average common and common equivalent shares
outstanding(1)............................................ 170,738,041 169,188,591 173,949,225
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) Average shares and per share data has been restated to reflect the 5% stock
dividend issued September 30, 1998 and the 2-for-1 stock split issued
May 20, 1998.

See notes to consolidated financial statements.

30
<PAGE> 33

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Charter One Financial, Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------

Accumulated
Additional Other
Preferred Common Paid-In Retained Treasury Comprehensive
(Dollars in thousands, except per share data) Stock Stock Capital Earnings Stock Income
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996................ $ 2,989 $ 1,548 $ 642,732 $ 1,054,056 $ (89,521) $ 7,903
Comprehensive income:
Change in net unrealized gain (loss) on
securities, net of tax and
reclassification adjustment......... (8,764)
Net income............................ 194,692
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income.................... 194,692 (8,764)
5% stock dividend....................... 46 112,490 (148,784) 36,248
Purchase of 11,756,131 shares of treasury
stock................................. (160,948)
EISOP loan repayment.................... 60
Cash dividends:
Common ($.39 per share)(1)............ (54,560)
Preferred ($.51 per share)............ (2,600)
Issuance of common shares:
Conversion of 3,000,000 preferred shares to
2,200,000 newly issued common shares and
7,000,000 common shares from treasury... (2,989) 22 (82,817) 85,766
Stock option plans, 1,556,634 shares... 4 3,537 (7,058) 12,865
Other................................... 898
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996.............. 1,620 676,900 1,035,746 (115,590) (861)
Adjustment to convert RCSB Financial, Inc.
to a calendar year end(2)........... 12 691 (4,992) 61
- ----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1997................ 1,620 676,912 1,036,437 (120,582) (800)
Comprehensive income:
Change in net unrealized gain (loss) on
securities, net of tax and
reclassification adjustment......... 23,988
Net income............................ 194,393
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income.................... 194,393 23,988
5% stock dividend....................... 62 177,656 (177,978) 24
Purchase of 3,200,333 shares of treasury
stock................................. (51,325)
EISOP loan repayment....................
Dividends paid ($.45 per share)(1)...... (63,075)
Issuance of common shares:
Acquisition, 1,899,022 shares......... 18 55,528
Stock option plans, 2,160,832 shares... 6 5,073 (12,630) 22,011
Other................................... (17) (26,188) 28,141
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997.............. 1,689 888,981 977,147 (121,731) 23,188
Comprehensive income:
Change in net unrealized gain (loss) on
securities, net of tax and
reclassification adjustment......... 20,499
Net income............................ 215,361
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income.................... 215,361 20,499
5% stock dividend....................... 26 68,746 (163,122) 94,263
Purchase of 2,051,442 shares of treasury
stock................................. (60,666)
EISOP loan repayment....................
Dividends paid ($.53 per share)(1)...... (80,742)
Treasury stock cancelled................ (63) 166,079 (230,284) 64,268
Issuance of common shares:
Stock option plans, 2,097,518 shares... 2 4,823 (13,699) 24,474
Other................................... 1,769 (608)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998.............. $ $ 1,654 $ 1,130,398 $ 704,661 $ $ 43,687
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
- --------------------------------------------- -------------------------
- --------------------------------------------- -------------------------
Borrowings
of Employee
Investment
and Stock
Ownership
(Dollars in thousands, except per share data) Plan Total
- --------------------------------------------- -------------------------
<S> <C> <C>
Balance, January 1, 1996................ $ (13,093) $ 1,606,614
Comprehensive income:
Change in net unrealized gain (loss) on
securities, net of tax and
reclassification adjustment......... (8,764)
Net income............................ 194,692
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income.................... 185,928
5% stock dividend.......................
Purchase of 11,756,131 shares of treasury
stock................................. (160,948)
EISOP loan repayment.................... 3,381 3,441
Cash dividends:
Common ($.39 per share)(1)............ (54,560)
Preferred ($.51 per share)............ (2,600)
Issuance of common shares:
Conversion of 3,000,000 preferred shares to
2,200,000 newly issued common shares and
7,000,000 common shares from treasury... (18)
Stock option plans, 1,556,634 shares... 9,348
Other................................... 898
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996.............. (9,712) 1,588,103
Adjustment to convert RCSB Financial, Inc.
to a calendar year end(2)........... 62 (4,166)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1997................ (9,650) 1,583,937
Comprehensive income:
Change in net unrealized gain (loss) on
securities, net of tax and
reclassification adjustment......... 23,988
Net income............................ 194,393
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income.................... 218,381
5% stock dividend....................... (236)
Purchase of 3,200,333 shares of treasury
stock................................. (51,325)
EISOP loan repayment.................... 2,273 2,273
Dividends paid ($.45 per share)(1)...... (63,075)
Issuance of common shares:
Acquisition, 1,899,022 shares......... 55,546
Stock option plans, 2,160,832 shares... 14,460
Other................................... 1,936
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997.............. (7,377) 1,761,897
Comprehensive income:
Change in net unrealized gain (loss) on
securities, net of tax and
reclassification adjustment......... 20,499
Net income............................ 215,361
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income.................... 235,860
5% stock dividend....................... (87)
Purchase of 2,051,442 shares of treasury
stock................................. (60,666)
EISOP loan repayment.................... 2,089 2,089
Dividends paid ($.53 per share)(1)...... (80,742)
Treasury stock cancelled................
Issuance of common shares:
Stock option plans, 2,097,518 shares... 15,600
Other................................... 1,161
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998.............. $ (5,288) $ 1,875,112
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Restated to reflect the 5% stock dividend issued September 30, 1998 and the
2-for-1 stock split issued May 20, 1998.
(2) RCSB Financial, Inc. reported on a fiscal year end November 30th. Adjustment
reflects RCSB Financial activity for the month of December 1996.

See notes to consolidated financial statements.

31
<PAGE> 34

CONSOLIDATED STATEMENTS OF CASH FLOWS Charter One Financial, Inc.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 215,361 $ 194,393 $ 194,692
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan and lease losses..................... 29,465 48,293 23,484
Net (gains) losses...................................... (11,027) 15,101 (6,361)
Accretion of discounts, amortization of premiums,
amortization of goodwill and depreciation, net......... 73,039 66,549 46,611
Origination of real estate loans held for sale.......... (2,069,929) (1,747,444) (1,564,902)
Proceeds from sale of loans held for sale............... 2,059,994 1,739,649 1,551,653
Loss on extinguishment of debt.......................... 94,858 4,196
Other................................................... (54,432) 22,842 24,122
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities................... 337,329 343,579 269,299
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net principal disbursed on loans and leases................. (3,620,357) (2,235,199) (1,992,065)
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity............... 1,573,038 933,209 978,643
Investment securities held to maturity.................... 71,691 70,538
Mortgage-backed securities available for sale............. 379,161 56,504 28,123
Investment securities available for sale.................. 790,835 331,424 385,850
Proceeds from sale of:
Mortgage-backed securities held to maturity............... 128,009 71,226
Mortgage-backed securities available for sale............. 829,774 14,670 911,549
Investment securities available for sale.................. 365 243,922 298,506
Federal Home Loan Bank stock.............................. 126,806 39,207 9,000
Loan servicing assets..................................... 13,937 29,699 23,705
Purchases of:
Mortgage-backed securities held to maturity............... (1,039) (469) (1,050,182)
Mortgage-backed securities available for sale............. (125,875) (24,685) (17,921)
Investment securities held to maturity.................... (50,327) (25,678)
Investment securities available for sale.................. (132,485) (1,023,553) (391,357)
Loans..................................................... (29,413) (312,095) (229,434)
Federal Home Loan Bank stock.............................. (38,726) (138,660) (32,902)
Loan servicing assets, including those originated......... (36,767) (5,835) (49,920)
Net cash and cash equivalents received in connection with
acquisitions.............................................. 451,598 669,731
Other....................................................... (63,810) (48,277) (24,042)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities....................... (334,556) (1,539,167) (366,630)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in short-term borrowings....................... (1,962,472) (1,331,517) (795,336)
Proceeds from long-term borrowings.......................... 5,916,587 6,745,773 3,320,655
Repayments of long-term borrowings.......................... (4,880,315) (3,843,829) (2,844,756)
Increase (decrease) in, net of acquisitions:
Deposits.................................................. 1,135,694 (314,402) 199,587
Advance payments by borrowers for taxes and insurance..... (99,571) 23,960 (27,705)
Payment of dividends on common stock........................ (80,829) (62,385) (53,655)
Payment of dividends on preferred stock..................... (3,908)
Proceeds from issuance of common stock...................... 3,760 5,079 1,392
Purchase of treasury stock, net of options exercised........ (47,665) (42,783) (153,627)
Other....................................................... (560) (3,845)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities......... (15,371) 1,176,051 (357,353)
- -------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents................... (12,598) (19,537) (454,684)
Cash and cash equivalents, beginning of year................ 412,105 403,479 858,163
Adjustment to convert RCSB to a calendar year end........... 28,163
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year...................... $ 399,507 $ 412,105 $ 403,479
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

32
<PAGE> 35

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 bank holding company, ALBANK Commercial, and Charter One Bank,
F.S.B. (jointly 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-Headquartered in Cleveland, Ohio, Charter One Financial,
Inc. is now a bank holding company, having converted from a unitary savings
institution holding company on November 30, 1998. The conversion was undertaken
in conjunction with its November 30, 1998 acquisition of ALBANK Financial
Corporation ("ALBANK"), which included its acquisition of ALBANK Commercial, a
New York chartered commercial bank. Charter One is a Delaware corporation and
owns all of the outstanding capital stock of Charter Michigan Bancorp, Inc., a
Michigan Corporation, and ALBANK Commercial. Charter Michigan Bancorp, Inc. owns
all of the outstanding capital stock of Charter One Bank, F.S.B. The Company's
principal line of business is consumer banking which includes retail banking,
mortgage banking and other related financial services. Retail banking provides a
full range of deposit products, consumer loans, business lending and commercial
real estate loans.

Basis of Presentation-The Consolidated Financial Statements include the accounts
of the Company, the Bank and its subsidiaries. All significant intercompany
transactions and balances have been eliminated. Certain items in the
Consolidated Financial Statements for 1997 and 1996 have been reclassified to
conform to the 1998 presentation. Financial data for all prior periods has been
restated to reflect the 1998 mergers with ALBANK and CS Financial Corporation
("CS Financial"). Both mergers were accounted for as a pooling of interests.
Cash dividends per common share are those of Charter One declared prior to the
mergers with ALBANK and CS Financial.
The restatement for the 1997 merger with RCSB Financial, Inc. ("RCSB") was
accomplished by combining RCSB's November 30, 1997 fiscal year financial
information with the Company's December 31, 1997 calendar year financial
information. In 1997, RCSB's fiscal year was conformed to the Company's calendar
year. As a result of conforming fiscal periods, the Company's Consolidated
Statements of Shareholders' Equity reflects an adjustment to equity representing
RCSB's change in equity for the month of December 1997.
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.

Securities-Securities consist of mortgage-backed securities, U.S. Government and
federal agency obligations, floating-rate notes, corporate bonds, 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. 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. Gains or losses
on the sale of loans are determined under the specific identification method.
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.
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 generally
accepted accounting principles.
Loans and leases considered to be nonperforming include nonaccrual loans and
leases, accruing loans and leases delinquent more than 90 days, and restructured
loans. A loan, including an impaired loan, 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
33
<PAGE> 36
NOTES (continued)

with its original contractual terms). 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. In 1998,
the Company changed the accrual policy on one-to-four family loans to stop
accruing on loans delinquent 90 or more days. The change in the accrual policy
did not have a material impact on interest income. Loans are classified as
restructured when concessions are made to borrowers with respect to the
principal balance, interest rate or other terms due to the inability of the
borrower to meet the obligation under the original terms. The Bank charges off
principal 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 Statement of Financial Accounting Standards ("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.

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

Allowance for Loan and Lease Losses-The allowance for loan and lease losses is
maintained at a level management considers to be adequate to absorb probable
loan and lease losses inherent in the portfolio. Loan and lease losses are
charged and recoveries are credited to the allowance for loan and lease losses.
Provisions for loan and lease losses are based on management's review of the
historical loan and lease loss experience and such other factors which, in
management's judgment, deserve consideration under existing economic conditions
in estimating potential credit losses.
In determining the adequacy of the allowance for loan and lease losses, on a
quarterly basis management reviews and evaluates the necessity of a reserve for
individual loans classified by management. The specifically allocated reserve
for a classified loan is determined based on management's estimate of the
borrower's ability to repay the loan given the availability of collateral, other
sources of cash flow, and legal options available to the Bank. Once a review is
completed, the need for a specific reserve is determined by senior management
and allocated to the loan. Other loans not specifically reviewed by management
are evaluated using the historical charge-off experience ratio calculated by
type of loan. The historical charge-off ratio factors into account the
homogeneous nature of the loans, the geographical lending areas involved,
regulatory examination findings, specific grading systems applied and any other
known factors which may impact the ratios used. Specific reserves on individual
loans and historical ratios are reviewed quarterly and adjusted as necessary
based on subsequent collections, loan upgrades or downgrades, nonperforming
trends or actual principal charge-offs. When evaluating the adequacy of the
allowance for loan and lease losses, consideration is given to geographic
concentration and the closely associated effect changing economic conditions
have on the Bank's customers.

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.

Loan Servicing Assets-Loan servicing assets are accounted for under the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" which became effective January 1,
1997. SFAS No. 125, which is applied prospectively from its effective date, did
not significantly change the Company's accounting for loan servicing assets. The
cost of mortgage loans sold, with servicing rights retained, is allocated
between the loans and the servicing rights based on their estimated fair values
at time of loan sale. The estimated fair value of loan servicing assets is
determined by reference to recent trades of comparable servicing rights, or is
determined based on expected future cash flows discounted at an interest rate
commensurate with the servicing risks involved. In 1998 and 1997, virtually all
such recorded assets relate to residential mortgage loans. Loan servicing assets
are presented in the Consolidated Statements of Financial Condition net of
accumulated amortization, which is recorded in proportion to, and over the
period of, net servicing income. SFAS No. 125 also requires capitalized loan
servicing assets to be stratified based on predominant risk characteristics of
underlying loans for the purpose of evaluating impairment. An allowance is then
established in the event the recorded value of an individual stratum exceeds
fair value.

Off-Balance-Sheet Financial Instruments-Interest rate risk management
instruments used in asset/liability management activities are accounted for
using the accrual method. Derivatives are utilized by the Company for hedging
purposes and not for trading. The net interest received or paid on these
instruments is recognized over the lives of the respective contracts as an
adjustment to interest expense. Gains and losses on terminated agreements are
deferred and amortized to interest expense over the remaining original term of
the

34
<PAGE> 37

applicable agreement. If the assigned liability is eliminated, the gain or loss
on the terminated agreement is recognized immediately.
The Bank's residential mortgage banking subsidiary, Charter One Mortgage Corp.
("COMC"), enters into forward contracts for the sale of mortgage-backed
securities for the purpose of hedging its portfolio of closed loans held for
sale and its pipeline of loans expected to close. As loans are closed, they are
typically pooled and securitized with the resulting security delivered to
national securities firms at prices specified in the forward contracts. Gains or
losses may arise if the yields of the loans delivered vary from those specified
in the forward contracts. Unrealized gains and losses on the forward contracts
are included in cost values used in adjusting the carrying value of loans held
for sale to the lower of cost or market value. Realized gains and losses and
adjustments to the lower of cost or market value are included in mortgage
banking noninterest income in the Consolidated Statements of Income.
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. Such 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 or less.
Management periodically 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 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.

Income Taxes-Income taxes have been provided using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." The Company files a
consolidated Federal income tax return.

Consolidated Statements of Cash Flows-For purposes of the Consolidated
Statements 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 risk management instruments are classified based on the
on-balance-sheet assets or liabilities hedged.

Stock Split and Dividends-On April 22, 1998 the Company declared a 2-for-1 stock
split in the form of a stock dividend. The dividend was payable on May 20, 1998
to shareholders of record as of May 6, 1998.
On July 22, 1998, the Board of Directors of the Company approved a 5% stock
dividend which was distributed September 30, 1998, to shareholders of record on
September 14, 1998. On August 20, 1997, the Directors of the Company approved a
5% stock dividend which was distributed October 31, 1997, to shareholders of
record on October 17, 1997. On July 24, 1996, the Directors of the Company
approved a 5% stock dividend which was distributed on September 30, 1996 to
shareholders of record on September 13, 1996.

Earnings Per Share-Basic earnings per share ("EPS") is based on the weighted
average number of common shares outstanding during the year. Diluted EPS is
based on the weighted average number of common shares and common share
equivalents outstanding during the year. All shares and per share data have been
restated to reflect the 5% stock dividend issued September 30, 1998 and the
2-for-1 stock split issued May 20, 1998.

Comprehensive Income-In accordance with SFAS No. 130, reclassification
adjustments have been determined for all components of other comprehensive
income reported in the Company's Consolidated Statements of Shareholders'
Equity. Amounts presented within those statements are net of the following
reclassification adjustments and related tax expense:

New Accounting Standards-On January 1, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. This
35
<PAGE> 38
NOTES (continued)

statement requires that a public enterprise report financial and descriptive
information about its operating segments. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Information required to be
disclosed includes segment profit or loss, certain specific revenue and expense
items, segment assets and certain other information. The adoption of the
statement did not change the Company's segment reporting. The Company continues
to report its operations as one segment, consumer banking.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and derivatives utilized for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for financial statements for years beginning after
June 15, 1999. Management has not completed the process of evaluating this
statement and therefore has not determined the impact that adopting this
statement will have on its financial position and results of operations.
In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." This statement amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities," and conforms the subsequent accounting
for securities retained after the securitization of mortgage loans by a mortgage
banking enterprise with the subsequent accounting for securities retained after
the securitization of other types of assets by a non-mortgage banking
enterprise. It is effective for the first fiscal quarter beginning after
December 15, 1998. Management has not completed the process of evaluating this
statement and has therefore not determined the impact that adopting this
statement will have on its financial position and results of operations.

2. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
The tables below sets forth the Company's business combinations and asset
acquisitions during the past three years.

BUSINESS COMBINATIONS

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Consideration
------------------------
Common Method
Date Shares of Goodwill
(Dollars in thousands) Completed Cash Issued(1) Accounting Recorded
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALBANK............... 11/30/1998 30,479,758 Pooling
CS Financial......... 10/16/1998 2,131,500 Pooling
RCSB................. 10/3/1997 27,008,352 Pooling
Haverfield
Corporation(2)...... 9/19/1997 1,899,022 Purchase $26,000
Marble Financial
Corporation(2)...... 1/3/1996 $61,000 Purchase 20,100
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>

(1) Restated to reflect the 2-for-1 stock split issued May 20, 1998.

(2) Operations of Haverfield and Marble have been included in the Company's
consolidated statements of income from the respective dates of acquisition.

BRANCH PURCHASES

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Date Deposits Loans Goodwill
(Dollars in thousands) Branches Completed Assumed Acquired Recorded
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Key Bank.................. 35 11/10/1997 $540,900 $ 52,200 $40,600
Green Mountain Bank....... 6 9/27/1997 107,700 108,400 8,200
First Nationwide.......... 21 6/28/1996 796,700 57,000
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>

On November 30, 1998, Charter One merged with ALBANK, a publicly-traded bank
holding company headquartered in Albany, New York with $4.2 billion in assets
(the "ALBANK Merger"). The ALBANK Merger was effected through the issuance of
2.268 shares of Company common stock for each share of ALBANK common stock
resulting in the issuance of 30,479,758 shares of Company common stock.
On October 16, 1998, the Company acquired CS Financial, a privately-owned
thrift holding company headquartered in Cleveland, Ohio with $393.9 million in
assets (the "CS Financial Merger"). The CS Financial merger was completed by
exchanging 2,131,500 shares of Charter One's common stock for all of the
outstanding shares of CS Financial.
The contributions of ALBANK and CS Financial to consolidated total income and
net income for the periods prior to the mergers and after reclassifications to
conform presentation are as follows:

Total assets and shareholders' equity of ALBANK as of November 30, 1998
(unaudited) were $4.2 billion and $393.4 million, respectively. Total assets and
shareholders' equity of CS Financial as of October 16, 1998 (unaudited) were
$393.9 million and $31.0 million, respectively. Additionally, ALBANK paid cash
dividends on common stock of $12,093,000, $8,117,000, and $6,210,000 in 1998,
1997, and 1996, respectively. CS Financial paid cash dividends on common stock
of $404,000, $340,000, and $303,000 in 1998, 1997, and 1996, respectively.
On October 3, 1997, Charter One combined with RCSB (the "Rochester Merger").
The Rochester Merger was effected through the issuance of .91 shares of Company
common stock for each share of Rochester common stock resulting in the issuance
of 27,008,352 shares of Company common stock.

36
<PAGE> 39

The following table reconciles merger-related charges in 1998 and 1997 between
cash, noncash and accrual activity.

3. INVESTMENT SECURITIES
Investment securities at December 31, 1998 and 1997, were summarized as follows:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
December 31, 1998
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury and agency
securities............. $ 41,175 $ 7,824 $ 48,999
Corporate notes and
commercial paper....... 133,143 2,378 $ 1 135,520
Other................... 60,135 8,817 154 68,798
- -------------------------------------------------------------------------
Total investment
securities available
for sale............. 234,453 19,019 155 253,317
- -------------------------------------------------------------------------
Held to Maturity:
U.S. Treasury and agency
securities............. 35,932 241 36,173
Other................... 6,324 58 1 6,381
- -------------------------------------------------------------------------
Total investment
securities held to
maturity............. 42,256 299 1 42,554
- -------------------------------------------------------------------------
Total.................... $276,709 $19,318 $156 $295,871
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury and agency
securities............. $619,459 $ 1,037 $ 71 $620,425
Corporate notes and
commercial paper....... 198,577 6,867 153 205,291
Other................... 42,557 7,562 17 50,102
- -------------------------------------------------------------------------
Total investments
available for sale... 860,593 15,466 241 875,818
- -------------------------------------------------------------------------
Held to Maturity:
U.S. Treasury and agency
securities............. 56,845 230 1 57,074
Corporate notes and
commercial paper....... 219 219
Other................... 10,620 35 19 10,636
- -------------------------------------------------------------------------
Total investments held
to maturity.......... 67,684 265 20 67,929
- -------------------------------------------------------------------------
Total.................... $928,277 $15,731 $261 $943,747
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>

The weighted average interest rate on investment securities was 6.30% and 6.59%
at December 31, 1998 and 1997, respectively.
Investment securities by contractual maturity, repricing or expected call date
are shown below:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
December 31, 1998
-------------------------------
Weighted
Amortized Fair Average
(Dollars in thousands) Cost Value Rate
- ------------------------------------------------------------------
<S> <C> <C> <C>
Due in one year or less.......... $121,724 $130,522 5.77%
Due after one year through two
years.......................... 81,240 82,980 6.92
Due after two years through five
years.......................... 54,980 56,345 6.42
Due after five years through ten
years.......................... 646 697 6.42
Due after ten years.............. 18,119 25,327 6.70
- ------------------------------------------------------------------
Total............................ $276,709 $295,871 6.30%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>

At December 31, 1998 and 1997, total adjustable-rate investment securities were
$11 million and $8.2 million, respectively.
Gains on sales were $196,000, $485,000 and $715,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. Losses on sales were $269,000
and $2.0 million for the years ended December 31, 1997 and 1996, respectively.
No losses on sales were realized during the year ended December 31, 1998.

4. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities at December 31, 1998 and 1997
were as follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
December 31, 1998
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale;
Participation
certificates:
Government agency
issues:
FNMA................. $1,027,617 $ 26,942 $ 1,235 $1,053,324
FHLMC................ 138,480 2,097 304 140,273
GNMA................. 3,047 280 3,327
Collateralized mortgage
obligations:
Government agency
issues:
FNMA................. 248,486 6,752 255,238
FHLMC................ 331,646 6,058 46 337,658
GNMA................. 9,332 42 9,374
Private issues........ 488,215 12,243 448 500,010
- ---------------------------------------------------------------------------
Total mortgage-backed
securities available
for sale............ 2,246,823 54,414 2,033 2,299,204
- ---------------------------------------------------------------------------
Held to Maturity:
Participation
certificates:
Government agency
issues:
FNMA................. 741,828 14,478 497 755,809
FHLMC................ 285,131 8,719 20 293,830
GNMA................. 132,066 2,887 1 134,952
Private issues........ 219,256 1,590 2,394 218,452
Collateralized mortgage
obligations:
Government agency
issues:
FNMA................. 261,528 11,116 216 272,428
FHLMC................ 126,279 3,886 58 130,107
Private issues........ 902,892 10,801 2,531 911,162
- ---------------------------------------------------------------------------
Total
mortgage-backed
securities held to
maturity.......... 2,668,980 53,477 5,717 2,716,740
- ---------------------------------------------------------------------------
Total................... $4,915,803 $107,891 $ 7,750 $5,015,944
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>

37
<PAGE> 40
NOTES (continued)

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
Participation
certificates:
Government agency
issues:
FNMA................. $ 223,936 $ 1,544 $ 789 $ 224,691
FHLMC................ 232,914 1,554 1,517 232,951
GNMA................. 4,801 405 5,206
Private issues........ 1,273 33 1,306
Collateralized mortgage
obligations:
Government agency
issues:
FNMA................. 258,271 6,423 264,694
FHLMC................ 352,318 8,509 95 360,732
Private issues........ 446,181 10,088 328 455,941
- ---------------------------------------------------------------------------
Total
mortgage-backed
securities
available for
sale.............. 1,519,694 28,556 2,729 1,545,521
- ---------------------------------------------------------------------------
Held to Maturity:
Participation
certificates:
Government agency
issues:
FNMA................. 1,013,757 16,817 56 1,030,518
FHLMC................ 440,127 16,363 25 456,465
GNMA................. 180,171 5,517 2 185,686
Private issues........ 316,056 3,473 1,334 318,195
Collateralized mortgage
obligations:
Government agency
issues:
FNMA................. 361,235 12,060 1,308 371,987
FHLMC................ 177,113 5,572 1,265 181,420
Private issues........ 1,754,077 13,131 9,322 1,757,886
- ---------------------------------------------------------------------------
Total
mortgage-backed
securities held to
maturity.......... 4,242,536 72,933 13,312 4,302,157
- ---------------------------------------------------------------------------
Total................... $5,762,230 $101,489 $16,041 $5,847,678
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>

In 1997, the Bank reclassified $4.8 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, the security was sold for a loss of $371,000.
In 1997, the Bank sold $127.4 million of mortgage-backed securities held to
maturity with outstanding balances less than 15% of the principal outstanding at
acquisition. A $2.3 million gain was recorded on the sale.
Sales of mortgage-backed securities available for sale and held to maturity
resulted in gains of $19.7 million in 1998, $3.2 million in 1997 and $7.5
million in 1996. Losses, including write-downs to fair value, were $89,000 in
1998, $2.9 million in 1997 and $5.3 million in 1996.
Mortgage-backed securities are classified by type of interest payment as
follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
December 31, 1998
------------------------------------
Weighted
Amortized Fair Average
(Dollars in thousands) Cost Value Rate
- ---------------------------------------------------------------
<S> <C> <C> <C>
Available for Sale:
Adjustable rate:
Participation
certificates........ $ 102,304 $ 104,582 6.77%
Collateralized
mortgage
obligations......... 981,343 1,005,868 6.69
- ---------------------------------------------------------------
Total adjustable
rate................ 1,083,647 1,110,450 6.70
- ---------------------------------------------------------------
Fixed rate:
Participation
certificates......... 1,066,840 1,092,342 6.87
Collateralized
mortgage
obligations.......... 96,336 96,412 6.36
- ---------------------------------------------------------------
Total fixed rate..... 1,163,176 1,188,754 6.83
- ---------------------------------------------------------------
Total available for
sale............... 2,246,823 2,299,204 6.76
- ---------------------------------------------------------------
Held to Maturity:
Adjustable rate:
Participation
certificates......... 547,989 553,287 6.92
Collateralized
mortgage
obligations.......... 278,841 294,788 7.30
- ---------------------------------------------------------------
Total adjustable
rate................ 826,830 848,075 7.05
- ---------------------------------------------------------------
Fixed rate:
Participation
certificates......... 830,292 849,756 7.30
Collateralized
mortgage
obligations.......... 1,011,858 1,018,909 6.65
- ---------------------------------------------------------------
Total fixed rate..... 1,842,150 1,868,665 6.94
- ---------------------------------------------------------------
Total held to
maturity........... 2,668,980 2,716,740 6.98
- ---------------------------------------------------------------
Total.................. $4,915,803 $5,015,944 6.88%
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
December 31, 1997
------------------------------------
Weighted
Amortized Fair Average
(Dollars in thousands) Cost Value Rate
- ---------------------------------------------------------------
<S> <C> <C> <C>
Available for Sale:
Adjustable rate:
Participation
certificates........ $ 95,887 $ 96,350 6.87%
Collateralized
mortgage
obligations......... 1,037,909 1,062,903 7.31
- ---------------------------------------------------------------
Total adjustable
rate................ 1,133,796 1,159,253 7.27
- ---------------------------------------------------------------
Fixed rate:
Participation
certificates......... 367,037 367,804 6.62
Collateralized
mortgage
obligations.......... 18,861 18,464 5.80
- ---------------------------------------------------------------
Total fixed rate..... 385,898 386,268 6.58
- ---------------------------------------------------------------
Total available for
sale............... 1,519,694 1,545,521 7.10
- ---------------------------------------------------------------
Held to Maturity:
Adjustable rate:
Participation
certificates......... 792,765 809,726 7.18
Collateralized
mortgage
obligations.......... 326,864 345,824 7.76
- ---------------------------------------------------------------
Total adjustable
rate................ 1,119,629 1,155,550 7.35
- ---------------------------------------------------------------
Fixed rate:
Participation
certificates......... 1,157,346 1,181,138 7.36
Collateralized
mortgage
obligations.......... 1,965,561 1,965,469 6.93
- ---------------------------------------------------------------
Total fixed rate..... 3,122,907 3,146,607 7.09
- ---------------------------------------------------------------
Total held to
maturity........... 4,242,536 4,302,157 7.16
- ---------------------------------------------------------------
Total.................. $5,762,230 $5,847,678 7.14%
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>

38
<PAGE> 41

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

The weighted average lifetime cap rate of the adjustable-rate participation
certificate portfolio and the adjustable-rate collateralized mortgage obligation
portfolio was 12.06% and 9.22%, respectively, at December 31, 1998.

5. LOANS AND LEASES

Loans and leases consist of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
At December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995
-------------------- -------------------- -------------------- --------------------
% of % of % of % of
(Dollars in thousands) Amount Total Amount Total Amount Total Amount Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage
loans:
Permanent:
One-to-four family.... $10,062,252 57.5% $10,212,830 65.8% $ 8,736,198 68.2% $ 7,604,973 70.7%
Multifamily........... 229,150 1.3 288,920 1.9 335,714 2.6 406,030 3.8
Commercial............ 477,205 2.7 446,351 2.9 522,901 4.1 501,246 4.7
- ---------------------------------------------------------------------------------------------------------------------
Total permanent..... 10,768,607 61.5 10,948,101 70.6 9,594,813 74.9 8,512,249 79.2
Construction:
One-to-four family.... 456,112 2.6 327,373 2.1 280,279 2.2 144,492 1.3
Multifamily........... 45,064 .3 36,234 .2 14,517 .1 11,495 .1
Commercial............ 57,615 .3 34,125 .2 35,865 .3 46,323 .4
- ---------------------------------------------------------------------------------------------------------------------
Total
construction...... 558,791 3.2 397,732 2.5 330,661 2.6 202,310 1.8
- ---------------------------------------------------------------------------------------------------------------------
Total real estate
mortgage loans.... 11,327,398 64.7 11,345,833 73.1 9,925,474 77.5 8,714,559 81.0
Automobile loans.......... 1,983,199 11.3 1,585,412 10.2 1,056,666 8.2 854,600 7.9
Retail consumer loans..... 3,115,850 17.9 1,889,405 12.2 1,458,784 11.4 1,064,277 9.9
Leases.................... 734,152 4.2 439,004 2.8 251,133 2.0 131,352 1.2
Corporate banking loans... 527,414 3.0 457,304 2.9 349,995 2.7 182,922 1.7
- ---------------------------------------------------------------------------------------------------------------------
Total loans and
leases held for
investment........ 17,688,013 101.1 15,716,958 101.2 13,042,052 101.8 10,947,710 101.7
- ---------------------------------------------------------------------------------------------------------------------
Less:
Loans in process........ 168,620 1.0 143,750 .9 154,132 1.2 97,059 .9
Unamortized net
discounts
(premiums)............ 975 (103) 1,169 4,150
Allowance for loan and
lease losses.......... 144,566 .8 142,985 .9 118,226 1.0 106,476 1.0
Net deferred loan
(costs) fees.......... (63,739) (.3) (35,873) (.2) (12,315) (.1) 15,643 .1
Dealer reserve.......... (65,138) (.4) (55,613) (.4) (36,079) (.3) (29,488) (.3)
- ---------------------------------------------------------------------------------------------------------------------
Total net items..... 185,284 1.1 195,146 1.2 225,133 1.8 193,840 1.7
- ---------------------------------------------------------------------------------------------------------------------
Loans and leases held for
investment, net......... $17,502,729 100.0% $15,521,812 100.0% $12,816,919 100.0% $10,753,870 100.0%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Loans held for sale....... $ 175,107 $ 341,671 $ 150,437 $ 128,095
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------

<CAPTION>
- -------------------------- --------------------
- -------------------------- --------------------
At December 31,
--------------------
1994
--------------------
% of
(Dollars in thousands) Amount Total
- -------------------------- --------------------
<S> <C> <C>
Real estate mortgage
loans:
Permanent:
One-to-four family.... $ 7,499,580 72.1%
Multifamily........... 454,913 4.4
Commercial............ 498,367 4.8
- ---------------------------------------------------------------------------------------------------------------------
Total permanent..... 8,452,860 81.3
Construction:
One-to-four family.... 145,888 1.4
Multifamily........... 7,645 .1
Commercial............ 39,057 .4
- ---------------------------------------------------------------------------------------------------------------------
Total
construction...... 192,590 1.9
- ---------------------------------------------------------------------------------------------------------------------
Total real estate
mortgage loans.... 8,645,450 83.2
Automobile loans.......... 783,042 7.5
Retail consumer loans..... 979,927 9.4
Leases....................
Corporate banking loans... 183,623 1.8
- ---------------------------------------------------------------------------------------------------------------------
Total loans and
leases held for
investment........ 10,592,042 101.9
- ---------------------------------------------------------------------------------------------------------------------
Less:
Loans in process........ 86,076 .8
Unamortized net
discounts
(premiums)............ 5,870 .1
Allowance for loan and
lease losses.......... 106,573 1.0
Net deferred loan
(costs) fees.......... 25,798 .2
Dealer reserve.......... (27,179) (.2)
- ---------------------------------------------------------------------------------------------------------------------
Total net items..... 197,138 1.9
- ---------------------------------------------------------------------------------------------------------------------
Loans and leases held for
investment, net......... $10,394,904 100.0%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Loans held for sale....... $ 97,441
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

As of December 31, 1998, there was no concentration of loans or leases in any
type of industry which exceeded 10% of the Bank's total loans and leases that is
not included as a loan or lease category in the table above.

39
<PAGE> 42
NOTES (continued)

At December 31, 1998 and 1997, $14.4 billion and $13.3 billion, respectively, of
the Bank's gross loans were to borrowers located within the states of Ohio,
Michigan and New York, its primary market area. 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 corporate banking
loans. These loans are considered by management to be of somewhat greater risk
of uncollectability 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 permanent commercial real estate and
commercial construction loan portfolios by type of collateral.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
December 31,
-----------------------------------------
1998 1997
------------------- -------------------
Percent Percent
(Dollars in thousands) Amount of Total Amount of Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strip shopping centers.... $156,454 29.3% $170,609 35.5%
Developed and undeveloped
land.................... 142,091 26.6 78,807 16.4
Office buildings.......... 116,016 21.7 125,540 26.2
Warehouses................ 50,542 9.4 57,198 11.9
Hotel property............ 19,780 3.7 13,079 2.7
Mobile home parks......... 5,828 1.1 2,838 .6
Other..................... 44,109 8.2 32,405 6.7
- --------------------------------------------------------------------
Total..................... $534,820 100.0% $480,476 100.0%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>

The following table reflects the principal repayments contractually due
(assuming no prepayments) on the Bank's construction and corporate banking loan
portfolio at December 31, 1998. Management expects prepayments will cause actual
maturities to be shorter.

(1) Of the $404 million of loans due after December 31,1999, 41% are fixed rate
and 59% are adjustable rate.

Corporate banking loans include loans to companies located in Ohio, Michigan,
and New York totaling $462.3 million and $410.6 million at December 31, 1998 and
1997, respectively. Corporate banking loans are generally collateralized by
accounts receivable, inventory and other assets used in the borrowers' business.
The Company normally has outstanding a number of commitments to extend credit.
At December 31, 1998, there were outstanding commitments to originate $915.7
million of fixed-rate mortgage loans and other loans and leases and $163.7
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, 1998, there were also outstanding unfunded consumer lines of
credit of $1.4 billion and corporate banking lines of credit of $176.4 million.
Substantially all of the consumer loans, including consumer lines of credit, are
secured by equity in the borrowers' residence. The Company does not expect all
of these lines to be used by the borrowers.
The Bank is engaged in equipment leasing through a subsidiary, ICX Corporation
("ICX"). The equipment leased by ICX is for commercial and industrial use only
with primary lease concentrations to Fortune 1000 companies for large capital
equipment acquisitions. A lessee is evaluated from a credit perspective using
the same underwriting standards and procedures as for a borrower. It is expected
to be able to make the rental payments based on its business' cash flow and the
strength of its balance sheet. Leases are usually not evaluated as
collateral-based transactions and, therefore, the lessee's overall financial
strength is the most important credit evaluation factor.
A summary of the investment in leases is as follows:

<TABLE>
<CAPTION>
- -------------------------------------------------------
- -------------------------------------------------------
December 31,
--------------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------
<S> <C> <C>
Direct financing leases.......... $439,861 $251,092
Sales-type leases................ 103,378 94,609
Leveraged leases................. 190,913 93,303
- -------------------------------------------------------
Total lease financings........... $734,152 $439,004
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
- -------------------------------------------------------
- -------------------------------------------------------
December 31,
-------------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------
<S> <C> <C>
Total future minimum lease
rentals......................... $521,036 $336,680
Estimated residual value of leased
equipment....................... 402,355 201,639
Initial direct costs.............. 5,582 3,333
Less unearned income on minimum
lease rentals and estimated
residual value of leased
equipment....................... 194,821 102,648
- -------------------------------------------------------
Total lease financings............ $734,152 $439,004
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>

At December 31, 1998, future minimum lease rentals on direct financing,
sales-type and leveraged leases are as follows: $127.3 million in 1999; $107.0
million in 2000, $83.8 million in 2001; $64.6 million in 2002; $41.3 million in
2003, and $97.0 million thereafter.

Allowance for Loan and Lease Losses --
Changes in the allowance for loan and lease losses are as follows:

<TABLE>
<CAPTION>
- -------------------------------------------------------
- -------------------------------------------------------
December 31,
------------------------------
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of
year................. $142,985 $118,226 $106,476
Adjustment to convert
RCSB to a calendar
year end............ 650
Provision............. 29,465 48,293 23,484
Amounts charged off... (36,922) (34,944) (29,888)
Recoveries............ 9,038 5,797 6,844
Acquired through
acquisition......... 4,963 11,310
- -------------------------------------------------------
Balance, end of year... $144,566 $142,985 $118,226
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>

40
<PAGE> 43

Nonperforming loans and leases were $123.1 million,
$94.0 million and $86.4 million at December 31, 1998, 1997 and 1996,
respectively.
As of December 31, 1998, the total investment in impaired loans was $12.8
million. The entire $12.8 million was subject to allowances for loan and lease
losses of $214,000 as of December 31, 1998. The average recorded investment in
impaired loans during 1998 was $18.8 million, and interest income recognized in
1998 was $800,000. The interest income potential based upon the original terms
of the contracts for these impaired loans was $1.4 million for 1998.
As of December 31, 1997, the total investment in impaired loans was $16.9
million. The entire $16.9 million was subject to allowances for loan and lease
losses of $1.5 million as of December 31, 1997. The average recorded investment
in impaired loans during 1997 was $26.5 million, and interest income recognized
in 1997 was $1.1 million. The interest income potential based upon the original
terms of the contracts for these impaired loans was $1.8 million for 1997.

6. MORTGAGE BANKING ACTIVITIES
At December 31, 1998, 1997 and 1996, loans serviced for the
benefit of others totaled $9.3 billion, $9.3 billion and
$10.9 billion, respectively. Included in these totals were loans sold on a
recourse basis of $527.9 million, $653.7 million and $660.2 million,
respectively. Custodial escrow balances maintained in connection with the
foregoing loan servicing were $55.8 million and $107.4 million at December 31,
1998 and 1997, respectively.
The following table displays, for the three most recent years, changes in
recorded loan servicing assets.

<TABLE>
<CAPTION>
- -------------------------------------------------------
- -------------------------------------------------------
Year Ended December 31,
------------------------------
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Beginning balance...... $ 82,361 $121,727 $106,889
Adjustment to convert
RCSB to a calendar
year end............. 1,133
Originations........... 12,232 11,737 21,428
Purchases.............. 24,535 9,462 31,765
Sales.................. (13,937) (29,699) (23,705)
Amortization........... (15,010) (13,912) (14,459)
Net change in valuation
allowance............ 657 (18,087) (191)
- -------------------------------------------------------
Ending balance......... $ 90,838 $ 82,361 $121,727
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>

The fair value of mortgage loan servicing assets totaled
$91.5 million and $82.9 million at December 31, 1998 and 1997, respectively.
Valuation allowances for loan servicing assets totaled $17.6 million and $18.3
million as of December 31, 1998 and 1997, respectively. The increase in the
valuation allowance in 1997 was recognized as a result of the then current
interest rate environment and projected increases in mortgage prepayments. Fair
values are subject to change over time based on movements in interest rates and
prepayment expectations and other market factors.

7. DEPOSITS
Deposits consist of the following:

A summary of all certificates of deposit by maturity follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(Dollars in thousands) December 31, 1998
- ----------------------------------------------------------------
<S> <C>
Within 12 months............................. $6,885,244
12 months to 24 months....................... 1,078,091
24 months to 36 months....................... 263,701
36 months to 48 months....................... 91,288
Over 48 months............................... 291,853
- ----------------------------------------------------------------
Total........................................ $8,610,177
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>

A summary of certificates of deposit and other deposits with balances of
$100,000 or more by maturity follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
December 31, 1998
------------------------------------
Certificates Checking, Savings and
(Dollars in thousands) of Deposit Money Market Accounts
- ---------------------------------------------------------------------
<S> <C> <C>
Three months or less........... $ 373,885 $1,242,478
Three through six months....... 403,546
Six through twelve months...... 326,451
Over twelve months............. 202,134
- ---------------------------------------------------------------------
Total.......................... $1,306,016 $1,242,478
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>

41
<PAGE> 44
NOTES (continued)

8. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank ("FHLB") advances at December 31, 1998, are secured by
the Company's investment in the stock of the FHLB, as well as certain real
estate loans aggregating $9.2 billion and mortgage-backed securities aggregating
$2.1 billion. FHLB advances are comprised of the following:

Scheduled repayments of FHLB advances are as follows:

At December 31, 1998, certain fixed-rate agreements are convertible to LIBOR at
the counterparty's option beginning in 1999.

9. REVERSE REPURCHASE AGREEMENTS
The Company enters into reverse repurchase agreements with the FHLB and large
investment banking firms. The agreements to repurchase assets correspond with
sales of the Company's mortgage-backed securities treated as financings for
financial statement purposes. The securities subject to repurchase agreements
were delivered to the FHLB or brokers arranging the transactions who hold the
collateral until maturity of the agreements.
The table below presents information regarding the carrying and fair values of
assets sold under agreements to repurchase, in addition to the amounts and
interest rates of the related borrowings.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
December 31, 1998
-----------------------------------------------
Assets Sold
--------------------- Weighted
Carrying Estimated Repurchase Average
(Dollars in thousands) Value Fair Value Liability(1) Rate
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Type of mortgage-backed
security and term of
borrowing:
U.S. Government Agency
Securities:
Under 30 days....... $ 39,895 $ 42,580 $ 39,962 4.57%
Over one year....... 664,068 682,617 645,062 5.55
- -------------------------------------------------------------------------
Total................... $703,963 $725,197 $685,024 5.50%
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>

(1) Excludes accrued interest payable of $6.1 million.

(1) Excludes accrued interest payable of $19.2 million.

At December 31, 1998, 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 (or market value if greater) of the securities sold under
agreements to repurchase over the amount of the repurchase liability.

10. OTHER BORROWINGS
Other borrowings consist of the following:

<TABLE>
<CAPTION>
- -------------------------------------------------------------
- -------------------------------------------------------------
December 31,
--------------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Zero coupon bonds of $172 million at
December 31, 1998 and $407 million at
December 31, 1997 due February 2005,
with yield to maturity of 11.37%..... $ 86,230 $182,332
Mortgage loan sale agreement........... 8,233 8,695
Variable-rate bonds, due December 1,
2015, interest payable semi-annually
at 4.75% with a ceiling of 9.50%..... 10,000 10,000
Installment obligations without
recourse............................. 19,696 24,053
Other.................................. 6,177 22,431
- -------------------------------------------------------------
Total.................................. $130,336 $247,511
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>

The zero coupon bonds are collateralized by mortgage-backed securities of $221
million and $376.2 million at December 31, 1998 and 1997, respectively.

11. INTEREST RATE RISK MANAGEMENT INSTRUMENTS
The Company utilizes various types of interest rate risk management instruments
to manage its interest rate risk profile. 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

42
<PAGE> 45

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, 1998
----------------------------------
Notional Receiving Paying
Principal Interest Interest
(Dollars in thousands) Amount Rate Rate
- -------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Payment and Variable
Receipt
1999........................... $ 50,000 5.22% 5.16%
- -------------------------------------------------------------------
$ 50,000 5.22% 5.16%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Variable Payment and Fixed
Receipt
2000........................... $120,000 5.80% 5.31%
2003........................... 230,000 6.32 5.30
- -------------------------------------------------------------------
Total.......................... $350,000 6.14% 5.30%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
December 31, 1997
----------------------------------
Notional Receiving Paying
Principal Interest Interest
(Dollars in thousands) Amount Rate Rate
- -------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Payment and Variable
Receipt
1998........................... $175,000 5.81% 5.96%
1999........................... 150,000 5.85 5.52
- -------------------------------------------------------------------
$325,000 5.83% 5.76%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Variable Payment and Fixed
Receipt
1998........................... $ 25,000 5.70% 5.83%
1999........................... 115,000 6.42 5.83
2001........................... 15,000 6.39 5.85
2002........................... 250,000 7.08 5.84
- -------------------------------------------------------------------
Total.......................... $405,000 6.78% 5.84%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>

The Company is exposed to credit loss in the event of non-performance by the
swap counterparties; however, the Company does not currently anticipate
nonperformance by the counterparties.
The cost of interest rate risk management instruments included in interest
expense was as follows:

12. INCOME TAXES
The provision for income taxes consists of the following components:

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

Significant components of the deferred tax assets and liabilities are as
follows.

<TABLE>
<CAPTION>
- --------------------------------------------------------------
- --------------------------------------------------------------
Year Ended December 31,
-------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Book allowance for loan
losses................... $ 49,084 $ 51,655 $ 45,348
Accrued and deferred
compensation............. 2,177 12,942 14,584
Alternative Minimum Tax
Credit................... 12,360
Other...................... 28,484 31,885 21,024
- --------------------------------------------------------------
Total deferred tax
assets................. 92,105 96,482 80,956
Less: Valuation
allowance.............. (1,558) (6,449)
- --------------------------------------------------------------
Deferred tax assets,
net.................... 92,105 94,924 74,507
- --------------------------------------------------------------
Deferred tax liabilities:
Leasing activities, net.... 128,840 62,738 28,375
FHLB stock dividends....... 22,603 20,365 15,974
Tax allowance for loan
losses................... 6,472 8,225 8,180
Net unrealized gain on
securities............... 20,290 13,371 1,115
Other...................... 23,291 17,003 13,795
- --------------------------------------------------------------
Total deferred tax
liabilities............ 201,496 121,702 67,439
- --------------------------------------------------------------
Net deferred tax asset
(liability)................ $(109,391) $(26,778) $ 7,068
- --------------------------------------------------------------
- --------------------------------------------------------------
</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 No. 109. 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. Beginning in 1998, Charter One will recapture the excess reserves in the
amount of $23.5 million resulting in payments totaling $8.2 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 $248
million. No deferred income taxes have been provided on these bad debt
deductions and no recapture of these amounts is anticipated.

43
<PAGE> 46
NOTES (continued)

13. REGULATORY MATTERS
Federal Reserve Board ("FRB") 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 $36.5 million and
$29.5 million at December 31, 1998 and 1997, respectively.
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 other-
wise violate regulatory requirements. At December 31, 1998, approximately $137.2
million of the Company's retained earnings was available to pay dividends to
shareholders or to be used for other corporate purposes.
Following its November 1998 acquisition of ALBANK, Charter One became a bank
holding company, converting from a unitary savings and loan holding company. As
a bank holding company, Charter One is now subject to regulation by the FRB
under the Bank Holding Company Act of 1956, and the regulations of the FRB,
including various capital requirements. ALBANK Commercial and Charter One Bank,
F.S.B. are subject to various regulatory capital requirements administered by
the Federal Deposit Insurance Corporation ("FDIC") and the Office of Thrift
Supervision ("OTS"), respectively. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly discretionary, actions by each
regulator that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, specific capital guidelines
must be met that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices.
Quantitative measures established by regulation to ensure capital adequacy
require Charter One and ALBANK Commercial to individually maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1 capital to
risk-weighted assets, and of Tier I capital to average assets. Charter One Bank,
F.S.B. is required to maintain minimum amounts and ratios (also set forth in the
table below) of total and Tier 1 capital to risk-weighted assets, of core
capital to adjusted tangible assets, and of tangible capital to tangible assets.
Each regulator of Charter One requires an institution to meet specific capital
adequacy guidelines and the regulatory framework for prompt corrective action
that involve quantitative measures of an institutions assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The institution's capital classification is also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
The actual regulatory capital ratios calculated for Charter One, ALBANK
Commercial and Charter One Bank, F.S.B., along with the capital amounts and
ratios for capital adequacy purposes and the amounts required to be categorized
as well capitalized under the regulatory framework for prompt corrective action
are as follows:

<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------------------------------------------------
To Be "Well
Capitalized"
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------- ---------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALBANK COMMERCIAL:
Total capital to risk-
weighted assets..... $ 30,091 16.01% $ 15,035 >=8.00% $ 18,794 >=10.00%
Tier 1 capital to
risk-weighted
assets.............. 28,105 14.95 7,518 >=4.00 11,277 >=6.00
Tier 1 capital to
average assets...... 28,105 7.91 14,208 >=4.00 17,760 >=5.00
CHARTER ONE BANK,
F.S.B.:
Total capital to risk-
weighted assets..... 1,510,112 10.37 1,164,637 >=8.00 1,455,796 >=10.00
Tier 1 capital to
risk-weighted
assets.............. 1,371,487 9.42 N/A N/A 873,477 >=6.00
Core capital to
adjusted tangible
assets.............. 1,371,487 5.75 715,270 >=3.00 1,192,117 >=5.00
Tangible capital to
tangible assets..... 1,317,487 5.75 357,635 >=1.50 N/A N/A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>

As of June 8, 1998, the most recent notification from the OTS categorized
Charter One Bank, F.S.B. 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

44
<PAGE> 47

that notification that have changed the Bank's category. Charter One's and
ALBANK Commercial's capital ratios exceed the minimum required to be well
capitalized. Management does not know of any reasons why Charter One and ALBANK
Commercial would not be considered well capitalized; however, as of December 31,
1998, Charter One and ALBANK Commercial had not received a classification from
their respective regulators.
Management believes that, as of December 31, 1998, Charter One, ALBANK
Commercial and Charter One Bank, F.S.B., individually met all capital adequacy
requirements to which they were subject. Events beyond management's control,
such as fluctuations in interest rates or a downturn in the economy in areas in
which the institution's loans and securities are concentrated could adversely
affect future earnings and, consequently, the institution's ability to meet its
future capital requirements.

14. 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 $17.28 (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 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
165,399,180 rights outstanding at December 31, 1998 and 2,000,000 shares of
preferred stock reserved for these rights.

15. BENEFIT PLANS
The Company sponsors several defined contribution plans covering substantially
all employees. Employees may contribute to these plans and these contributions
are matched in varying amounts by the Company. The Company may also make
additional contributions to eligible employees. The Company's defined
contribution to the various plans was $4.7 million, $6.5 million and $6.9
million for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company generally does not provide health care and life insurance benefits
to retired employees. ALBANK, RCSB and FirstFed Michigan Corporation provided
such benefits to certain previously retired employees. The net periodic
postretirement benefit cost of the plans was $2.3 million, $2.8 million, and
$2.9 million for the years ended December 31, 1998, 1997, and 1996,
respectively.

16. STOCK OPTION PLANS
At December 31, 1998, the Company has five stock option plans under which 21.2
million 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 Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued to Employees," 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 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, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

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 1996, 1997 and 1998: expected dividend yield of
2.5%, 2.0%, and 2.0%; expected volatility of 31% to 34%, 31% to 33%, and 31% to
33%; risk-free interest rates of 5.48% to 6.56%, 5.75% to 6.73% and 4.63% to
5.67%; and expected lives of seven years for all grants.

45
<PAGE> 48
NOTES (continued)

The following is an analysis of the stock option activity for each of the years
in the three-year period ended December 31, 1998 and the stock options
outstanding at the end of the respective periods. Amounts have been restated to
reflect the 5% stock dividend issued September 30, 1998 and the 2-for-1 stock
split issued May 20, 1998.

As of December 31, 1998, the weighted-average exercise price for options
outstanding was $15.78 with a weighted average remaining contractual life of 6.9
years. Options exercisable at December 31, 1998 have a weighted-average exercise
price of $8.13.
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, 1998, no awards of
restricted shares of common stock or performance units had been made.

17. 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 Statements 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.

Loan Servicing Assets-The fair value is estimated by discounting the future cash
flows using current market rates for mortgage loan servicing with adjustments
for market and credit risks.

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 advances of similar remaining maturities.

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

Interest Rate Risk Management Instruments-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.

Forward Commitments-Quoted market prices are utilized to determine fair value
disclosures when such prices are available.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1998 and 1997. 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.

46
<PAGE> 49

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
December 31, 1998 December 31, 1997
------------------------- -------------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Value Value Value Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents........ $ 399,507 $ 399,507 $ 412,105 $ 412,105
Investment
securities......... 295,573 295,871 943,502 943,747
Mortgage-backed
securities......... 4,968,184 5,015,944 5,788,057 5,847,678
Loans and leases.... 17,677,836 17,840,501 15,863,483 15,987,213
Federal Home Loan
Bank stock......... 319,993 319,993 388,055 388,055
Accrued interest
receivable......... 117,493 117,493 138,018 138,018
Loan servicing
assets............. 90,838 91,496 82,361 82,890
Liabilities:
Deposits:
Checking, savings
and money market
accounts.......... 6,553,804 6,553,804 5,769,956 5,769,956
Certificates of
deposit........... 8,611,260 8,684,408 8,259,769 8,258,533
Federal Home Loan
Bank advances...... 6,186,118 6,153,531 5,437,564 5,427,332
Reverse repurchase
agreements......... 685,024 685,906 2,117,621 2,118,425
Other borrowings.... 130,336 155,945 247,511 297,147
Capital securities... 50,000 57,302
Advance payments by
borrowers for taxes
and insurance...... 60,383 60,383 159,954 159,954
Accrued interest
payable............ 45,584 45,584 54,633 54,633
Off-Balance-Sheet
Items:
Interest rate risk
management
instruments........ 10,545 17,519
Forward commitments
to purchase/sell/
originate loans or
mortgage-backed
securities......... 1,308 (1,662)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>

18. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
Supplemental disclosures of cash flow information are summarized below:

19. PARENT COMPANY FINANCIAL INFORMATION
The summarized financial statements of Charter One (parent company only) as of
December 31, 1998 and 1997 and for the three years ended December 31, 1998
follow:

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
December 31,
-----------------------
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
ASSETS:
Deposits with subsidiary.............. $ 7 $ 6,084
Cash equivalents...................... 9,220 3,101
Investment in subsidiary, at equity... 1,815,216 1,751,763
Securities and other.................. 51,188 1,458
- ---------------------------------------------------------------
Total................................. $1,875,631 $1,762,406
- ---------------------------------------------------------------
- ---------------------------------------------------------------
LIABILITIES:
Total liabilities..................... $ 519 $ 509
- ---------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock and additional paid-in
capital............................. 1,132,052 890,670
Retained earnings..................... 704,661 977,147
Treasury stock, at cost............... (121,731)
Borrowings of employee investment and
stock ownership plan................ (5,288) (7,377)
Accumulated other comprehensive
income.............................. 43,687 23,188
- ---------------------------------------------------------------
Total shareholders' equity........ 1,875,112 1,761,897
- ---------------------------------------------------------------
Total................................. $1,875,631 $1,762,406
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Year Ended December 31,
------------------------------
(Dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary....... $180,000 $ 30,000 $100,000
Interest and dividends on
securities.................... 2,028 1,331 2,081
- ----------------------------------------------------------------
Total income................ 182,028 31,331 102,081
- ----------------------------------------------------------------
EXPENSES........................ 4,708 3,868 998
- ----------------------------------------------------------------
Income before undistributed net
earnings of subsidiary........ 177,320 27,463 101,083
Equity in undistributed net
earnings of subsidiary........ 42,974 166,930 93,609
- ----------------------------------------------------------------
Income before extraordinary
item.......................... 220,294 194,393 194,692
Extraordinary item, net of tax
benefit....................... 4,933
- ----------------------------------------------------------------
Net income...................... $215,361 $194,393 $194,692
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>

47
<PAGE> 50
NOTES (continued)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Year Ended December 31,
---------------------------------
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.................... $ 215,361 $ 194,393 $ 194,692
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed net
earnings of subsidiary...... 42,974 166,930 93,609
Other........................ (182,398) (299,807) (61,792)
- -----------------------------------------------------------------
Net cash provided by operating
activities................... 75,937 61,516 226,509
- -----------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of securities........ (44,362)
Maturity of securities........ 11,227 34,635
- -----------------------------------------------------------------
Net cash provided by (used in)
investing activities......... 11,227 (9,727)
- -----------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term
borrowings................... 50,000
Proceeds from issuance of
common stock................. 3,760 5,079 3,541
Payment of dividends on common
stock........................ (80,829) (63,311) (54,560)
Payment of dividends on
preferred stock.............. (2,600)
Net purchases of treasury
stock........................ (48,826) (41,944) (155,141)
- -----------------------------------------------------------------
Net cash used in financing
activities................... (75,895) (100,176) (208,760)
- -----------------------------------------------------------------
Increase (decrease) in
deposits with subsidiary and
cash equivalents............. $ 42 $ (27,433) $ 8,022
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>

20. EARNINGS PER SHARE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
For the Year Ended December 31,
(Dollars in thousands, except ------------------------------------------
per share data) 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share:
Income before extraordinary
item................... $ 277,019 $ 197,121 $ 194,692
Less: Preferred stock
dividends.............. 2,600
- -------------------------------------------------------------------------
Income available to common
stockholders........... $ 277,019 $ 197,121 $ 192,092
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Average common shares
outstanding............ 165,508,690 163,280,283 163,141,650
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Basic earnings per share
before extraordinary item.. $ 1.67 $ 1.21 $ 1.18
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Diluted Earnings Per Share:
Income before extraordinary
item................... $ 277,019 $ 197,121 $ 194,692
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Average common shares
outstanding............ 165,508,690 163,280,283 163,141,650
Add common stock equivalents
for shares issuable under:
Stock option plans.... 5,229,351 5,908,308 5,006,482
Preferred stock
conversion........... 5,801,093
- -------------------------------------------------------------------------
Average common and common
equivalent shares
outstanding............ 170,738,041 169,188,591 173,949,225
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Diluted earnings per share
before extraordinary item.. $ 1.62 $ 1.17 $ 1.12
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>

INDEPENDENT AUDITORS' REPORT
To the Shareholders
and Board of Directors
Charter One Financial, Inc.

[Deloitte & Touche Logo]

We have audited the accompanying consolidated statements of financial condition
of Charter One Financial, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the mergers of Charter One Financial, Inc. and ALBANK
Financial Corporation, Charter One Financial, Inc. and CS Financial Corporation,
and Charter One Financial, Inc. and RCSB Financial, Inc., all of which have been
accounted for as a pooling of interests as described in Note 2 to the
consolidated financial statements. We did not audit the statement of financial
condition of ALBANK Financial Corporation as of December 31, 1997, or the
related statements of income, shareholders' equity, and cash flows of ALBANK
Financial Corporation for the years ended December 31, 1997 and 1996, which
statements reflect total assets of $4.1 billion as of December 31, 1997, and net
income of $43.4 million and $26.2 million for the years ended December 31, 1997
and 1996, respectively. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for ALBANK Financial Corporation for 1997 and 1996, is based
solely on the report of such other auditors. We did not audit the statements of
income, shareholders' equity, and cash flows of RCSB Financial, Inc. for the
year ended November 30, 1996, which statements reflect net income of $39.7
million for the year ended November 30, 1996. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for RCSB Financial, Inc. for 1996, is
based solely on the report of such other auditors.
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 examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Charter One Financial, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
Cleveland, Ohio
January 26, 1999

48
<PAGE> 51

FORM 10-K

The Annual Report includes the materials required in Form 10-K filed with the
Securities and Exchange Commission. The integration of the two documents gives
shareholders and other interested parties timely, efficient and comprehensive
information on 1998 results. Portions of the Annual Report are not required by
the Form 10-K report and are not filed as part of the Corporation's Form 10-K.
Only those portions of the Annual Report referenced in the cross-reference index
are incorporated in the Form 10-K. The report has not been approved or
disapproved by the Securities and Exchange Commission, nor has the Commission
passed upon its accuracy or adequacy.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the fiscal year ended DECEMBER 31, 1998.

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]

For the transition period from to ______ to ______.

Commission file number 0-16311

CHARTER ONE FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 34-1567092
- --------------------------------------------- ---------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1215 SUPERIOR AVENUE, CLEVELAND, OHIO 44114
- --------------------------------------------- ---------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code, (216) 566-5300

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.01 PER SHARE
- --------------------------------------------------------------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES X NO ____

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 2, 1999 was $4,683,000,000. For this purpose, the
following holders are considered affiliates: directors and executive officers of
Charter One Financial, Inc. The number of shares outstanding of the registrant's
sole class of common stock as of March 2, 1999 was 165,792,053.

DOCUMENT INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for the April 21, 1999 Annual
Meeting of Shareholders are incorporated by reference in Part III.

49
<PAGE> 52

FORM 10-K CROSS REFERENCE INDEX

<TABLE>
<CAPTION>
Pages
- -----------------------------------------------------------------
<S> <C> <C>
PART I
Item 1 -- Business
General 1,16
Market Area and Competition 50
Discussion of Forward-looking Statements 28
Average Balance Sheets/Interest/Rates 17
Volume and Rate Variance Analysis 18
Investment and Mortgage-Backed
Securities 22, 37-39
Loans 20-22, 33-34, 39-41
Risk Elements of Loan Portfolio 20-22, 33-34, 39-41
Loan Loss Experience 20-22, 33-34, 39-41
Allocation of Allowance for Loan Losses 22, 34, 40
Deposits 22, 41
Financial Ratios 14, 15
Short-Term Borrowings 22-23, 42
Regulation 51
Executive Officers 51
Item 2 -- Properties 51
Item 3 -- Legal Proceedings 51-52
Item 4 -- Submission of Matters to a
Vote of Security
Holders - None
- -----------------------------------------------------------------
PART II
Item 5 -- Market for Registrant's
Common Equity and Related
Shareholder Matters 25
Item 6 -- Selected Financial Data 14-15
Item 7 -- Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 16-28
Item 7A -- Quantitative and Qualitative
Disclosure About
Market Risk 23-25
Item 8 -- Financial Statements and
Supplementary Data 29-48
Item 9 -- Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosures -- None
- -----------------------------------------------------------------
PART III
Item 10 -- Directors and Executive
Officers of the
Registrant -- Note (1)
Item 11 -- Executive Compensation --
Note (1)
Item 12 -- Security Ownership of Certain
Beneficial Owners and
Management -- Note (1)
Item 13 -- Certain Relationships and
Related
Transactions -- Note (1)
- -----------------------------------------------------------------
PART IV
Item 14 -- Exhibits, Financial Statement
Schedules and Reports on
Form 8-K 50
Reports of Independent
Accountants 48
Consolidated Financial
Statements
(a) Consolidated Statements
of Financial Condition as
of December 31,1998 and
1997 29
(b) Consolidated Statements
of Income for the Years
Ended December 31, 1998,
1997 and 1996 30
(c) Consolidated Statements
of Shareholders' Equity for
the Years Ended December
31, 1998, 1997 and 1996 31
(d) Consolidated Statements
of Cash Flows for the Years
Ended December 31, 1998,
1997 and 1996 32
(e) Notes to Consolidated
Financial Statements 33-48
Signatures 52
Financial Statement Schedules -- All financial statement
schedules are omitted because the required information is not
applicable or is included in the Consolidated Financial
Statements or related notes.
Exhibits -- The index of exhibits has been filed as separate
pages of the 1998 Form 10-K and is available to shareholders on
request from Charter One Financial, Inc.'s Investor Relations
Department. Copies of the exhibits may be obtained at a cost of
30 cents per page.
</TABLE>

<TABLE>
<S> <C> <C>
Reports on Form 8-K -- filed in the fourth quarter of 1998:
(a) October 22, 1998, reported that Charter One had issued a
press release on October 21, 1998 announcing earnings for
the three and nine month periods ended September 30, 1998.
(b) December 9, 1998, reported the acquisition of ALBANK
Financial Corporation at the close of business on November
30, 1998, and reported the results of the special
shareholder meeting held on November 13, 1998.
</TABLE>

- -------------------------------------------------------------------------------
Note (1) -- Incorporated by reference from Charter One Financial, Inc.'s Proxy
Statement for the April 21, 1999 Annual Meeting of Shareholders.
- -------------------------------------------------------------------------------

BUSINESS
Headquartered in Cleveland, Ohio, Charter One Financial, Inc. is now a bank
holding company, having converted from a unitary savings institution holding
company on November 30, 1998. The conversion was undertaken in conjunction with
our November 30, 1998 acquisition of ALBANK Financial Corporation, which
included our acquisition of ALBANK Commercial, a New York chartered commercial
bank. Charter One's business has consisted primarily of the business of Charter
One Bank, F.S.B. and its subsidiaries. The bank and other subsidiaries are
engaged in a variety of financial services businesses. In addition to the
general business of attracting deposits and making real estate and other loans,
we are engaged in mortgage banking, indirect automobile lending, equipment
leasing, data processing, real estate appraisal, and retail brokerage services.
The executive offices of Charter One are located at 1215 Superior Avenue,
Cleveland, Ohio 44114, and the telephone number is (216) 566-5300. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") -- "Holding Company Business" and "Acquisitions" set forth
in Item 7 of this Form 10-K for additional discussion of the company's business.
The company has a long history of completing mergers and acquisitions, which
have had a significant effect on its business. See Note 2 to the Consolidated
Financial Statements set forth in Item 8 of this Form 10-K for a discussion of
the impact of recent business combinations and asset acquisitions.

MARKET AREA AND COMPETITION
As of December 31, 1998, the bank was ranked among the four largest thrift
institutions in the country and operated through numerous banking offices: 109
in Ohio (under the name Charter One Bank), 84 in Michigan (under the name First
Federal of Michigan), 38 in western New York (under the name Charter One Bank),
88 in upstate New York (under the name ALBANK Savings Bank or ALBANK
Commercial), and 12 in Vermont and 9 in Massachusetts (under the name ALBANK
Savings Bank). Based on 1997 data, the counties served by the bank include
approximately 36% of the population of Ohio, 54% of Michigan, 52% of New York
(excluding New York City), 56% of Vermont and 10% of Massachusetts.
The consumer banking business is highly competitive. The bank competes
actively with consumer and commercial banks, savings and loans, mortgage bankers
and other financial service entities.
50
<PAGE> 53

REGULATION
Following our November 1998 acquisition of ALBANK, Charter One became a bank
holding company, converting from a unitary savings and loan holding company
which was subject to regulation by the Office of Thrift Supervision. As a bank
holding company, the company is now subject to regulation by the Federal Reserve
Board. Charter One is required to file reports with the Federal Reserve Board
and is subject to regular inspections by that agency. Federal law prohibits a
bank holding company from acquiring ownership or control of more than 5% of the
voting shares of any company which is not a bank or a bank holding company, or
engaging in activities other than those related to banking. The principal
exceptions to these prohibitions involve certain non-bank activities which have
been identified as closely related to the business of banking or managing or
controlling banks. The list of permissible activities includes all current
operations of the bank except the issuance and sale of savings bank life
insurance, which the bank has committed to terminate by October 1999.
As a federally chartered savings bank and a member of the Federal Home Loan
Bank System, the bank remains subject to supervision, regulation and examination
by its primary regulator, the Office of Thrift Supervision, and the FDIC.
See MD&A -- "Capital and Dividends" set forth in Item 7 of this Form 10-K, and
Note 13 to the Consolidated Financial Statements set forth in Item 8 of this
Form 10-K, for a discussion of the regulatory capital calculation and compliance
with regulatory capital requirements as well as regulatory restrictions on cash
dividends.

EXECUTIVE OFFICERS
The executive officers of the company, each of whom is currently an executive
officer of the bank, are identified below. The executive officers of the company
are elected annually by its board of directors to serve until the next annual
election of officers following the annual meeting of shareholders.

<TABLE>
<CAPTION>
AGE AT
DECEMBER 31, OFFICER
NAME 1998 POSITION SINCE
- -------------------------------------------------------------------
<S> <C> <C> <C>
Charles John Koch 52 Chairman of the
Board, President and
Chief Executive
Officer 1987
Mark D. Grossi 45 Executive Vice
President 1992
John David Koch 46 Executive Vice
President 1987
Richard W. Neu 42 Executive Vice
President and Chief
Financial Officer 1995
Robert J. Vana 48 Senior Vice
President, Chief
Corporate Counsel
and Corporate
Secretary 1987
</TABLE>

Charles John Koch has been President of the Bank since 1980 and was Chief
Operating Officer of Charter One from 1980 to 1988, when he was appointed Chief
Executive Officer of Charter One. In February 1995, he was appointed Chairman of
the Board of the Company and of the Bank. Mr. Koch is the brother of John David
Koch.
Mark D. Grossi is an Executive Vice President of the Company and of the Bank,
and has been responsible for retail banking and branch administration since the
Company's merger with First American Savings Bank in 1992.
John David Koch joined the Bank in 1982 and is Executive Vice President of the
Company and of the Bank. Mr. Koch is responsible for the credit and lending
functions of the Bank and has management responsibility for numerous subsidiary
corporations. Mr. Koch is the brother of Charles John Koch.
Richard W. Neu is Executive Vice President and Chief Financial Officer of the
Company and the Bank. He joined Charter One in 1995 following the Company's
merger with FirstFed Michigan Corporation. Prior to the merger he had served as
FirstFed's Executive Vice President and Chief Financial Officer.
Robert J. Vana has been Chief Corporate Counsel and Corporate Secretary of the
Company since 1988 and joined the Bank as Senior Vice President and Corporate
Secretary in 1982.

PROPERTIES
Charter One's and the bank's executive offices are located at 1215 Superior
Avenue, Cleveland, Ohio in a seven-story office building owned by a subsidiary
of the bank. The bank also maintains an operations center in a single-story
building owned by the bank and located in Cleveland, Ohio. The bank owns various
other office buildings including a 15-story office building in Cleveland, a
four-story office building in Rochester, a six-story office building in Albany,
a nine-story office building in Toledo, and a four-story office building in
downtown Canton. The buildings each include space for a branch office and
various divisional administrative functions, with any remaining space leased to
tenants.
As of December 31, 1998, in addition to the bank's 340 banking locations, the
bank and its subsidiaries operated 39 loan production offices in 12 states. At
December 31, 1998, the bank owned 190 of these banking facilities and leased the
remainder. The bank operates 352 ATMs at various banking offices and is a member
of the Money Access Center System ("MAC"), which provides its customers access
to ATMs nationwide. The lease terms for branch offices are not individually
material. Terms range from monthly to seven years.

LEGAL PROCEEDINGS
The company and its subsidiaries are involved as plaintiff or defendant in
various actions incident to their business, none of which is believed to be
material to the financial condition of the company, except as discussed below.
Prior to the merger with FirstFed Michigan Corporation, Charter One and
FirstFed each filed a lawsuit against the United States based upon the breach of
certain agreements between Charter One and First Federal, respectively, and the
government involving supervisory goodwill and capital credits in the aggregate
amount of approximately $126 million. First Federal of Michigan v. United
States, No. 95-464C was filed in the United States Court of Federal Claims on
July 20, 1995. Charter One Bank, F.S.B. v. United States, No. 95-528C was filed
in the same court on August 8, 1995. These actions, claiming damages for the
government's breach of four separate contractual agreements, have been
consolidated and the case is proceeding under docket number 95-464C pursuant to
the terms of a case management order entered by the Court to govern all similar
goodwill contract

51
<PAGE> 54

cases. Pursuant to that order, Charter One filed a motion for summary judgment
on liability as to two of the four contractual agreements at issue on Charter
One's complaint. That motion is currently pending. On December 22, 1997, the
Court ruled in favor of four thrifts on eleven common liability issues,
rejecting certain defenses the government had raised to breach of contract
liability and barring the government from raising such defenses against other
thrifts in the future. See California Federal Bank, et al, v. U.S., 34 Fed. Ct.
753. As of February, 1999 the court had granted summary judgment on liability in
favor of four thrifts.
The status of the litigation is dependent to some degree upon factors which
are out of the control of Charter One, including, but not limited to, the
outcome of the damages litigation in Glendale Federal Bank v. U.S., No. 90-772C
and other cases in the United States Court of Federal Claims. On July 1, 1996,
the United States Supreme Court affirmed the Court of Federal Claims' finding
that the government had breached contractual agreements with Glendale and with
Statesman (in Statesman Savings Bank v. U.S.) by reversing its prior agreement
to recognize supervisory goodwill and capital credits as assets includible in
regulatory capital. Glendale and Statesman were remanded to the Court of Federal
Claims for trials on damages. The Glendale damages trial concluded last year
before Chief Judge Smith. The Court has indicated that a damages decision in
Glendale should be issued on April 9, 1999. The Statesman case settled during
trial.
Pursuant to the order, damages trials in three other pending cases had
commenced by mid-February 1999, and should be completed by mid-year. Due to the
number of pending cases, the order provides for a sequencing process whereby 30
cases proceed to pre-trial discovery in a given calendar year and thereafter to
trial. Charter One's case falls within the second group of 30 cases, for which
pre-trial discovery (for those plaintiffs who wish to remain in the "second 30"
group) begins on July 1, 1999. Due to the pendency of the other related cases,
and the uncertainty inherent in litigation, Charter One is not able to estimate
either the time frame for resolution of its claims, or the final outcome of its
litigation against the government, including the damages, if any, which could be
awarded if Charter One ultimately prevails on liability issues.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
State of Ohio, as of March 17, 1999.
CHARTER ONE FINANCIAL, INC.

/s/ Charles John Koch
- -------------------------------------
Charles John Koch
Director, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and as of the
date indicated.

/s/ Charles John Koch
- -------------------------------------
Charles John Koch
Director, President and
Chief Executive Officer

/s/ Richard W. Neu
- -------------------------------------
Richard W. Neu
Director, Executive Vice President
Chief Financial Officer

/s/ Eugene B. Carroll
- -------------------------------------
Eugene B. Carroll, Sr., Director

/s/ Herbert G. Chorbajian
- -------------------------------------
Herbert G. Chorbajian, Director

/s/ Phillip Wm. Fisher
- -------------------------------------
Phillip Wm. Fisher, Director

/s/ Denise M. Fugo
- -------------------------------------
Denise M. Fugo, Director

/s/ Mark D. Grossi
- -------------------------------------
Mark D. Grossi, Director

/s/ Charles M. Heidel
- -------------------------------------
Charles M. Heidel, Director

/s/ Karen R. Hitchcock
- -------------------------------------
Karen R. Hitchcock, Director

/s/ John D. Koch
- -------------------------------------
John D. Koch, Director

/s/ Michael P. Morley
- -------------------------------------
Michael P. Morley, Director

/s/ Henry R. Nolte, Jr.
- -------------------------------------
Henry R. Nolte, Jr., Director

/s/ Ronald F. Poe
- -------------------------------------
Ronald F. Poe, Director

/s/ Victor A. Ptak
- -------------------------------------
Victor A. Ptak, Director

/s/ Melvin J. Rachal
- -------------------------------------
Melvin J. Rachal, Director

/s/ Jerome L. Schostak
- -------------------------------------
Jerome L. Schostak, Director

/s/ Mark Shaevsky
- -------------------------------------
Mark Shaevsky, Director

/s/ Leonard S. Simon
- -------------------------------------
Leonard S. Simon, Director

/s/ John P. Tierney
- -------------------------------------
John P. Tierney, Director

/s/ Eresteen R. Williams
- -------------------------------------
Eresteen R. Williams, Director

52
<PAGE> 55

CHARTER ONE FINANCIAL, INC., CORPORATE DIRECTORY

DIRECTORS AND
EXECUTIVE OFFICERS

CHARLES JOHN KOCH
Chairman, President and
Chief Executive Officer,
Charter One Financial, Inc.
and Charter One Bank, F.S.B.

EUGENE B. CARROLL, SR.
President and
Chief Executive Officer,
Employer Sponsored Plans, Inc.
Cleveland, Ohio

HERBERT G. CHORBAJIAN
Vice Chairman,
Charter One Financial, Inc.
and former Chairman, President
and Chief Executive Officer,
ALBANK Financial, Inc.
Albany, New York

PHILLIP WM. FISHER
Chairman of the Board,
Durakon Industries,
Lapeer, Michigan, and
Principal of The Fisher Group
Detroit, Michigan

DENISE M. FUGO
President of City Life, Inc.
Cleveland, Ohio

MARK D. GROSSI
Executive Vice President,
Charter One Financial, Inc.
and Charter One Bank, F.S.B.

CHARLES M. HEIDEL
Retired President and
Chief Operating Officer,
The Detroit Edison Company
Detroit, Michigan

KAREN R. HITCHCOCK, PH.D.
President, University of Albany
Albany, New York

JOHN D. KOCH
Executive Vice President,
Charter One Financial, Inc.
and Charter One Bank, F.S.B.

MICHAEL P. MORLEY
Senior Vice President and
Director of Human Resources,
Eastman Kodak Company
Rochester, New York

RICHARD W. NEU
Executive Vice President
and Chief Financial Officer,
Charter One Financial, Inc.
and Charter One Bank, F.S.B.

HENRY R. NOLTE, JR.
Of Counsel to Miller,
Canfield, Paddock and Stone
Detroit, Michigan, and
Retired Vice President
and General Counsel,
Ford Motor Company
Dearborn, Michigan

RONALD F. POE
Senior Advisor and
retired Chairman and
Chief Executive Officer,
Legg Mason
Dorman & Wilson, Inc.
White Plains, New York

VICTOR A. PTAK
Vice President,
Investments,
Everen Securities, and
formerly General Partner of
J.C. Bradford
Cleveland, Ohio
<PAGE> 56
MELVIN J. RACHAL
President and
Chief Operating Officer,
Midwest Stamping, Inc.
Bowling Green, Ohio

JEROME L. SCHOSTAK
Vice Chairman
Charter One Financial, Inc.
and Chairman of the Board
and Chief Executive Officer,
Schostak Brothers
& Company, Inc.
Southfield, Michigan

MARK SHAEVSKY
Partner,
Honigman Miller Schwartz
and Cohn
Detroit, Michigan

LEONARD S. SIMON
Vice Chairman, Charter One
Financial, Inc. and former
Chairman and Chief Executive
Officer, RCSB Financial, Inc.
Rochester, New York

JOHN P. TIERNEY
Retired Chairman and
Chief Executive Officer,
Chrysler Financial Corporation
Detroit, Michigan

ERESTEEN R. WILLIAMS
Retired Medical Office Manager
Detroit, Michigan

SHAREHOLDER INFORMATION

ANNUAL MEETING
The annual meeting of
shareholders of Charter One
Financial, Inc. will be held at
2 p.m., Wednesday, April 21,
1999 at the Forum Conference
Center, Cleveland, Ohio.

FORM 10-K AND OTHER
SHAREHOLDER INFORMATION
The Form 10-K Report to
the Securities and Exchange
Commission is available without
charge upon written request to
the Investor Relations Department.

DIRECT MAILING OF ANNUAL REPORT
Shareholders whose common
stock is held in a brokerage
account or otherwise not in
their own name may wish to
receive copies of Charter One's
shareholder reports directly.
Requests may be addressed to
Investor Relations Department.

DIVIDEND POLICY AND
DIVIDEND REINVESTMENT PLAN
A corporate objective of Charter
One is to allow shareholders
to benefit from the growth of
Charter One Financial, Inc.
through the payment of quarterly
cash dividends. Dividends have
been paid each quarter since
October 1988. Charter One
has established a Dividend Reinvest-
ment Plan to enable shareholders
to purchase additional shares of
the Company. Information on the
plan may be obtained from
the Transfer Agent.

STOCK TRADING INFORMATION
Common Stock of Charter One
Financial, Inc. is traded on The
Nasdaq Stock Market under
the trading symbol "COFI."

<PAGE> 57
TRANSFER AGENT
BankBoston, N.A.
c/o EquiServe
Shareholder Services Department
P.O. Box 8040
Boston, Massachusetts 02266
(800) 733-5001
http://www.equiserve.com

CORPORATE INFORMATION

CORPORATE WEBSITE
http://www.charterone.com
for press releases, investor
presentations and product
information.

INVESTOR RELATIONS
1215 Superior Avenue
Cleveland, Ohio 44114
(800) 262-6301
Ellen L. Batkie,
Senior Vice President

CORPORATE COMMUNICATIONS,
MEDIA INQUIRIES
William L. Dupuy,
Senior Vice President
(216) 566-5311

INDEPENDENT AUDITORS
Deloitte & Touche LLP
127 Public Square
Suite 2500
Cleveland, Ohio 44114-1303
(216) 589-1300

LEGAL COUNSEL: INTERNAL
Robert J. Vana
Chief Corporate Council
and Secretary

LEGAL COUNSEL: EXTERNAL
LaPorte & Ipavec, L.P.A.
1215 Superior Avenue
Cleveland, Ohio 44114

- --------------------------
DIRECTORS EMERITI

CHARLES JOSEPH KOCH
Chairman Emeritus

DR. NORMAN P. AUBURN
OTTY J. CERNY
CHARLES F. IPAVEC
RICHARD J. JACOB
GEORGE M. JONES
PHILIP J. MEATHE
ALONZO H. POLL
FRED C. REYNOLDS
CHARLES A. SHIRK

Charter One Bank, F.S.B. Y Headquarters: 1215 Superior Avenue
*Cleveland, Ohio 44114 Y (216) 566-5300

<PAGE> 58
[LOGO] CHARTER ONE FINANCIAL, INC.

Charter One Bank Building
1215 Superior Avenue - Cleveland, Ohio 44114

<PAGE> 59
INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

3.1 Registrant's Second Restated Certificate of Incorporation, as
amended and currently in effect, filed as Exhibit 4.2 to
Post-Effective Amendment Number One on Form S-8 to Form S-4
(File No. 333- 33169), is incorporated herein by reference.

3.2 Registrant's Bylaws, as amended and currently in effect, filed
on August 8, 1997 as Exhibit 3.2 to Registrant's Registration
Statement on Form S-4 (File No. 333-33169), is incorporated
herein by reference.

4.1 Form of Certificate of Common Stock, filed on January 22, 1988
as Exhibit 4.2 to Registrant's Registration Statement on Form
S-1 (File No. 33-16207), is incorporated herein by reference.

4.2 Shareholder Rights Agreement dated November 21, 1989, between
Charter One Financial, Inc. and First National Bank of Boston,
as amended on May 26, 1995, filed as Exhibit 4.2 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1994 and December 31, 1995, respectively (File No.
0-16311), is incorporated herein by reference.

10.1 Registrant's Long-Term Stock Incentive Plan, filed on January
22, 1988 as Exhibit 10.1 to Registrant's Registration Statement
on Form S-1 (File No. 33-16207), is incorporated herein by
reference.

10.2 Registrant's Directors' Stock Option Plan, filed on January 22,
1988 as Exhibit 10.2 to Registrant's Registration Statement on
Form S-1 (File No. 33-16207), is incorporated herein by
reference.

10.3 Charter One Bank, F.S.B. Executive Incentive Goal Achievement
Plan, filed as Exhibit 10.8 to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1994 (File No. 0-16311),
is incorporated herein by reference.

10.4 First American Savings Bank, F.S.B. Nonqualified Retirement
Plan and First Amendment thereto, filed as Exhibit 10.17 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 0-16311), are incorporated herein
by reference.

10.5 FirstFed Michigan Corporation 1983 Stock Option Plan, filed on
November 1, 1995 as an exhibit to Registrant's Registration
Statement on Form S-8 (File No. 33-61273), is incorporated
herein by reference.

10.6 FirstFed Michigan Corporation 1991 Stock Option Plan, filed on
November 1, 1995 as an exhibit to Registrant's Registration
Statement on Form S-8 (File No. 33-61273), is incorporated
herein by reference.

10.7 Amendment 1, dated May 3, 1996, to Forms of Supplemental
Retirement Agreements, dated October 31, 1995, between Charter
One and Charles John Koch, Richard W. Neu, John David Koch,
Mark D. Grossi, and Robert J. Vana are filed herein. The
Agreements, originally filed on July 25, 1995 as Exhibits 10.4
and 10.5 to Registrant's Registration Statement on Form S-4
(File No. 33-61273), are incorporated herein by reference.

10.8 First Amendment, dated July 29, 1998, to Forms of Employment
Agreements, dated October 31, 1995, between Charter One and
Charles John Koch, Richard W. Neu, John David Koch, Mark D.
Grossi, and Robert J. Vana are filed herein. The Agreements,
originally filed on July 25, 1995 as Exhibits 10.1, 10.2 and
10.3 to Registrant's Registration Statement on Form S-4 (File
No. 33-61273), are incorporated herein by reference.

10.9 Employment Agreement, dated April 22, 1997, between Charter One
Investment, Inc. and William A. Valerian, filed on August 8,
1997 as Exhibit 10.13 to Registrant's Registration Statement on
Form S- 4 (File No. 333-33169), is incorporated herein by
reference.

<PAGE> 60

10.10 Forms of Employment Agreements between Charter One and Leonard
S. Simon, and Edward J. Pettinella, filed on August 8, 1997 as
Exhibits 10.14 and 10.15 to Registrant's Registration Statement
on Form S-4 (File No. 333-33259), are incorporated herein by
reference.

10.11 Charter One Financial, Inc. 1997 Stock Option and Incentive
Plan, filed on December 19, 1997, as an exhibit to Registrant's
Registration Statement on Form S-8 (File No. 333-42823), is
incorporated herein by reference.

10.12 1986 Stock Option Plan of RCSB Financial, Inc., filed on
October 8, 1997, as an exhibit to Post- Effective Amendment
Number One on Form S-8 to Form S-4 (File No. 333-33259), is
incorporated herein by reference.

10.13 1992 Stock-Based Compensation Plan of RCSB Financial, Inc.,
filed on October 8, 1997, as an exhibit to Post-Effective
Amendment Number One on Form S-8 to Form S-4 (File No.
333-33259), is incorporated herein by reference.

10.14 Home Federal Savings Bank Stock Compensation Program, filed on
September 29, 1997 as an exhibit to Post-Effective Amendment
Number One on Form S-8 to Form S-4 (File No. 333-33169), is
incorporated herein by reference.

10.15 Haverfield 1995 Stock Option Plan, filed on September 29, 1997
as an exhibit to Post-Effective Amendment Number One on Form
S-8 to Form S-4 (File No. 333-33169), is incorporated herein by
reference.

10.16 The RCSB Financial, Inc. Non-Employee Director Deferred
Compensation Plan, as amended and restated on December 1, 1998.

10.17 ALBANK Financial Corporation 1992 Stock Incentive Plan for Key
Employees, as amended and restated as of December 18, 1995,
filed as Exhibit 10.11 to ALBANK's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 0-19843), is
incorporated herein by reference.

10.18 ALBANK Financial Corporation 1995 Stock Incentive Plan for
Outside Directors, filed as Exhibit 10.12.1 to ALBANK's Annual
Report on Form 10-K for the year ended December 31, 1995 (File
No. 0-19843), is incorporated herein by reference.

10.19 ALBANK Financial Corporation 1992 Stock Incentive Plan for
Outside Directors, filed as an appendix to the Proxy Statement
for the 1992 Annual Meeting of the Stockholders of ALBANK held
on October 26, 1992, is incorporated herein by reference.

10.20 Employment Agreement, dated November 30, 1998, between Charter
One Financial, Inc. and Herbert G. Chorbajian.

10.21 Charter One Financial, Inc. Top Executive Incentive Goal
Achievement Plan, filed on October 1, 1998 as Annex E to the
Prospectus contained in the Registrant's Registration Statement
on Form S-4 (File No. 333-65137), in incorporated herein by
reference.

11 Statement Regarding Computation of Per Share Earnings

21 Subsidiaries of the Registrant

23.1 Consent of Deloitte & Touche LLP (as auditors for the
Registrant)

23.2 Consent of KPMG LLP (as auditors for RCSB Financial, Inc.)

23.3 Consent of KPMG LLP (as auditors for ALBANK Financial
Corporation)

27 Financial Data Schedule

99.1 Independent Auditors' Report from KPMG LLP (as auditors for
RCSB Financial, Inc.)

99.2 Independent Auditors' Report from KPMG LLP (as auditors for
ALBANK Financial Corporation)

<PAGE> 1
Exhibit 10.7

AMENDMENT 1 TO SUPPLEMENTAL RETIREMENT AGREEMENT

This Amendment 1 to Supplemental Retirement Agreement dated as of this 3rd day
of May, 1996, by and between Charter One Financial, Inc., its successors and
assigns (the "Company") and Robert J. Vana (the "Executive") for the purpose
of modifying and amending that certain Supplemental Retirement Agreement between
the parties as of October 31, 1995 (the "SRA").

WITNESSETH

In consideration of the Company entering into a Split-Dollar Agreement (the
"Death Benefit Agreement") with the Executive on even date herewith, the parties
have agreed to modify and amend the SRA in the following manner:

1. Notwithstanding anything contained in Section 1(d)(v) of the SRA or
otherwise in the SRA, in the event of the death of the Executive while
employed by the Company or any of its affiliates under circumstances in
which a beneficiary of the Executive or his/her estate is entitled to
death proceeds (a) in accordance with the Death Benefit Agreement
(including any amendments or modifications hereinafter made thereto
with the written consent of the Executive) or (b) under any other
written agreement between the Company and the Executive that replaces
the Death Benefit Agreement, then in that event, neither the Executive
nor his/her spouse will be entitled to any benefits under the SRA.

2. Except as modified and amended herein, the SRA shall remain in full
force and effect.

The parties have caused this Amendment to be executed and delivered as of the
date first above herein written.

CHARTER ONE FINANCIAL, INC.

By: /s/ Richard W. Neu
-------------------------------
Authorized Officer: Richard W. Neu

EXECUTIVE

/s/ Robert J. Vana
--------------------------------
Robert J. Vana

<PAGE> 2

AMENDMENT 1 TO SUPPLEMENTAL RETIREMENT AGREEMENT

This Amendment 1 to Supplemental Retirement Agreement dated as of this 3rd day
of May, 1996, by and between Charter One Financial, Inc., its successors and
assigns (the "Company") and Charles John Koch (the "Executive") for the purpose
of modifying and amending that certain Supplemental Retirement Agreement between
the parties as of October 31, 1995 (the "SRA").

WITNESSETH

2. Except as modified and amended herein, the SRA shall remain in full
force and effect.

The parties have caused this Amendment to be executed and delivered as of the
date first above herein written.

CHARTER ONE FINANCIAL, INC.

By: /s/ Robert J. Vana
-----------------------------------
Authorized Officer: Robert J. Vana

EXECUTIVE

/s/ Charles John Koch
-----------------------------------
Charles John Koch

<PAGE> 3

AMENDMENT 1 TO SUPPLEMENTAL RETIREMENT AGREEMENT

This Amendment 1 to Supplemental Retirement Agreement dated as of this 3rd day
of May, 1996, by and between Charter One Financial, Inc., its successors and
assigns (the "Company") and Mark D. Grossi (the "Executive") for the purpose of
modifying and amending that certain Supplemental Retirement Agreement between
the parties as of October 31, 1995 (the "SRA").

WITNESSETH

2. Except as modified and amended herein, the SRA shall remain in full
force and effect.

The parties have caused this Amendment to be executed and delivered as of the
date first above herein written.

CHARTER ONE FINANCIAL, INC.

By: /s/ Robert J. Vana
-----------------------------------
Authorized Officer: Robert J. Vana

EXECUTIVE

/s/ Mark D. Grossi
-----------------------------------
Mark D. Grossi

<PAGE> 4

AMENDMENT 1 TO SUPPLEMENTAL RETIREMENT AGREEMENT

This Amendment 1 to Supplemental Retirement Agreement dated as of this 3rd day
of May, 1996, by and between Charter One Financial, Inc., its successors and
assigns (the "Company") and John D. Koch (the "Executive") for the purpose of
modifying and amending that certain Supplemental Retirement Agreement between
the parties as of October 31, 1995 (the "SRA").

WITNESSETH

2. Except as modified and amended herein, the SRA shall remain in full
force and effect.

The parties have caused this Amendment to be executed and delivered as of the
date first above herein written.

CHARTER ONE FINANCIAL, INC.

By: /s/ Robert J. Vana
-----------------------------------
Authorized Officer: Robert J. Vana

EXECUTIVE

/s/ John D. Koch
-----------------------------------
John D. Koch

<PAGE> 5

AMENDMENT 1 TO SUPPLEMENTAL RETIREMENT AGREEMENT

This Amendment 1 to Supplemental Retirement Agreement dated as of this 3rd day
of May, 1996, by and between Charter One Financial, Inc., its successors and
assigns (the "Company") and Richard W. Neu (the "Executive") for the purpose of
modifying and amending that certain Supplemental Retirement Agreement between
the parties as of October 31, 1995 (the "SRA").

WITNESSETH

2. Except as modified and amended herein, the SRA shall remain in full
force and effect.

The parties have caused this Amendment to be executed and delivered as of the
date first above herein written.

CHARTER ONE FINANCIAL, INC.

By: /s/ Robert J. Vana
-----------------------------------
Authorized Officer: Robert J. Vana

EXECUTIVE

/s/ Richard W. Neu
-----------------------------------
Richard W. Neu

<PAGE> 1
Exhibit 10.8

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------

This First Amendment to Employment Agreement, is made and entered into
this 29th day of July, 1998, by and between Charter One Financial, Inc. (the
"Company") and Charles John Koch (the "Employee").

WHEREAS, the Company and the Employee desire to amend that certain
Employment Agreement between them, dated October 31, 1995 (the "Employment
Agreement");

WHEREAS, the Board of Directors believes that it is in the best
interests of the Company and its subsidiaries for the Company to enter into this
First Amendment to Employment Agreement with the Employee in order to assure
continuity of management of the Company and its subsidiaries; and

WHEREAS, the Board of Directors has approved and authorized the
execution of this First Amendment to Employment Agreement:

NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Employment Agreement.

2. AMENDMENTS TO EMPLOYMENT AGREEMENT.

(a) The Employment Agreement is hereby amended by deleting the first
and second sentences of Section 2 of the Employment Agreement and inserting in
their place the following:

The term of this Agreement shall be the period from
the Effective Date to July 1, 2001. Beginning on July 1, 1999
and on each July 1 thereafter (each an "Extension Date"), the
term of this Agreement shall be extended for a period of one
year in addition to the then-remaining term, PROVIDED THAT the
Company has not given notice to the Employee in writing at
least 90 days prior to the Extension Date that the term of
this Agreement shall not be extended further, and PROVIDED
FURTHER that the Employee has not received an unsatisfactory
performance review by either the Board of Directors or the
board of directors of the Bank.

(b) The Employment Agreement is hereby amended by deleting Subsection
(c) of Section 7 of the Employment Agreement and inserting in its place the
following:

(c) CHANGE IN CONTROL; TAX GROSS UP. In the event
that the Employee experiences an Involuntary Termination
within the 12 months preceding or the 24 months following a
Change in Control, in addition to the Company's obligations
under Section 7(a) of this Agreement, the Company shall pay to
the Employee in cash, within

<PAGE> 2

30 days after the later of the date of such Change in Control
or the Date of Termination, an amount equal to 299% of the
Employee's "base amount" as determined under Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code").

In the event that any payments or benefits provided
or to be provided to the Employee, whether pursuant to this
Agreement or from other plans or arrangements maintained by
the Company or any of the Consolidated Subsidiaries,
constitute "excess parachute payments" under Section 280G of
the Code that are subject to excise tax under Section 4999 of
the Code, the Company shall pay to the Executive in cash an
additional amount equal to the amount of the Adjusted Gross Up
Payment. The "Adjusted Gross Up Payment" shall be the amount
equal to the aggregate of (i) the excise tax payable by the
Employee pursuant to Section 4999 of the Code (the "Penalty
Tax") and (ii) 80% of the excess of the tax gross up amount
that, on an after-tax basis, would fully reimburse the
Employee for the Penalty Tax, utilizing the maximum effective
rate of tax of the Employee including federal, state, local
and medicare tax rates, over the Penalty Tax.

For purposes of determining the amount of the
Adjusted Gross Up Payment, the value of any non-cash benefits
and deferred payments or benefits subject to the Penalty Tax
shall be determined by the Company's independent auditors in
accordance with the principles of Section 280G(d)(3) and (4)
of the Code. In the event that, after the Adjusted Gross Up
Payment is made, the amount of the Penalty Tax is determined
to be less than the amount calculated in the determination of
the actual Adjusted Gross Up Payment made by the Company, the
Employee shall repay to the Company, at the time that such
reduction in the amount of Penalty Tax is finally determined,
the portion of the Adjusted Gross Up Payment attributable to
such reduction, plus interest on the amount of such repayment
at the applicable federal rate under Section 1274 of the Code
from the date of the Adjusted Gross Up Payment to the date of
the repayment. The amount of the reduction of the Adjusted
Gross Up Payment shall reflect any subsequent reduction in the
Penalty Tax resulting from such repayment.

In the event that, after the Adjusted Gross Up
Payment is made, the amount of the Penalty Tax is determined
to exceed the amount anticipated at the time the Adjusted
Gross Up Payment was made, the Company shall pay to the
Employee, in immediately available funds, at the time that
such additional amount of Penalty Tax is finally determined,
an additional payment (the "Additional

<PAGE> 3

Gross Up Payment") equal to the aggregate of (i) such
additional amount of Penalty Tax (the "Additional Penalty
Tax"), (ii) 80% of the the excess of the tax gross up amount
that, on an after-tax basis, would fully reimburse the
Employee for the Additional Penalty Tax, utilizing the maximum
effective rate of tax of the Employee including federal,
state, local and medicare taxes, over the Additional Penalty
Tax and (iii) interest and penalties, if any, owed by the
Employee with respect to such Additional Penalty Tax and other
tax attributable to the Additional Gross Up Payment. The
Company shall have the right to challenge, on the Employee's
behalf, any Penalty Tax or Additional Penalty Tax assessment
against him as to which the Employee is entitled to (or would
be entitled if such assessment is finally determined to be
proper) an Adjusted Gross Up Payment or Additional Gross Up
Payment, provided that all costs and expenses incurred in such
a challenge shall be borne by the Company and the Company
shall indemnify the Employee and hold him harmless, on an
after-tax basis, from any Penalty Tax, Additional Penalty Tax
or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment costs and
expenses by the Company.

17. DEFERRAL OF NON-DEDUCTIBLE COMPENSATION. In the
event that the Employee's aggregate compensation (including
compensatory benefits which are deemed remuneration for
purposes of Section 162(m) of the Code) from the Company and
the Consolidated Subsidiaries for any calendar year exceeds
the greater of (i) $1,000,000 or (ii) the maximum amount of
compensation deductible by the Company or any of the
Consolidated Subsidiaries in any calendar year under Section
162(m) of the Code (the "maximum allowable amount"), then any
such amount in excess of the maximum allowable amount shall be
mandatorily deferred with interest thereon at 8% per annum to
a calendar year such that the amount to be paid to the
Employee in such calendar year, including deferred amounts and
interest thereon, does not exceed the maximum allowable
amount. Subject to the foregoing, deferred amounts including
interest thereon shall be payable at the earliest time
permissible.

<PAGE> 4

IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the day and year first written above.

Attest: Charter One Financial, Inc.

/s/ Robert J. Vana /s/ Richard W. Neu
- -------------------------- --------------------------
Robert J. Vana, Secretary By: Richard W. Neu
Its: Senior Vice President

Employee

/s/ Charles John Koch
--------------------------
Charles John Koch

<PAGE> 5

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------

This First Amendment to Employment Agreement, is made and entered into
this 29th day of July, 1998, by and between Charter One Financial, Inc. (the
"Company") and Richard W. Neu (the "Employee").

WHEREAS, the Company and the Employee desire to amend that certain
Employment Agreement between them, dated October 31, 1995 (the "Employment
Agreement");

WHEREAS, the Board of Directors has approved and authorized the
execution of this First Amendment to Employment Agreement:

NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Employment Agreement.

2. AMENDMENTS TO EMPLOYMENT AGREEMENT.

(a) The Employment Agreement is hereby amended by deleting the first
and second sentences of Section 2 of the Employment Agreement and inserting in
their place the following:

The term of this Agreement shall be the period from
the Effective Date to July 1, 2001. Beginning on July 1, 1999
and on each July 1 thereafter (each an "Extension Date"), the
term of this Agreement shall be extended for a period of one
year in addition to the then-remaining term, PROVIDED THAT the
Company has not given notice to the Employee in writing at
least 90 days prior to the Extension Date that the term of
this Agreement shall not be extended further, and PROVIDED
FURTHER THAT the Employee has not received an unsatisfactory
performance review by either the Board of Directors or the
board of directors of the Bank.

(b) The Employment Agreement is hereby amended by deleting Subsection
(c) of Section 7 of the Employment Agreement and inserting in its place the
following:

<PAGE> 6

<PAGE> 7

Gross Up Payment") equal to the aggregate of (i) such
additional amount of Penalty Tax (the "Additional Penalty
Tax"), (ii) 80% of the the excess of the tax gross up amount
that, on an after-tax basis, would fully reimburse the
Employee for the Additional Penalty Tax, utilizing the maximum
effective rate of tax of the Employee including federal,
state, local and medicare taxes, over the Additional Penalty
Tax and (iii) interest and penalties, if any, owed by the
Employee with respect to such Additional Penalty Tax and other
tax attributable to the Additional Gross Up Payment. The
Company shall have the right to challenge, on the Employee's
behalf, any Penalty Tax or Additional Penalty Tax assessment
against him as to which the Employee is entitled to (or would
be entitled if such assessment is finally determined to be
proper) an Adjusted Gross Up Payment or Additional Gross Up
Payment, PROVIDED THAT all costs and expenses incurred in such
a challenge shall be borne by the Company and the Company
shall indemnify the Employee and hold him harmless, on an
after-tax basis, from any Penalty Tax, Additional Penalty Tax
or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment costs and
expenses by the Company.

<PAGE> 8

IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the day and year first written above.

Attest: Charter One Financial, Inc.

/s/ Robert J. Vana /s/ Charles John Koch
- ------------------------ ----------------------------------
Robert J. Vana, Secretary By: Charles John Koch
Its:Chairman, President and Chief
Executive Officer

Employee

/s/ Richard W. Neu
----------------------------------
Richard W. Neu

<PAGE> 9

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------

This First Amendment to Employment Agreement, is made and entered into
this 29th day of July, 1998, by and between Charter One Financial, Inc. (the
"Company") and Robert J. Vana (the "Employee").

WHEREAS, the Company and the Employee desire to amend that certain
Employment Agreement between them, dated October 31, 1995 (the "Employment
Agreement");

WHEREAS, the Board of Directors has approved and authorized the
execution of this First Amendment to Employment Agreement:

NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Employment
Agreement.

2. AMENDMENTS TO EMPLOYMENT AGREEMENT.

(a) The Employment Agreement is hereby amended by deleting the first
and second sentences of Section 2 of the Employment Agreement and inserting in
their place the following:

The term of this Agreement shall be the period from
the Effective Date to July 1, 2001. Beginning on July 1, 1999
and on each July 1 thereafter (each an "Extension Date"), the
term of this Agreement shall be extended for a period of one
year in addition to the then-remaining term, PROVIDED THAT the
Company has not given notice to the Employee in writing at
least 90 days prior to the Extension Date that the term of
this Agreement shall not be extended further, and PROVIDED
FURTHER THAT the Employee has not received an unsatisfactory
performance review by either the Board of Directors or the
board of directors of the Bank.

(b) The Employment Agreement is hereby amended by deleting Subsection
(c) of Section 7 of the Employment Agreement and inserting in its place the
following:

<PAGE> 10

<PAGE> 11

<PAGE> 12

IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the day and year first written above.

Attest: Charter One Financial, Inc.

/s/ RICHARD W. NEU /s/ Charles John Koch
- ------------------------- ----------------------------------
Richard W. Neu By: Charles John Koch
Its:Chairman, President and Chief
Executive Officer

Employee

/s/ Robert J. Vana
----------------------------------
Robert J. Vana

4
<PAGE> 13

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------

This First Amendment to Employment Agreement, is made and entered into
this 29th day of July, 1998, by and between Charter One Financial, Inc. (the
"Company") and Mark D. Grossi (the "Employee").

WHEREAS, the Company and the Employee desire to amend that certain
Employment Agreement between them, dated October 31, 1995 (the "Employment
Agreement");

WHEREAS, the Board of Directors has approved and authorized the
execution of this First Amendment to Employment Agreement:

NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Employment Agreement.

2. AMENDMENTS TO EMPLOYMENT AGREEMENT.

(a) The Employment Agreement is hereby amended by deleting the first
and second sentences of Section 2 of the Employment Agreement and inserting in
their place the following:

The term of this Agreement shall be the period from
the Effective Date to July 1, 2001. Beginning on July 1, 1999
and on each July 1 thereafter (each an "Extension Date"), the
term of this Agreement shall be extended for a period of one
year in addition to the then-remaining term, PROVIDED THAT the
Company has not given notice to the Employee in writing at
least 90 days prior to the Extension Date that the term of
this Agreement shall not be extended further, and PROVIDED
FURTHER THAT the Employee has not received an unsatisfactory
performance review by either the Board of Directors or the
board of directors of the Bank.

(b) The Employment Agreement is hereby amended by deleting Subsection
(c) of Section 7 of the Employment Agreement and inserting in its place the
following:

<PAGE> 14

<PAGE> 15

Gross Up Payment") equal to the aggregate of (i) such
additional amount of Penalty Tax (the "Additional Penalty
Tax"), (ii) 80% of the the excess of the tax gross up amount
that, on an after-tax basis, would fully reimburse the
Employee for the Additional Penalty Tax, utilizing the maximum
effective rate of tax of the Employee including federal,
state, local and medicare taxes, over the Additional Penalty
Tax and (iii) interest and penalties, if any, owed by the
Employee with respect to such Additional Penalty Tax and other
tax attributable to the Additional Gross Up Payment. The
Company shall have the right to challenge, on the Employee's
behalf, any Penalty Tax or Additional Penalty Tax assessment
against him as to which the Employee is entitled to (or would
be entitled if such assessment is finally determined to be
proper) an Adjusted Gross Up Payment or Additional Gross Up
Payment, PROVIDED THAT all costs and expenses incurred in such
a challenge shall be borne by the Company and the Company
shall indemnify the Employee and hold him harmless, on an
after-tax basis, from any Penalty Tax, Additional Penalty Tax
or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment costs and
expenses by the Company.

<PAGE> 16

IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the day and year first written above.

Attest: Charter One Financial, Inc.

/s/ Robert J. Vana /s/ Charles John Koch
- ------------------------- ----------------------------------
Robert J. Vana, Secretary By: Charles John Koch
Its: Chairman, President and Chief
Executive Officer

Employee

/s/ Mark D. Grossi
--------------------------------
Mark D. Grossi

<PAGE> 17

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------

This First Amendment to Employment Agreement, is made and entered into
this 29th day of July, 1998, by and between Charter One Financial, Inc. (the
"Company") and John D. Koch (the "Employee").

WHEREAS, the Company and the Employee desire to amend that certain
Employment Agreement between them, dated October 31, 1995 (the "Employment
Agreement");

WHEREAS, the Board of Directors has approved and authorized the
execution of this First Amendment to Employment Agreement:

NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Employment
Agreement.

2. AMENDMENTS TO EMPLOYMENT AGREEMENT.

(a) The Employment Agreement is hereby amended by deleting the first
and second sentences of Section 2 of the Employment Agreement and inserting in
their place the following:

The term of this Agreement shall be the period from
the Effective Date to July 1, 2001. Beginning on July 1, 1999
and on each July 1 thereafter (each an "Extension Date"), the
term of this Agreement shall be extended for a period of one
year in addition to the then-remaining term, PROVIDED THAT the
Company has not given notice to the Employee in writing at
least 90 days prior to the Extension Date that the term of
this Agreement shall not be extended further, and PROVIDED
FURTHER THAT the Employee has not received an unsatisfactory
performance review by either the Board of Directors or the
board of directors of the Bank.

(b) The Employment Agreement is hereby amended by deleting Subsection
(c) of Section 7 of the Employment Agreement and inserting in its place the
following:

(c) CHANGE IN CONTROL; Tax Gross Up. In the event
that the Employee experiences an Involuntary Termination
within the 12 months preceding or the 24 months following a
Change in Control, in addition to the Company's obligations
under Section 7(a) of this Agreement, the Company shall pay to
the Employee in cash, within

<PAGE> 18

<PAGE> 19

<PAGE> 20

IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the day and year first written above.

Attest: Charter One Financial, Inc.

Employee

/S/John D. Koch
---------------
John D. Koch

<PAGE> 1
Exhibit 10.16

AMENDMENT AND RESTATEMENT OF THE
RCSB FINANCIAL, INC.
NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN

1. HISTORY AND PURPOSE OF THE PLAN

The RCSB Financial, Inc. Non-Employee Director Deferred Compensation Plan (the
"Plan") was established to provide a procedure whereby individuals who served as
members of the Board of Directors of RCSB Financial, Inc. ("RCSB") who were not
employees of RCSB or any of its subsidiaries ("Non-employee Directors") were
permitted to defer the payment of all or a specified portion of the compensation
payable to them for services as Non-employee Directors, including the annual
retainer, meeting fees, and fees payable to Non-employee Directors for services
above and beyond those services in connection with any Board and committee
responsibilities ("Fees").

RCSB entered into an Agreement and Plan of Merger and Reorganization by and
among Charter One Financial, Inc., Charter Michigan Bancorp, Inc., Charter One
Bank F.S.B., RCSB Financial, Inc. and Rochester Community Savings Bank, dated
May 21, 1997 ("Merger Agreement"), whereby RCSB merged into Charter Michigan
Bancorp, Inc. ("Charter Michigan"). In accordance with the Merger Agreement and
a letter, dated May 21, 1997, which supplemented the Merger Agreement (the
"Supplemental Agreement"), the Board of Directors of RCSB was to take
appropriate action to prohibit additional Plan deferrals with respect to Fees
earned after December 31, 1997, and the Board of Directors of RCSB was
eliminated and replaced by the Board of Directors of Charter Michigan. In
addition, in accordance with the Supplemental Agreement, Charter One Financial,
Inc.("COFI") assumed all obligations under the Plan.

This amendment and restatement of the Plan, effective December 1, 1998, reflects
changes that occurred as a result of the Merger Agreement and Supplemental
Agreement, resolutions adopted by the Board of Directors of Charter Michigan
wherein it transferred any and all of its responsibilities and duties under the
Plan to the Board of Directors of COFI (the "Board of Directors"), and
resolutions adopted by the Board of Directors wherein it authorized and approved
changes to the Plan, including certain changes related to Plan valuation and
distribution options and the establishment of a trust for certain Plan assets.

2. ADMINISTRATION

The Plan shall be administered by a committee ("Committee") consisting of no
fewer than two persons appointed from time to time by the Board of Directors.
The Committee shall have plenary authority in its discretion, but subject to the
express provisions of the Plan, to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to it, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The determinations of the Committee on the foregoing matters shall be conclusive
and binding on all interested parties.

<PAGE> 2

3. DEFERRAL ELECTIONS

With respect to Fees earned prior to January 1, 1998, a Non-employee Director
could irrevocably elect, on or before December 31 of any year, to defer payment
of all or a specified portion of any unearned Fees scheduled to be paid to such
Non-employee Director in succeeding calendar years. Such elections became
effective on the first day of the calendar year following receipt by the
Secretary of RCSB of written notice thereof. Any Non-employee Director who made
such an election was a Participant under the Plan with respect to that election.
Amounts deferred by a Participant are nonforfeitable at all times.

4. PARTICIPANT ACCOUNTS

There shall be established for each Participant an account on COFI's books to be
designated as such Participant's deferred compensation account ("Account"). Each
Participant's Account shall contain one or more Sub-accounts based on the
rate(s) by which the Participant elects for the balance in his or her Account
balance to be valued.

(A) Effective prior to January 1, 1999, each Participant was given the
opportunity to elect that the balance in his or her Account be valued by
reference to one or a combination of the following rates, provided that
allocations were made in multiples of twenty percent (20%):

(i) GUARANTEED RATE. The Guaranteed Rate provided for
earnings to be calculated in accordance with the
average rate of return on assets of COFI for the
quarter being credited. Earnings accrued during each
calendar quarter and were credited to the
Participant's Account on the first business day
following the end of such quarter on the basis of the
average balance in such Account during such quarter.

(ii) SHARE EQUIVALENT RATE. The Share Equivalent Rate
provided for earnings to be calculated in accordance
with the Fair Market Value (i.e., the closing sale
price of a share of COFI Common Stock, as quoted by
NASDAQ) of shares of COFI's common stock, $1.00 par
value per share ("Common Stock"). Share Equivalents
are valued, as of any date, by multiplying the number
of Share Equivalents in a Participant's Account by
the Fair Market Value of COFI Common Stock on the
date for which the valuation is made. Accordingly,
the value of Share Equivalents will change as the
Fair Market Value of COFI's Common Stock changes and
will appreciate and depreciate with the changing Fair
Market Value.

In addition, COFI shall, on the payment date for each
dividend payment, credit to such Participant's
Account Share Equivalents determined by a number the
numerator of which is the per share value of the
dividend multiplied by the number of Share
Equivalents credited to the Participant's Account as
of the record date and the denominator of which is
the Fair Market Value of COFI's Common Stock on the
dividend payment date.

<PAGE> 3

The number of Share Equivalents credited to a
Participant's Account shall be equal to the amount
designated to be valued in accordance with the Share
Equivalent Rate, divided by the Fair Market Value of
COFI's Common Stock as of that date.

(iii) SHARE UNIT RATE. For deferral elections made prior to
January 1, 1996, the Share Unit Rate provided for
earnings to be calculated in accordance with the Fair
Market Value of COFI's Common Stock. The value of
Share Units, as of any date, shall consist of an
amount, equal to the sum of (a) the dollar amount
designated to be valued in accordance with the Share
Unit Rate; (b) the excess amount, if any, of the
Maturity Value over the Initial Value of the
Participant's Share Units; and (c) the Maturity Value
of the Participant's Dividend Units. Initial Value
(unless the Committee determines otherwise) means the
closing price of a share of COFI Common Stock, as
quoted by NASDAQ, as of the date a Share Unit was
credited to the Participant's Account. Maturity Value
means the closing sale price of a share of COFI
Common Stock, as quoted by NASDAQ, on the date for
which the valuation is made.

The number of Share Units credited to the
Participant's Account shall be equal to the amount
designated to be valued in accordance with the Share
Unit Rate divided by the Initial Value. In addition,
a number of Dividend Units shall be credited to a
Participant's Account, equal to the number of COFI
Common Stock shares determined by dividing the fair
value of any dividend or other distribution paid or
made by COFI with respect to a share of its Common
Stock (but not including a distribution of COFI
Common Stock) by the average of the means between the
high and low sales prices of a share of COFI Common
Stock, as quoted by NASDAQ, for the five consecutive
days commencing on the date on which the COFI Common
Stock first traded "ex" such dividend or
distribution. In the case of a cash dividend, the
"fair value" thereof shall be such amount as shall be
determined in good faith by the Committee.

(B) Effective January 1, 1999, each Participant shall be given the
opportunity to elect, in accordance with Plan Section 5, below, the rates(s) by
which the balance in his or her Account should be valued, provided that
allocations among the rates must be made in multiples of twenty percent (20%):

(i) GUARANTEED RATE. The Guaranteed Rate provides for
earnings to be calculated in accordance with the
one-year Treasury Bill yield as of the last day of
each calendar quarter. Earnings shall accrue on the
amount designated to be valued in accordance with the
Guaranteed Rate during each calendar quarter and
shall be credited to the Participant's Account on the
first business day following the end of such quarter
on the basis of the average balance in such Account
during such quarter.

<PAGE> 4

(ii) SHARE EQUIVALENT RATE. The Share Equivalent Rate
provides for earnings to be calculated in accordance
with the Fair Market Value of shares of COFI's Common
Stock, in the manner described above.

Amounts valued at the Guaranteed Rate shall be held in the Participant's
Guaranteed Rate Subaccount. Amounts valued at the Share Equivalent Rate shall be
held in the Participant's Share Equivalent Sub-account.

All amounts credited to a Participant's Guaranteed Rate Sub-account, together
with any earnings or dividends accrued thereon, shall be held in COFI's general
funds and shall represent an unsecured claim against COFI's general assets.
Although shares equal in value to all amounts credited to a Participant's Share
Equivalent Sub-account, together with any earnings or dividends accrued thereon,
may be placed in the RCSB Financial, Inc. Non-employee Director Deferred
Compensation Trust (the "Trust"), the obligations of COFI with respect to the
Share Equivalent Sub-account shall represent an unsecured claim against COFI's
general assets.

COFI shall furnish quarterly statements to each Participant, reflecting the
amount and change in value in his or her Account.

5. SUB-ACCOUNT ELECTIONS

Effective January 1, 1999, each Participant shall make an irrevocable election
as to the rates to be referenced to value the balance in his or her Account (the
"New Election"). For a Participant who does not make a New Election, such
Participant's prior election, as in effect immediately preceding January 1, 1999
(the "Prior Election"), shall be deemed to be his or her irrevocable New
Election except that, with respect to any amount that was determined based on
the Share Unit Rate, the Participant shall be deemed to have made a New Election
to have such amount determined in accordance with the Share Equivalent Rate. For
a Participant who has never made a valid election, such Participant shall be
deemed to have made an irrevocable New Election to have the amount in his or her
Account to be valued based on the Guaranteed Rate.

6. TRANSITION OF SUB-ACCOUNTS EFFECTIVE JANUARY 1, 1999

(A) GUARANTEED RATE. Beginning January 1, 1999, the amount in a
Participant's Guaranteed Rate Sub-account shall be valued using the Guaranteed
Rate in effect as of that date.

(B) SHARE EQUIVALENTS. The Share Equivalents in a Participant's Share
Equivalent Subaccount shall continue to be valued using the Share Equivalent
Rate.

(C) SHARE UNITS. Any amount valued at the Share Unit Rate immediately
preceding January 1, 1999, which is converted effective January 1, 1999, shall
be valued as of December 31, 1998 in the manner described in Plan Section
4(A)(iii), above.

To the extent the Participant's New Election directs that
Share Units shall be converted to the Guaranteed Rate, the
amount determined in the previous paragraph

<PAGE> 5

shall be credited to the Participant's Guaranteed Rate
Sub-Account and, beginning January 1, 1999, earnings shall be
calculated using the Guaranteed Rate in effect as of that
date. To the extent the Participant's New Election directs
that Share Units shall be converted to Share Equivalents, a
number of Share Equivalents, equal to the amount determined in
the previous paragraph, divided by the Fair Market Value of
COFI's Common Stock as of that date, shall be credited to the
Participant's Share Equivalent Sub-account and, beginning
January 1, 1999, earnings shall be calculated using the Share
Equivalent Rate.

7. CHARACTERISTICS OF SHARE EQUIVALENTS

Share Equivalents are not shares of Common Stock and have none of the voting
powers associated with shares for Common Stock. Notwithstanding the previous
sentence, to the extent that a Participant' Account that is paid in COFI Common
Stock, as described in Plan Section 8, below, stock certificate(s) representing
such shares shall be issued and transferred to the Participant on the Deferral
Payment Date or subsequent installment payment date, if applicable, whereupon
the Participant shall become a COFI shareholder with respect to such shares and
shall be entitled to vote the shares.

In the event that (a) the number of outstanding shares of COFI Common Stock
shall be changed by reason of split-ups, combinations of shares,
recapitalizations, share dividends or otherwise, or (b) COFI Common Stock is
converted into or exchanged for other shares as a result of any merger or
consolidation (including a sale of assets) or other recapitalization, the number
of Share Equivalents then credited to a Participant's Share Equivalent
Sub-account and the value of such Share Equivalents shall be appropriately
adjusted so as to reflect such change.

8. PAYMENT FROM PARTICIPANT ACCOUNTS

A Participant's Account shall be paid in a lump sum or in the number of annual
installments elected by such Participant in his or her Prior Election. The lump
sum or the first installment, as applicable, shall be paid on the "Deferral
Payment Date" indicated in the Participant's Prior Election, and subsequent
installments, if any, shall be paid on the first business day of each succeeding
calendar year until the entire remaining balance in a Participant's Account has
been paid. When a Participant is to receive the balance of his or her Account in
annual installments, each such annual installment shall be a fraction of the
balance in such Account on the date such annual installment is to be paid, the
numerator of which is one and the denominator of which is the total number of
installments then remaining to be paid. Annual installment payments of COFI
Common Stock shall be rounded down to the nearest whole share.

Payment of the balance credited to a Participant's Guaranteed Rate Sub-account
shall be made in cash. Payment of the balance credited to a Participant's Share
Equivalent Sub-account shall be made in whole shares of COFI Common Stock. Any
fractional Share Equivalents in the Participant's Share Equivalent Sub-account
as of the date of payment of a lump sum payment or the last installment payment
date, if applicable, shall be paid in cash in a lump sum on such date.

<PAGE> 6

Notwithstanding the foregoing, a Participant may, in accordance with his or her
New Election, irrevocably elect to receive a lump sum distribution of the
balance in his or her Account payable in cash or Common Stock as elected by the
Participant in his or her Prior Election. Such Account balance shall be valued
as of an interim valuation date of December 1, 1998, based on the Subaccount
elections reflected in the Participant's Prior Election. Such Account balance
shall be paid in full as soon as reasonably practicable following the December
1, 1998 interim valuation date. In the event that a lump sum distribution of a
Participant's Account balance that is payable in cash is not paid by December
31, 1998, interest, at the Guaranteed Rate, shall accrue on the Account balance
from December 1, 1998 to the end of the month preceding actual payment of the
Account balance.

9. PAYMENT IN EVENT OF DEATH OR HARDSHIP

If a Participant dies before the balance in his or her Guaranteed Rate
Sub-account has been paid in full, the balance then remaining shall be paid
promptly in a lump sum to such Participant's designated beneficiary(ies). If a
Participant dies before the balance in his or her Share Equivalent Sub-account
has been paid in full, a stock certificate representing the balance of whole
shares of COFI Common Stock then remaining shall be issued and transferred, and
any fractional Share Equivalents in the Participant's Share Equivalent
Sub-account shall be paid in cash in a lump sum, promptly to the Participant's
designated beneficiary(ies).

A Participant may designate one or more beneficiaries (including an entity other
than a natural person) to receive any payments to be made upon the Participant's
death. At any time, and from time to time, any such designation may be changed
or canceled by the Participant without notice to or the consent of any
beneficiary(ies). Any such designation, change, or cancellation shall be
effective upon receipt by COFI's Secretary of written notice thereof. If a
Participant designates more than one beneficiary, any payments to such
beneficiaries shall be made in equal shares unless the Participant has
designated otherwise. If no beneficiary has been named by the Participant, or if
the designated beneficiary or beneficiaries shall be predeceased the
Participant, or shall no longer exist, the balance of the Participant's Account
shall be paid to the Participant's estate.

The Committee may, at any time, under rules which it may prescribe, direct COFI
to pay in a lump sum to a Participant all or any portion of the balance then in
the Participant's Account if the Committee finds, in its sole discretion, that
continued deferral of all or any portion of such balance shall result in a
financial hardship to such Participant or that such Participant has become
disabled.

10. NONASSIGNABILITY

During a Participant's lifetime, the right to the balance in his or her Account
shall not be transferable or assignable. Nothing contained in the Plan shall
create, or be deemed to create, a trust, actual or constructive, for the benefit
of a Participant or his or her beneficiary, or shall give, or be deemed to give,
to any Participant or his or her beneficiary any interest in any specific assets
of COFI. The right of a Participant to receive future payments under the Plan or
Trust shall be an unsecured claim against the general assets of the Company.

11. AMENDMENT

<PAGE> 7

The Board of Directors may, at any time, without the consent of the
participants, amend, suspend, or terminate the Plan. Subject to any applicable
laws and regulations, no amendment, suspension, or termination of the Plan shall
operate to annul an election already in effect for the then current year or for
any preceding calendar year; and the balance in a Participant's Account shall
continue to be payable in accordance with the Participant's then current
election and, until paid, to be valued by a rate of return to be determined from
time to time by the Committee.

12. GOVERNING LAW

The Plan shall be construed and enforced according to the laws of the State of
Ohio, and all the provisions thereof shall be administered according to the laws
of said State.

13. SEVERABILITY OF PROVISIONS

If any of the provisions of the Plan or the application thereof to any
Participant shall be held invalid, neither the remainder of the Plan nor its
application to any other Participant shall be affected thereby.

14. PRIOR PLANS

This Plan is intended to supersede, in all respects, the RCSB Deferred
Compensation Plan for Nonemployee Directors, the Fee Deferral Plan for Trustees
and The RCSB Financial, Inc. Non-employee Director Deferred Compensation Plan
("Prior Plans") previously adopted by the then Board of Directors or Trustees of
Rochester Community Savings Bank, which Prior Plans were effective as of
November 10, 1986, January 1, 1980 and July 1, 1996, respectively.

15. EFFECTIVE DATE

By approval of the Board of Directors, this amendment and restatement of the
Plan is effective December 1, 1998.

<PAGE> 1
Exhibit 10.20

EMPLOYMENT AGREEMENT
--------------------

This EMPLOYMENT AGREEMENT (this "Agreement") is entered into this 30th
day of November, 1998, by and between Herbert G. Chorbajian (the "Employee") and
Charter One Financial, Inc. (the "Company").

WHEREAS, the Company has entered into an Agreement and Plan of Merger
dated as of June 15, 1998 (the "Acquisition Agreement"), under which ALBANK
Financial Corporation ("AFC") shall be acquired by the Company by merger of AFC
into the Company's wholly owned subsidiary, Charter-Michigan Bancorp, Inc.
("Charter-Michigan"), and AFC's wholly-owned subsidiary, ALBANK, F.S.B.("ALBANK
FSB"), shall be merged into Charter-Michigan's wholly-owned subsidiary, Charter
One Bank, F.S.B. (the "Bank"),

WHEREAS, to maximize the value to be received by the Company in the
transactions contemplated by the Acquisition Agreement, the Company believes it
is essential to retain the services of the Employee on a long-term basis in
order to integrate operations, assure customer retention and customer
development, facilitate long term strategic planning in the State of New York
and otherwise to enhance the acquired franchise,

WHEREAS, from and after the Effective Date, the Company desires to
employ the Employee, and the Employee is willing to be employed, on the terms
set forth below, and

WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has approved the execution of this Agreement;

NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:

I. DEFINITIONS.

A. BOARD OF DIRECTORS. "Board of Directors" means the Board of
Directors of the Company.

B. CHANGE IN CONTROL PAYMENT. "Change in Control Payment" means the
payment to the Employee required under Paragraph (a) of Section (2) of the
Letter Agreement.

C. DISABILITY. "Disability" means a mental or physical infirmity of the
Employee which impairs his ability to perform substantially his duties and
responsibilities under this Agreement and which results in (i) eligibility of
the Employee under the long-term disability plan of the Company or the Bank, if
any; or (ii) inability of the Employee to perform substantially his duties and
responsibilities under this Agreement for a period of 365 consecutive days.

D. EFFECTIVE DATE. "Effective Date" means the date of the consummation
of the merger of AFC into Charter-Michigan pursuant to the Acquisition
Agreement.

<PAGE> 2

E. INVOLUNTARY TERMINATION. The term "Involuntarily Termination" means
the termination of the employment of Employee by the Company without his express
written consent. The term "Involuntary Termination" does not include Termination
for Cause or termination of employment due to death or Disability or suspension
or temporary or permanent prohibition from participation in the conduct of the
affairs of the Bank or another depository institution under Section 8 of the
Federal Deposit Insurance Act.

F. LETTER AGREEMENT. "Letter Agreement" means the letter agreement
dated June 15, 1998, by and among AFC, the Company, Charter-Michigan and the
Bank.

G. NON-COMPETE PERIOD. "Non-Compete Period" (i) means the period of six
months following the later of (a) cessation of services as a director of the
Company and (b) termination of the employment of the Employee for any reason
including but not limited to expiration of the Term but excluding Termination
for Cause, Voluntary Termination when the Employee is in breach of this
Agreement and Involuntary Termination; (ii) in the case of Termination for
Cause, Voluntary Termination when the Employee is in breach of this Agreement
and Involuntary Termination, means the earlier to expire of (a) the period of
eighteen months following the termination of the Employee's employment and (b)
the period of six months after the expiration of the Term.

H. TERM. "Term" means the period commencing on the Effective Date and
concluding on September 30, 2003.

I. TERMINATION FOR CAUSE AND TERMINATED FOR CAUSE. "Termination for
Cause" and "Terminated For Cause" mean termination of the employment of the
Employee by the Company because of the Employee's personal dishonesty, willful
misconduct, breach of a 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) which results in
material loss to the Company or final cease-and-desist order, or material breach
of any provision of this Agreement. No act or failure to act by the Employee
shall be considered willful unless the Employee 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 Company. The Employee shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board of Directors at a meeting of the Board duly called and held for such
purpose (after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board),
stating that in the good faith opinion of the Board of Directors the Employee
has engaged in conduct described in the preceding sentence and specifying the
particulars thereof in detail.

J. VOLUNTARY TERMINATION. "Voluntary Termination" means the voluntary
termination of employment under this Agreement by the Employee.

<PAGE> 3

II. EMPLOYMENT.

A. SERVICES. In addition to serving as a Vice Chairman of the Company
in accordance with the Letter Agreement, the Employee shall be employed by the
Company under this Agreement until the expiration of the Term, unless his
employment is terminated sooner by Voluntary Termination, Involuntary
Termination or Termination for Cause or due to Disability or death. As an
employee, he shall report to the Chief Executive Officer of the Company and
shall have such duties and authority as are specified by the Chief Executive
Officer or the Board of Directors from time to time, and that are consistent
with the Employee's status as a Vice Chairman of the Company and the former
Chairman of the Board and Chief Executive Officer of AFC and ALBANK FSB,
including but not limited to advising the Company and its affiliates concerning:

1. integration of the operations of ALBANK FSB into the
operations of the Bank,

2. integration of the operations of subsidiaries of AFC into
the operations of subsidiaries of the Company,

3. the market areas of and communities served by ALBANK FSB
and other subsidiaries of AFC prior to the Effective Date,

4. the customers and potential customers of AFC, subsidiaries
of AFC, the Company and subsidiaries of the Company,

5. long term strategic planning for the Company and its
affiliates generally, and

6. such other matters as may be reasonably requested from time
to time by the Chief Executive Officer of the Company.

B. EMPLOYEE'S LOCATION. The Employee shall provide the services
contemplated hereunder principally from the Albany, New York, location of AFC,
provided that the Employee shall be available, to the extent requested by the
Company, to provide services under this Agreement at such times and such other
places reasonably designated by the Company. The Employee shall be provided with
an office and other facilities and services that are consistent with his status
as a Vice Chairman of the Company and his duties hereunder.

III. COMPENSATION AND BENEFITS.

A. SALARY. The Company shall pay the Employee in cash an annual salary
at the rate of four hundred forty-two thousand one hundred dollars ($442,100)
per year, pro rata for any partial year, in regular increments consistent with
the Company's salary payments to its executive officers.

B. HEALTH INSURANCE; WELFARE PROGRAMS. The Employee shall be entitled
to continue to participate in the ALBANK Group Health Plan through the later of
the Effective Date or

<PAGE> 4

December 31, 1998 and thereafter he shall be entitled to participate in the COFI
Group Health Plan. The Employee shall be entitled to participate in all other
welfare plans and programs of the Company or the Bank available to similarly
situated executives of the Company and the Bank.

C. LIFE INSURANCE. The Company shall continue to maintain in effect for
the benefit of the Employee the current term life insurance policy on his life
with a death benefit of two million, five hundred thousand dollars ($2,500,000),
payable to such beneficiaries as he may designate in writing.

D. CLUB DUES. The Company shall pay the Employee's fees and charges
associated with membership in Wolfert's Roost Country Club and Fort Orange Club
consistent with past practices of AFC and ALBANK FSB.

E. TAX GROSS UP PAYMENTS. The Company shall gross up the Employee with
respect to the tax payable with respect to the benefits payable to the Employee
under Paragraphs C. and D. of this Section III., in a manner consistent with the
past practice of ALBANK FSB.

F. VACATION. The Employee shall be entitled to paid vacation in
accordance with the Company's policies applicable to similarly situated
executives.

G. STOCK OPTIONS. The Company shall grant to the Employee annually
options to purchase shares of common stock of the Company at an exercise price
per share equal to the fair market value of such shares on the date of the
grant, and otherwise on the same basis as, and subject to written agreements
evidencing such grants on the same terms as, options awarded to similarly
situated executives of the Company except that (i) the agreements evidencing
such grants shall provide for three year cliff vesting, (ii) the first such
grant shall be for approximately 86,000 shares, consistent with the Company's
practice in making grants to similarly situated executives and (iii) with
respect to grants of options, other than such first grant, which by their terms
would vest after the Employee's retirement, the agreements evidencing such
options shall provide that at such retirement a fraction of such options shall
vest, which fraction shall have a numerator equal to the number of calendar days
during the "vesting period" (as defined below) that have elapsed as of such
retirement and a denominator equal to the number of calendar days in the vesting
period. For purposes of this Section III.G., the term "vesting period" shall
mean the period commencing on the date of grant of an option and concluding on
the date on which such option would vest under the terms of the grant but for
the provision in the preceding sentence concerning vesting at the Employee's
retirement.

H. EXPENSES. The Company shall promptly reimburse the Employee for
reasonable, ordinary and necessary expenses incurred by him in the performance
of his duties under this Agreement, consistent with Company policies for
similarly situated executives then in effect.

I. NO OTHER BENEFITS. The Employee shall not be entitled to any
benefits or to participate in any welfare or pension plans or programs of the
Company or its affiliates except as expressly set forth in this Agreement and
the Letter Agreement.

<PAGE> 5

IV. TERMINATION OF EMPLOYMENT.
--------------------------

A. INVOLUNTARY TERMINATION. In the event of Involuntary Termination
prior to the expiration of the Term, the Company shall, subject to Paragraph C.
of this Section IV., (i) pay to the Employee in a cash lump sum the amount of
salary that would be payable to the Employee under Paragraph A. of Section III.
of this Agreement during the remaining portion of the Term if he remained
employed until the expiration of the Term and (ii) provide to the Employee
during the remaining portion of the Term the other benefits provided for in
Paragraphs B. through E. of Section III. of this Agreement on the same terms as
if he had remained employed until the expiration of the Term. Following
Involuntary Termination, options granted previously to the Employee shall be
treated in accordance with the written agreements evidencing the grants of such
options, and no other options shall be granted.

B. DISABILITY. In the event of the Disability of the Employee during
the Term as reasonably determined by the Company, the Company shall be entitled
to terminate his employment under this Agreement, and shall, subject to
Paragraph C. of this Section IV., (i) pay to him or his legal representatives
75% of the cash lump sum salary payment that would have been payable under
Paragraph A. of this Section IV. as if Involuntary Termination had occurred on
the date as of which the Company terminates his employment due to Disability and
(ii) provide to the Employee during the remaining portion of the Term the other
benefits provided for in Paragraphs B. through E. of Section III. of this
Agreement on the same terms as if he had remained employed until the expiration
of the Term. Following such termination of employment due to Disability, options
previously granted to the Employee shall be treated in accordance with the
written agreements evidencing the grants of such options and no other options
shall be granted.

C. MITIGATION. In the event that following an Involuntary Termination
or termination of employment due to Disability, the Employee earns cash income
from providing services other than to the Company or any of it subsidiaries
prior to the expiration of the Term, he shall reimburse the amount of such
income to the Company up to the amount of the lump sum payment of salary made
pursuant to Paragraph A. or B. of this Section IV. In the event that following
an Involuntary Termination or termination of employment due to Disability, the
Employee becomes entitled, prior to the expiration of the Term in connection
with employment other than by the Company or any of its subsidiaries, to
benefits similar to those provided to him under Paragraphs B. through E. of
Section III. of this Agreement, the Company's obligation to provide such
benefits shall be reduced to the extent, if any, that the Employee receives
substantially similar benefits, on substantially as favorable terms, from
another employer during such period.

D. DEATH. In the event of the death of the Employee while employed
under this Agreement, the Company shall pay to his beneficiaries 25% of the cash
lump sum salary payment that would have been payable under Paragraph A. of this
Section IV. if Involuntary Termination had occurred on the date of his death and
options granted to the Employee pursuant to Paragraph G. of Section III. of this
Agreement shall be treated in accordance with the written agreements evidencing
the grant of such options and no other options shall be granted.

<PAGE> 6

E. TERMINATION FOR CAUSE AND VOLUNTARY TERMINATION. In the event of
Termination for Cause or Voluntary Termination, the Company shall pay salary and
provide benefits to the Employee through the date of termination of his
employment and shall have no further obligation to the Employee thereafter
pursuant to Section III. or Section IV. of this Agreement.

V. COVENANT NOT TO COMPETE.
------------------------

WHILE employed by or serving as a director of the Company and during
the Non-Compete Period, the Employee shall not be employed by or render any
services to any depository institution or holding company thereof which
depository institution or an affiliate of such institution has an office or
accepts deposits in the Albany, New York metropolitan area.

VI. NON-SOLICITATION.
-----------------

While employed by or serving as a director of the Company or any of its
affiliates and during the Non-Compete Period, the Employee shall not, directly
or indirectly, individually or on behalf of another person or entity, solicit,
aid or induce (i) then employees of the Company or any of its affiliates to
leave their employment in order to accept employment with or render services to
or with a depository institution that is not an affiliate of the Company, or an
affiliate of such an institution, or (ii) then customers of the Company or its
affiliates to purchase products or services then sold by the Company or its
affiliates from any other person or entity.

VII. NON-DISCLOSURE.
---------------

The Employee agrees that all information pertaining to the prior,
current or contemplated business of the Company and its affiliates (including,
for purposes of this Section VII., AFC and its subsidiaries), exclusive of (i)
publicly available information in substantially the form in which it is publicly
available and (ii) information of a general nature not pertaining exclusively to
the Company or its affiliates which would be generally acquired in positions
similar to those in which the Employee has been employed, constitutes valuable
and confidential assets of the Company and its affiliates. Such information
includes, without limitation, information related to trade secrets, supplier
lists, customer lists, financing techniques, financing sources and financial
information of the Company and its affiliates. The Employee shall hold all such
information in trust and confidence for the Company and its affiliates and shall
not use or disclose any such information other than for the business of the
Company and its affiliates, and shall be liable for damages incurred by the
Company and its affiliates as a result of disclosure other than for the business
of the Company and its affiliates either while he is employed by the Company or
after termination of his employment for any reason.

<PAGE> 7

VIII. ACKNOWLEDGMENTS RESPECTING RESTRICTIVE COVENANTS.
-------------------------------------------------

WITH respect to the restrictive covenants set forth in Sections V., VI.
and VII. of this Agreement, the Employee agrees and acknowledges as follows:

1. Such restrictive covenants shall be in addition to any
rights the Company may have in law or at equity.

2. It is impossible to measure in money the damages which will
accrue to the Company and its affiliates in the event that the
Employee breaches any such covenant. Therefore, if the Company
initiates any action or proceeding to enforce a restrictive
covenant, the Employee hereby waives the claim or defense that
the Company has an adequate remedy at law. The foregoing shall
not prejudice the Company's right to require the Employee to
account for and pay over to the Company, and the Employee
hereby agrees to account for and pay over, the compensation,
profits, monies, accruals or other benefits derived from or
received by him as a result of any transaction constituting a
breach of such restrictive covenants.

IX. INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE.
-------------------------------------------------------

A. INDEMNIFICATION. To the fullest extent permitted by law and not in
violation of 12 U.S.C. Section 1828(k) or any regulations promulgated
thereunder, the Company shall indemnify the Employee (and his legal
representatives and successors) against all liabilities, costs, charges and
expenses whatsoever incurred or sustained by him (or his legal representatives
or other successors) in connection with any action, suit or proceeding to which
the Employee (or his legal representatives or other successors) may be made a
party by reason of the Employee's being or having been a director, officer or
employee of the Company or of its subsidiaries and affiliates (including AFC and
it subsidiaries prior to the Effective Date).

B. DIRECTORS' AND OFFICERS' INSURANCE. The Employee shall be entitled
to the protection of any insurance policies that the Company may elect to
maintain generally for the benefit of its directors and officers respecting
costs, charges and expenses whatsoever incurred or sustained by the Employee (or
his legal representatives or other successors) in connection with any action,
suit or proceeding to which the Employee (or his legal representatives or other
successors) may be made a party by reason of the Employee's being or having been
a director, officer or employee of the Company or of its subsidiaries and
affiliates (including AFC and its subsidiaries prior to the Effective Date).

X. CHANGE IN CONTROL PAYMENT.
--------------------------

On the Effective Date, the Company shall pay to the Employee in cash
the Change in Control Payment and the Employee shall acknowledge receipt thereof
in writing. The Employee agrees that

<PAGE> 8

the amount of the Change in Control Payment shall be subject to adjustment after
the Effective Date as provided in Paragraph (a) of Section (2) of the Letter
Agreement.

XI. REIMBURSEMENT OF LEGAL FEES RELATING TO GOLDEN PARACHUTE TAX.
-------------------------------------------------------------

A. REIMBURSEMENT OF LEGAL FEES RELATING TO INVOLUNTARY TERMINATION. In
the event that the Employee suffers Involuntary Termination of his employment
during the Term of this Agreement, the Company (or its successors) shall pay to
the Employee all legal fees and expenses (including legal fees and expenses
incurred in connection with an arbitration proceeding engaged in pursuant to
Section XV. of this Agreement) incurred by the Employee as a result of such
termination of employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided to the Employee by this Agreement or
under any other plan, program or arrangement of the Bank or the Company or
agreement with the Bank or the Company), as and when such fees and expenses
become due.

B. LEGAL FEES RELATING TO GOLDEN PARACHUTE TAX. To the extent, if any,
that the Employee incurs reasonable fees and expenses for legal services in
connection with a determination concerning the application of Section 4999 of
the Internal Revenue Code of 1986, as amended, to any payments or benefits under
Section (2) of the Letter Agreement, the Company shall reimburse the Employee
for such reasonable fees and expenses.

XII. REGULATORY PROVISIONS. Notwithstanding any other provisions of this
Agreement:

1. If the Employee is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank or ALBANK
Commercial (or a successor to either) by an order issued under Section
8(e)(4) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12
U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Company under
this Agreement shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.

2. If the Bank or ALBANK Commercial (or a successor to either) is in
default (as defined in Section 3(x)(1) of the FDIA), all obligations of
the Company under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.

3. Except to the extent determined that continuation of this Agreement
is necessary for the continued operation of the Bank (or a successor)
by the Director of the Office of Thrift Supervision (the "Director") or
his or her designee, all obligations of the Company under this
Agreement shall be terminated (a) if, and at the time that, the Federal
Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank (or a successor) under the
authority contained in Section 13(c) of the FDIA; or (b) if, and at the
time that, the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank (or a
successor) or when the Bank (or a successor)

<PAGE> 9

is determined by the Director to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, however, shall not
be affected by any such action.

4. Any payments to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12
U.S.C. ss. 1828(k) and any rules and regulations promulgated
thereunder.

XIII. ASSIGNMENT; SUCCESSORS.
-----------------------

This Agreement may not be assigned by either party, whether by
agreement, operation of law or otherwise, without the consent of the other,
except that the Company may assign this Agreement to a successor by operation of
law. This Agreement shall be binding upon and inure to the benefit of the
Employee and the Company and their respective permitted successors, heirs,
executors, legal representatives and assigns.

XIV. RELEASE; PRIOR AGREEMENTS; AMENDMENTS; SEVERABILITY; WAIVER; HEADINGS.
----------------------------------------------------------------------

The Employee hereby releases AFC and ALBANK FSB and their respective
successors from any and all claims, demands or liabilities under the employment
agreement between the Employee and AFC, dated April 1, 1992 and the employment
agreement between the Employee and ALBANK FSB, dated April 1, 1992, provided,
however, that this release shall not affect the obligations of the Company under
the Letter Agreement, Sections 6.12, 6.13 (only to the extent that Section 6.13
applies to the welfare plans and programs of the Company and the Bank in which
the Employee is entitled to participate hereunder) and 6.15 of the Acquisition
Agreement or any benefits or compensation to which the Employee is entitled
thereunder. This Agreement contains the entire agreement between the parties
with respect to employment of the Employee and supersedes any prior oral or
written agreements or understandings between them with respect to such
employment and services, other than the Letter Agreement and the Acquisition
Agreement. For purposes of those benefit plans which the Company has agreed in
the Letter Agreement specifically to continue through December 31, 1998, the
Employee shall be deemed to continue to be employed by AFC and ALBANK FSB
through such date. This Agreement may be modified or amended only by an
instrument in writing executed by both parties. If any provision of this
Agreement is determined to be invalid, such invalidity shall not affect any
other provisions, and such other provisions shall continue in full force and
effect to the full extent consistent with applicable law. No term or condition
of this Agreement shall be deemed to have been waived, nor shall there be any
estoppel against enforcement of any provision of this Agreement, except by a
writing signed by the party charged with waiver or estoppel. No written waiver
shall be deemed a continuing waiver unless specifically stated therein and each
waiver shall operate only as to the specific term or condition waived. The
headings used in this Agreement are included solely for convenience and shall
not affect, or be used in connection with, the interpretation of this Agreement.

<PAGE> 10

XV. ARBITRATION.
------------

Except in the event that the Company alleges a breach or threatened
breach of Sections V., VI. or VII. of this Agreement or in the event of a
dispute concerning adjustment to the amount of the Change in Control Payment,
any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Except as otherwise
provided in Paragraphs A. and B. of Section XI. of this Agreement, in any such
arbitration, the arbitrator(s) shall in the award allocate the reasonable
attorneys fees and expenses of the parties in such proportions as the
arbitrator(s) deem just.

XVI. NOTICES.
--------

For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, to the Company at its home office, to the
attention of the Board of Directors with a copy to the Secretary of the Company,
or, if to the Employee, to such home or other address as the Employee has most
recently provided in writing to the Company.

XVII. GOVERNING LAW.
--------------

This Agreement shall be governed by the laws of the State of Ohio to
the extent not preempted by federal law.

<PAGE> 11

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.

Charter One Financial, Inc.

---------------------------
By:
Its:

Employee

/s/ Herbert G. Chorbajian
---------------------------
Herbert G. Chorbajian

<PAGE> 1

EXHIBIT 11

CHARTER ONE FINANCIAL, INC.
COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
FOR THE 3 FOR THE 3 FOR THE 12 FOR THE 12
MOS. ENDED MOS. ENDED MOS. ENDED MOS. ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income before extraordinary item...... $ 43,377 6,733 277,019 197,121
============= ============= ============= =============

Average common shares
outstanding.......................... 165,221,535 165,117,061 165,508,690 163,280,283
============= ============= ============= =============

Basic earnings per common share
before extraordinary item............ $ .26 .04 1.67 1.21
============= ============= ============= =============

DILUTED EARNINGS PER SHARE:
Income before extraordinary item...... $ 43,377 6,733 277,019 197,121
============= ============= ============= =============

Average common shares
outstanding.......................... 165,221,535 165,117,061 165,508,690 163,280,283
Add:
Common stock equivalents for shares
issuable under Stock Option Plan.... 4,221,407 6,206,420 5,229,351 5,908,308
------------- ------------- ------------- -------------
Average common and common
equivalent shares outstanding........ 169,442,942 171,323,481 170,738,041 169,188,591
============= ============= ============= =============
Diluted earnings per common and
common equivalent share before
extraordinary item.................. $ .26 .04 1.62 1.17
============= ============= ============= =============
</TABLE>

<PAGE> 1
EXHIBIT 21

CHARTER ONE FINANCIAL, INC.
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1998

JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
--------------------- --------------

<S> <C> <C>
ALBANK COMMERCIAL............................................... New York 100%

CHARTER MICHIGAN BANCORP, INC................................... Michigan 100%

SUBSIDIARY OF ALBANK COMMERCIAL
ALVEST Financial Services, Inc................................ New York 100%

SUBSIDIARY OF CHARTER MICHIGAN BANCORP, INC.
Charter One Bank, F.S.B....................................... United States 100%
FirstFed of Michigan International N.V. ...................... Netherland Antilles 100%
ALBANK Capital Trust I........................................ New York 100%

SUBSIDIARIES OF CHARTER ONE BANK, F.S.B.
The Aplan Holding Company, Inc................................ New York 100%
Asbany Corporation............................................ New York 100%
Charter One Securities, Inc................................... Ohio 100%
First Financial Services and Development Corporation.......... Ohio 100%
GCCC, Inc. dba ACS............................................ Ohio 100%
Servco, Inc. ................................................. Ohio 100%
Shore Holdings, Inc........................................... New York 100%
Superior West Incorporated.................................... Nevada 100%
1215 Financial Center Associates Ltd.......................... Ohio 99%

SUBSIDIARIES OF ASBANY
CDC Asbany Corporation........................................ New York 100%
Gable CVF, Inc................................................ New York 100%
Page Asbany Corporation....................................... New York 100%

SUBSIDIARIES OF CHARTER ONE MORTGAGE CORP.
AHF Securities Limited........................................ New York 100%
AHF Subordinated Securities Limited........................... New York 100%

SUBSIDIARIES OF FIRST FINANCIAL SERVICES AND
DEVELOPMENT CORPORATION
Bay Life Insurance Company, Inc. ............................. Arizona 100%
Charter One Auto Finance...................................... New York 100%
Charter One Credit Corporation................................ Ohio 100%
Charter One Insurance Agency, Inc............................. Ohio 100%
Charter One Investments, Inc. ................................ Ohio 100%
Charter One Investments of Michigan, Inc...................... Michigan 100%
Charter One Investments of New York, Inc...................... New York 100%
Charter One Mortgage Corp..................................... New York 100%
ICX Corporation. ............................................. Ohio 100%
Real Estate Appraisal Services, Inc. ......................... Ohio 100%
1001 Insurance Agency, Inc. .................................. Michigan 100%

SUBSIDIARIES OF SERVCO, INC.
American Realty Finance Corporation........................... New York 100%
Thriftco, Inc................................................. Ohio 100%
1001 Realty, Inc.............................................. Michigan 100%
1001 Services, Inc............................................ Michigan 100%

SUBSIDIARY OF SUPERIOR WEST INCORPORATED
Warm Springs.................................................. Nevada 100%
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF DELOITTE & TOUCHE LLP

INDEPENDENT AUDITORS' CONSENT

Charter One Financial, Inc.

We consent to the incorporation by reference in Registration Statement Nos.
33-23805, 33-61273, 333-33259, 333-42823, 333-33169, 333-70007, 333-65137, and
333-67431 of Charter One Financial, Inc. on Forms S-8 of our report dated
January 26, 1999 (which expresses an unqualified opinion and refers to the
reports of other auditors on the consolidated financial statements of ALBANK
Financial Corporation and RCSB Financial, Inc., which were merged with Charter
One Financial, Inc.) appearing in this Annual Report on Form 10-K of Charter One
Financial, Inc. for the year ended December 31, 1998.

/s/Deloitte & Touche LLP
Cleveland, Ohio
March 18, 1999

<PAGE> 1

EXHIBIT 23.2

CONSENT OF KPMG LLP

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Charter One Financial, Inc.

We consent to incorporation by reference in the annual report filed on Form 10-K
of Charter One Financial, Inc. and in Registration Statements Nos. 33-23805,
33-61273, 333-33259, 333-42823, 333-33169, 333-70007, 333-65137, and 333-67431
of Charter One Financial, Inc. on forms S-8 of our report dated December 13,
1996 relating to the consolidated statements of income, changes in shareholders'
equity and cash flows of RCSB Financial, Inc. and subsidiaries for the year
ended November 30, 1996, which report has been incorporated by reference in the
December 31, 1998 annual report on Form 10-K of Charter One Financial, Inc.

/s/KPMG LLP

Rochester, New York
March 18, 1999

<PAGE> 1

EXHIBIT 23.3

CONSENT OF KPMG LLP

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Charter One Financial, Inc.

We consent to incorporation by reference in the annual report filed on Form 10-K
of Charter One Financial, Inc. and in Registration Statements Nos. 33-23805,
33-61273, 333-33259, 333-42823, 333-33169, 333-70007, 333-65137 and 333-67431 of
Charter One Financial, Inc. on forms S-8 of our report dated January 30, 1998
relating to the consolidated statement of financial condition of ALBANK
Financial Corporation and subsidiaries as of December 31, 1997 and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1997,
which report has been incorporated by reference in the December 31, 1998 annual
report on Form 10-K of Charter One Financial, Inc.

/s/KPMG LLP

Albany, New York
March 18, 1999

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF CHARTER ONE FINANCIAL, INC. AND NOTES THERETO FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 309,859
<INT-BEARING-DEPOSITS> 24,195
<FED-FUNDS-SOLD> 65,453
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,552,521
<INVESTMENTS-CARRYING> 2,711,236
<INVESTMENTS-MARKET> 2,759,294
<LOANS> 17,822,402
<ALLOWANCE> 144,566
<TOTAL-ASSETS> 24,467,255
<DEPOSITS> 15,165,064
<SHORT-TERM> 593,000
<LIABILITIES-OTHER> 425,601
<LONG-TERM> 6,408,478
0
0
<COMMON> 1,654
<OTHER-SE> 1,873,458
<TOTAL-LIABILITIES-AND-EQUITY> 24,467,255
<INTEREST-LOAN> 1,311,251
<INTEREST-INVEST> 408,176
<INTEREST-OTHER> 40,944
<INTEREST-TOTAL> 1,760,371
<INTEREST-DEPOSIT> 613,494
<INTEREST-EXPENSE> 1,031,299
<INTEREST-INCOME-NET> 729,072
<LOAN-LOSSES> 29,465
<SECURITIES-GAINS> 19,811
<EXPENSE-OTHER> 492,513
<INCOME-PRETAX> 418,739
<INCOME-PRE-EXTRAORDINARY> 277,019
<EXTRAORDINARY> 61,658
<CHANGES> 0
<NET-INCOME> 215,361
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 3.34
<LOANS-NON> 108,480
<LOANS-PAST> 10,655
<LOANS-TROUBLED> 3,936
<LOANS-PROBLEM> 47,900
<ALLOWANCE-OPEN> 142,985
<CHARGE-OFFS> 36,922
<RECOVERIES> 9,038
<ALLOWANCE-CLOSE> 144,566
<ALLOWANCE-DOMESTIC> 144,566
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF CHARTER ONE FINANCIAL, INC. AND NOTES THERETO FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 307,826
<INT-BEARING-DEPOSITS> 4,279
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,421,339
<INVESTMENTS-CARRYING> 4,310,220
<INVESTMENTS-MARKET> 4,370,086
<LOANS> 16,006,468
<ALLOWANCE> 142,985
<TOTAL-ASSETS> 24,207,748
<DEPOSITS> 14,029,725
<SHORT-TERM> 278,749
<LIABILITIES-OTHER> 563,430
<LONG-TERM> 7,523,947
0
0
<COMMON> 1,689
<OTHER-SE> 1,760,208
<TOTAL-LIABILITIES-AND-EQUITY> 24,207,748
<INTEREST-LOAN> 1,154,431
<INTEREST-INVEST> 487,548
<INTEREST-OTHER> 30,601
<INTEREST-TOTAL> 1,672,580
<INTEREST-DEPOSIT> 595,869
<INTEREST-EXPENSE> 999,596
<INTEREST-INCOME-NET> 672,984
<LOAN-LOSSES> 48,293
<SECURITIES-GAINS> 2,132
<EXPENSE-OTHER> 472,156
<INCOME-PRETAX> 281,807
<INCOME-PRE-EXTRAORDINARY> 197,121
<EXTRAORDINARY> 2,728
<CHANGES> 0
<NET-INCOME> 194,393
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 3.11
<LOANS-NON> 63,158
<LOANS-PAST> 24,127
<LOANS-TROUBLED> 6,722
<LOANS-PROBLEM> 25,600
<ALLOWANCE-OPEN> 118,226
<CHARGE-OFFS> 34,944
<RECOVERIES> 5,797
<ALLOWANCE-CLOSE> 142,985
<ALLOWANCE-DOMESTIC> 142,985
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>

<PAGE> 1

EXHIBIT 99.1

INDEPENDENT AUDITORS' REPORT FROM KPMG LLP

The Board of Directors of
Charter One Financial, Inc.

We have audited the consolidated statements of income, changes in shareholders'
equity and cash flows of RCSB Financial, Inc. and subsidiaries for the year
ended November 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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 examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
RCSB Financial, Inc. and subsidiaries for the year ended November 30, 1996, in
conformity with generally accepted accounting principles.

/s/KPMG LLP

December 13, 1996
Rochester, New York

<PAGE> 1

EXHIBIT 99.2

INDEPENDENT AUDITORS' REPORT FROM KPMG LLP

The Board of Directors of
Charter One Financial, Inc.

We have audited the consolidated statement of financial condition of ALBANK
Financial Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for each of the years in the two-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ALBANK Financial
Corporation and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

/s/KPMG LLP

January 30, 1998
Albany, New York