10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
PART II – OTHER INFORMATION
	ITEM 5. Other Information
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 11
Exhibit 27

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2000

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-16311

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

Delaware	34-1567092
(State or other jurisdiction of incorporation	(I.R.S. Employer
or organization)	Identification No.)
1215 Superior Avenue, Cleveland, Ohio	44114
(Address of principal executive offices)	(Zip Code)

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

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since report)

      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______

      The number of shares outstanding of the registrant’s sole class of common stock as of August 4, 2000 was 199,999,964.

TABLE OF CONTENTS

Item
Number			Page
PART I — FINANCIAL INFORMATION
	1. Financial Statements
		Consolidated Statements of Financial Condition — June 30, 2000 and December 31, 1999		1
		Consolidated Statements of Income — Three months and six months ended June 30, 2000 and 1999		2
		Consolidated Statements of Cash Flows — Six months ended June 30, 2000 and 1999		3
		Notes to Consolidated Financial Statements		4
	2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			5
	3. Quantitative and Qualitative Disclosure About Market Risk			21
PART II — OTHER INFORMATION
	5. Other Information			21
	6. Exhibits and Reports on Form 8-K			22
Signatures				22

i

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)

			6/30/00			12/31/99
			(Dollars in thousands,
			except per share data)
ASSETS
Cash and deposits with banks			$	531,636		$	689,082
Federal funds sold and other				470			4,450
		Total cash and cash equivalents		532,106			693,532
Investments securities:
	Trading			—			13,380
	Available for sale, at fair value			432,674			482,695
	Held to maturity (fair value of $27,875 and $52,858)			28,136			46,006
Mortgage-backed securities:
	Available for sale, at fair value			3,701,980			4,193,134
	Held to maturity (fair value of $1,711,721 and $1,909,313)			1,710,538			1,907,246
Loans and leases, net				23,455,358			22,276,862
Loans held for sale				31,516			35,988
Bank owned life insurance				724,425			709,173
Federal Home Loan Bank stock				520,288			471,191
Premises and equipment				322,252			317,205
Accrued interest receivable				190,310			156,244
Real estate and other collateral owned				29,421			36,358
Loan servicing assets				134,677			118,792
Goodwill				180,608			188,826
Other assets				227,973			172,431
		Total assets	$	32,222,262		$	31,819,063
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
	Checking accounts		$	3,739,100		$	3,329,743
	Money market accounts			3,921,289			3,170,435
	Savings accounts			1,553,565			2,065,127
	Certificates of deposit			9,355,003			10,508,670
		Total deposits		18,568,957			19,073,975
Federal Home Loan Bank advances				10,151,761			9,226,150
Reverse repurchase agreements				53,087			283,297
Other borrowings				267,579			232,277
Advance payments by borrowers for taxes and insurance				83,784			80,309
Accrued interest payable				54,137			95,323
Accrued expenses and other liabilities				698,640			430,032
		Total liabilities		29,877,945			29,421,363
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; 212,681,105 and 212,397,685 shares issued			2,127			2,124
	Additional paid-in capital			1,740,020			1,736,726
	Retained earnings			874,242			734,510
	Less 10,307,140 and 3,140,000 shares of common stock held in treasury at cost			(228,900	)		(65,502	)
	Borrowings of employee investment and stock ownership plan			(2,044	)		(3,138	)
	Accumulated other comprehensive income			(41,128	)		(7,020	)
		Total shareholders’ equity		2,344,317			2,397,700
		Total liabilities and shareholders’ equity	$	32,222,262		$	31,819,063

See Notes to Consolidated Financial Statements

1

CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

			Three Months Ended				Six Months Ended
			6/30/00		6/30/99		6/30/00		6/30/99
			(Dollars in thousands, except per share data)
Interest income:
	Loans and leases		$	447,109	$	415,076	$	875,219	$	836,865
	Mortgage-backed securities:
		Available for sale		50,065		52,668		105,539		92,994
		Held to maturity		30,908		39,758		63,262		85,830
	Investment securities:
		Trading		—		58		38		58
		Available for sale		8,202		6,000		17,213		12,923
		Held to maturity		420		561		844		1,373
	Other interest-earning assets			8,894		8,704		17,553		18,175
		Total interest income		545,598		522,825		1,079,668		1,048,218
Interest expense:
	Deposits			181,668		178,083		361,923		359,809
	FHLB advances			125,425		102,156		239,124		196,996
	Other borrowings			6,472		9,413		13,585		22,691
		Total interest expense		313,565		289,652		614,632		579,496
		Net interest income		232,033		233,173		465,036		468,722
Provision for loan and lease losses				11,509		7,843		20,107		14,613
		Net interest income after provision for loan and lease losses		220,524		225,330		444,929		454,109
Other income:
	Retail banking			61,760		50,825		113,498		94,416
	Mortgage banking			14,238		11,483		27,953		22,852
	Leasing operations			10,394		1,656		11,992		3,704
	Net gains			3,064		6,989		6,611		13,806
	Other			9,441		8,272		21,461		11,675
		Total other income		98,897		79,225		181,515		146,453
Administrative expenses:
	Compensation and employee benefits			71,215		67,867		141,479		136,381
	Net occupancy and equipment			25,351		23,294		49,915		47,014
	Federal deposit insurance premiums			1,001		2,048		2,006		4,149
	Merger expenses			20,845		3,519		24,103		5,719
	Amortization of goodwill			4,046		3,325		8,090		6,714
	Other administrative expenses			45,071		45,150		84,664		88,388
		Total administrative expenses		167,529		145,203		310,257		288,365
Income before income taxes				151,892		159,352		316,187		312,197
Income taxes				48,605		50,976		101,191		100,875
		Net income	$	103,287	$	108,376	$	214,996	$	211,322
Basic earnings per share			$	.50	$	.51	$	1.03	$	.99
Diluted earnings per share			$	.49	$	.49	$	1.02	$	.96
Average common shares outstanding				207,241,293		214,209,456		208,333,201		214,187,266
Average common and common equivalent shares outstanding				211,089,502		219,525,186		211,586,635		219,593,985
Cash dividends declared per share			$	.18	$	.15	$	.34	$	.28

See Notes to Consolidated Financial Statements

2

CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

				Six Months Ended
				6/30/00			6/30/99
				(Dollars in thousands)
Cash flows from operating activities:
	Net income			$	214,996		$	211,322
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan and lease losses			20,107			14,613
		Net gains			(6,094	)		(10,983	)
		Accretion of discounts, amortization of premiums, amortization of goodwill and depreciation, net			58,296			37,152
		Origination of real estate loans held for sale			(819,016	)		(947,117	)
		Proceeds from sale of loans held for sale			818,563			1,057,041
		Proceeds from investment securities held for trading			13,418			(18,983	)
		Other			120,986			(72,571	)
			Net cash provided by operating activities		421,256			270,474
Cash flows from investing activities:
	Net principal disbursed on loans and leases				(2,677,535	)		(1,530,215	)
	Proceeds from principal repayments and maturities of:
		Mortgage-backed securities held to maturity			196,462			737,500
		Investment securities held to maturity			3,401			230
		Mortgage-backed securities available for sale			126,349			374,020
		Investment securities available for sale			54,999			181,365
	Proceeds from sale of:
		Mortgage-backed securities available for sale			1,796,393			673,311
		Investment securities available for sale			12,713			195,479
		Federal Home Loan Bank stock			17,624			1,809
	Purchase of:
		Investment securities held to maturity			(635	)		(725	)
		Mortgage-backed securities available for sale			—			(210,000	)
		Investment securities available for sale			(10,696	)		(455,329	)
		Loans			(7,906	)		(372,003	)
		Federal Home Loan Bank stock			(50,735	)		(41,902	)
		Loan servicing assets, including those originated			(16,605	)		(16,892	)
		Bank owned life insurance			—			(480,500	)
		Other			(20,912	)		(23,524	)
			Net cash used in investing activities		(577,083	)		(967,376	)
Cash flows from financing activities:
	Net increase in short-term borrowings				1,159,760			339,253
	Proceeds from long-term borrowings				555,057			705,711
	Repayments of long-term borrowings				(983,217	)		(372,573	)
	Net decrease in deposits				(505,309	)		(214,442	)
	Increase (decrease) in advance payments by borrowers for taxes and insurance				3,475			(616	)
	Payment of dividends on common stock				(71,005	)		(65,798	)
	Proceeds from issuance of common stock				9,452			14,606
	Purchase of treasury stock				(173,812	)		(54,726	)
			Net cash provided by (used in) financing activities		(5,599	)		351,415
Net decrease in cash and cash equivalents					(161,426	)		(345,487	)
Cash and cash equivalents, beginning of the period					693,532			722,260
Cash and cash equivalents, end of the period				$	532,106		$	376,773
Supplemental disclosure of cash flow information:
	Cash paid for interest on deposits and borrowings			$	656,109		$	590,935
	Cash paid for income taxes				6,000			21,441
Supplemental schedule of noncash activities:
	Loans exchanged for mortgage-backed securities				1,471,076			1,866,045

See Notes to Consolidated Financial Statements

3

CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.	These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Charter One Financial, Inc. (the “Company” or “Charter One”) Annual Report on Form 10-K. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.
2.	On October 1, 1999, Charter One completed its acquisition of St. Paul Bancorp, Inc. (“St. Paul”), which was accounted for as a pooling of interests. Headquartered in Chicago, Illinois, St. Paul was the holding company of St. Paul Federal Bank for Savings, a $6.2 billion savings bank that operated 58 branch offices in the metropolitan Chicago area. The merger was effected through the issuance of .99225 shares of Charter One common stock for each share of St. Paul’s common stock, resulting in the issuance of 39,892,023 shares (as adjusted for the 5% stock dividend issued September 30, 1999).
3.	On November 5, 1999, the Company completed its acquisition of 14 Vermont National Bank offices from Chittenden Corporation (“Chittenden”), which was accounted for as a purchase. The acquisition was related to the branch divestiture required by federal regulators relative to Chittenden’s pending merger with Vermont Financial Services Corp., the parent company of Vermont National Bank and United Bank in Massachusetts. Charter One acquired $84.7 million in commercial real estate and business loans and assumed $357.5 million in deposits at fair value. The purchase resulted in $43.6 million in tax-deductible goodwill, which will be amortized over 15 years.
4.	The Company has identified one reportable segment: consumer banking. Consumer banking includes retail banking, mortgage banking, and other related financial services that provide a full range of deposit products, consumer loans, business lending, and commercial real estate lending.
5.	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 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. The FASB has delayed the effective date of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The delay, published as SFAS No. 137, applies to quarterly and annual financial statements. In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No.138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. It also amends SFAS No. 133 for decisions made by the FASB relating to the Derivatives Implementation Group process. Early application is still permitted. Management has not completed the process of evaluating SFAS No. 133 and SFAS No. 138 and therefore has not determined the impact that adopting these statements will have on the Company’s financial position and results of operations.
6.	Certain items in the consolidated financial statements for 1999 have been reclassified to conform to the 2000 presentation.

4

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

HOLDING COMPANY BUSINESS

The following financial review presents an analysis of the asset and liability structure of Charter One Financial, Inc. and a discussion of the results of operations for each of the periods presented.

General

Headquartered in Cleveland, Ohio, Charter One Financial, Inc., hereafter referred to as “Charter One” or the “Company” is a financial holding company. Charter One is a Delaware corporation and owns all of the outstanding capital stock of Charter Michigan Bancorp, Inc. and Charter One Commercial (formerly ALBANK Commercial). Charter Michigan Bancorp, Inc. owns all of the outstanding capital stock of Charter One Bank, F.S.B., a federally chartered thrift. The primary business of Charter One is operating these financial institutions which we sometimes refer to in this document collectively as the “Bank.” The Bank’s primary business is providing consumer banking services to certain major markets in Ohio, Michigan, Illinois, New York, Vermont and in some markets of Massachusetts. As of June 30, 2000, the Bank and its subsidiaries were doing business through 418 full-service branches and 36 loan production offices.

Forward-Looking Statements

This document, including information included or incorporated by reference, contains, and future filings by the Company on Form 10-K, Form 10-Q and Form 8-K and future oral and written statements by the Company and its management may contain, forward-looking statements about Charter One and its subsidiaries which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, acquisition and divestiture opportunities, and synergies, efficiencies, cost savings and funding advantages expected to be realized from prior acquisitions. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by the Company and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. The factors we discuss in this document and identified in our filings with the Securities and Exchange Commission and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document.

RESULTS OF OPERATIONS

Performance Overview

Charter One reported net income of $103.3 million, or $.49 per diluted share, for the three months ended June 30, 2000. This was a $5.1 million, or 4.7%, decrease over the results of the second quarter of 1999 when net income was $108.4 million, or $.49 per diluted share. Both periods included merger-related charges. Excluding the after- tax impact of merger-related charges, our net income resulted in a return on average equity of 19.08% and a return on average assets of 1.51% for the three months ended June 30, 2000. The comparable returns for the second quarter of 1999 were 17.69% and 1.44%, respectively. The increase in our operating returns was primarily attributable to increases in income from retail banking and leasing operations.

For the six months ended June 30, 2000, Charter One reported net income of $215.0 million, or $1.02 per diluted share. This was a $3.7 million, or 1.7%, increase over the results for the same period in 1999. Both periods included merger-related charges. Our net income, excluding the after-tax impact of merger-related charges, resulted in a return on average equity of 18.84% and a return on average assets of 1.51% for the six months ended June 30, 2000. The comparable returns for the 1999 period were 17.46% and 1.41%, respectively. The increase in our operating returns, just as with the second quarter results, was primarily attributable to increases in income from retail banking and leasing operations. Additionally, the year-over-year comparison was affected by an increase in income from our Bank Owned Life Insurance (“BOLI”) program.

5

Figure 1 sets forth selected annualized performance ratios for the three and six months ended June 30, 2000 and 1999, respectively. The table reflects these ratios on both an actual and operating return basis. Operating returns are computed using net income excluding the after-tax impact of merger-related charges for each of the periods presented. We believe that presentation of operating returns will provide comparability and insight into the operations of Charter One.

Selected Ratios (Figure 1)

		Three Months Ended						Six Months Ended
		6/30/00			6/30/99			6/30/00			6/30/99
Actual:
	Return on average assets		1.33	%		1.41	%		1.40	%		1.38	%
	Return on average equity		16.78			17.33			17.51			17.16
	Average equity to average assets		7.91			8.14			8.00			8.07
	Net interest income to administrative expenses		1.39	x		1.61	x		1.50	x		1.63	x
	Administrative expenses to average assets		2.15	%		1.89	%		2.02	%		1.89	%
	Efficiency ratio		49.86			46.46			47.22			46.83
Operating:
	Return on average assets		1.51	%		1.44	%		1.51	%		1.41	%
	Return on average equity		19.08			17.69			18.84			17.46
	Net interest income to administrative expenses		1.58	x		1.65	x		1.63	x		1.66	x
	Administrative expenses to average assets		1.88	%		1.84	%		1.86	%		1.85	%
	Efficiency ratio		43.50			45.30			43.45			45.88

Net Interest Income

Net interest income 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. Net interest income 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 periods 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. The cost of liabilities includes the annualized effect of interest rate risk management instruments.

6

Average Balances, Interest Rates and Yields/Costs (Figure 2)

				Three Months Ended
				6/30/00								6/30/99
									Avg.								Avg.
				Average					Yield/			Average					Yield/
				Balance			Interest		Cost			Balance			Interest		Cost
									(Dollars in thousands)
Interest-earning assets:
	Loans and leases			$	23,716,364		$	447,109		7.55	%	$	22,398,262		$	415,076		7.42	%
	Mortgage-backed securities:
		Available for sale			2,765,608			50,065		7.24			3,170,063			52,668		6.65
		Held to maturity			1,745,421			30,908		7.08			2,317,263			39,758		6.86
	Investment securities:
		Trading			—			—		—			7,680			58		3.02
		Available for sale			452,191			8,202		7.26			424,988			6,000		5.65
		Held to maturity			29,143			420		5.77			36,526			561		6.13
	Other interest-earning assets				489,180			8,894		7.19			537,051			8,704		6.41
			Total interest-earning assets		29,197,907			545,598		7.48			28,891,833			522,825		7.24
Allowance for loan and lease losses					(183,514	)							(181,778	)
Noninterest-earning assets					2,136,747								2,016,638
			Total assets	$	31,151,140							$	30,726,693
Interest-bearing liabilities:
	Deposits:
		Checking accounts		$	3,674,891			13,376		1.46	%	$	2,974,490			7,206		.97	%
		Savings accounts			1,694,620			6,385		1.52			2,446,915			12,197		2.00
		Money market accounts			3,792,860			35,593		3.77			3,082,974			25,007		3.25
		Certificates of deposit			9,607,596			126,314		5.29			10,439,968			133,673		5.14
			Total deposits		18,769,967			181,668		3.89			18,944,347			178,083		3.77
	FHLB advances				8,959,241			125,425		5.62			8,166,811			102,156		5.01
	Other borrowings				309,641			6,472		8.33			554,400			9,413		6.76
			Total borrowings		9,268,882			131,897		5.71			8,721,211			111,569		5.13
			Total interest-bearing liabilities		28,038,849			313,565		4.49			27,665,558			289,652		4.20
Noninterest-bearing liabilities					649,547								559,476
			Total liabilities		28,688,396								28,225,034
Shareholders’ equity					2,462,744								2,501,659
			Total liabilities and shareholders’ equity	$	31,151,140							$	30,726,693
Net interest income							$	232,033							$	233,173
Interest rate spread										2.99								3.04
Net yield on average interest-earning assets										3.18								3.23
Average interest-earning assets to average interest-bearing liabilities										104.13	%							104.43	%

7

			Six Months Ended
			6/30/00								6/30/99
								Avg.								Avg.
			Average					Yield/			Average					Yield/
			Balance			Interest		Cost			Balance			Interest		Cost
						(Dollars in thousands)
Interest-earning assets:
	Loans and leases		$	23,305,600		$	875,219		7.52	%	$	22,507,649		$	836,865		7.45	%
	Mortgage-backed securities:
		Available for sale		2,952,867			105,539		7.15			2,804,606			92,994		6.63
		Held to maturity		1,794,968			63,262		7.05			2,489,173			85,830		6.90
Investment securities:
	Trading			368			38		20.56			3,840			58		3.02
	Available for sale			468,654			17,213		7.35			457,416			12,923		5.65
	Held to maturity			32,412			844		5.21			44,226			1,373		6.21
Other interest-earning assets				495,250			17,553		7.01			587,538			18,175		6.15
		Total interest-earning assets		29,050,119			1,079,668		7.44			28,894,448			1,048,218		7.26
Allowance for loan and lease losses				(184,330	)							(182,482	)
Noninterest-earning assets				1,838,397								1 ,820,632
		Total assets	$	30,704,186							$	30,532,598
Interest-bearing liabilities:
	Deposits:
		Checking accounts	$	3,553,099			24,962		1.41	%	$	2,927,410			12,321		.85	%
		Savings accounts		1,870,826			14,328		1.54			2,505,845			25,232		2.03
		Money market accounts		3,511,241			63,470		3.64			2,906,784			48,035		3.33
		Certificates of deposit		9,942,252			259,163		5.24			10,573,124			274,221		5.23
		Total deposits		18,877,418			361,923		3.86			18,913,163			359,809		3.84
	FHLB advances			8,754,401			239,124		5.49			7,910,712			196,996		5.02
	Other borrowings			346,663			13,585		7.81			702,253			22,691		6.44
		Total borrowings		9,101,064			252,709		5.57			8,612,965			219,687		5.13
		Total interest-bearing liabilities		27,978,482			614,632		4.41			27,526,128			579,496		4.24
Noninterest-bearing liabilities				270,184								543,137
		Total liabilities		28,248,666								28,069,265
Shareholders’ equity				2,455,520								2,463,333
		Total liabilities and shareholders’ equity	$	30,704,186							$	30,532,598
Net interest income						$	465,036							$	468,722
Interest rate spread									3.03								3.02
Net yield on average interest-earning assets									3.20								3.24
Average interest-earning assets to average interest-bearing liabilities									103.83	%							104.97	%

8

Figure 3 sets forth the approximate relative contribution of changes in average interest rates and volume to changes in net interest income for the periods 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 (Figure 3)

				Three Months Ended June 30,									Six Months Ended June 30,
				2000 v. 1999									2000 v. 1999
				Increase (decrease) due to										Increase (decrease) due to
				Rate			Volume			Total			Rate			Volume			Total
										(Dollars in thousands)
Interest income:
	Loans and leases			$	6,501		$	25,532		$	32,033		$	6,143		$	32,211		$	38,354
	Mortgage-backed securities:
		Available for sale			4,471			(7,074	)		(2,603	)		7,474			5,071			12,545
		Held to maturity			1,240			(10,090	)		(8,850	)		1,860			(24,428	)		(22,568	)
	Investment securities:
		Trading			—			(58	)		(58	)		339			(359	)		(20	)
		Available for sale			1,798			404			2,202			3,965			325			4,290
		Held to maturity			(33	)		(108	)		(141	)		(199	)		(330	)		(529	)
	Other interest-earning assets				1,005			(815	)		190			2,457			(3,079	)		(622	)
			Total		14,982			7,791			22,773			22,039			9,411			31,450
Interest expense:
	Checking accounts				4,203			1,967			6,170			9,573			3,068			12,641
	Savings accounts				(2,576	)		(3,236	)		(5,812	)		(5,290	)		(5,614	)		(10,904	)
	Money market accounts				4,298			6,288			10,586			4,790			10,645			15,435
	Certificates of deposit				3,506			(10,865	)		(7,359	)		1,384			(16,442	)		(15,058	)
	FHLB advances				12,457			10,812			23,269			19,480			22,648			42,128
	Other borrowings				553			(3,494	)		(2,941	)		580			(9,686	)		(9,106	)
			Total		22,441			1,472			23,913			30,517			4,619			35,136
Change in net interest income				$	(7,459	)	$	6,319		$	(1,140	)	$	(8,478	)	$	4,792		$	(3,686	)

Our net interest income for the three months ended June 30, 2000 was $232.0 million, a decrease of $1.1 million from the three months ended June 30, 1999. The net yield on interest-earning assets during the second quarter of 2000 declined slightly to 3.18% from 3.23% for the comparable period of 1999, reflecting in part, our stock buyback program and the short-term impact of our recent adjustable-rate residential and consumer loans originations at teaser rates. Additionally, as reflected in Figure 4, the net yield on interest-earning assets at June 30, 2000 declined to 3.02% from 3.19% at December 31, 1999. The compression in the net yield on interest-earning assets is primarily attributed to the fact that our liabilities have repriced more quickly than our assets. Interest rates have risen considerably over the past year, as evidenced by an aggregate 175 basis point increase in the federal funds rate. This increase has been accompanied by a flattening of the yield curve. Given this interest rate environment, management has decided to slow balance sheet growth, with particular emphasis on accelerating the shift away from residential loans and securities by selling more of those portfolios. Instead, balance sheet capacity will be preserved for a more favorable interest rate environment, and existing capital will be allocated toward our stock buyback program. See “Capital and Dividends” below for further discussion regarding our stock buyback program. Thus, in the current interest rate environment, management expects operating earnings per share levels for the remainder of 2000 to be approximately 10% over operating earnings per share levels for the comparable 1999 period. This is expected to result in returns on average assets and average equity consistent with such returns achieved in the first half of 2000.

Our net interest income for the six months ended June 30, 2000 was $465.0 million, a decrease of $3.7 million from the six months ended June 30, 1999. The net yield on average interest-earning assets decreased by four basis points during the six months ended June 30, 2000 to 3.20% from 3.24% in the comparable period of 1999. The reasons for the decrease in the net yield on average interest-earning assets are substantially the same as for the second quarter results discussed in the above paragraph. In addition, the year-over-year comparison was affected by our BOLI program initiated in 1999. This asset is classified in non-interest earning assets on the average balance sheet and the related income is recorded in other income on the consolidated statement of income. See “Other Income” below for further discussion regarding our BOLI program.

9

Figure 4 sets forth Charter One’s yields and costs at period end for the dates indicated. The yields on leases excludes the impact of the related tax benefit. The cost of liabilities includes the annualized effect of interest rate risk management instruments.

Yields and Costs at End of Period (Figure 4)

			6/30/00			12/31/99
Weighted average yield:
	Real estate loans			7.36	%		7.28	%
	Automobile loans			8.60			8.52
	Retail consumer loans			7.93			7.93
	Leases			6.24			6.08
	Corporate banking loans			8.98			8.58
		Total loans and leases		7.61			7.53
	Mortgage-backed securities			7.25			7.04
	Investment securities			7.37			7.26
	Other interest-earning assets			7.30			6.97
		Total interest-earning assets		7.53			7.41
Weighted average cost:
	Checking			1.54			1.27
	Money market			3.85			3.41
	Savings			1.54			1.61
	Certificates of deposit			5.43			5.13
		Total deposits		3.99			3.79
	FHLB advances			5.83			5.32
	Other borrowings			7.91			6.99
		Total interest-bearing liabilities		4.68			4.34
Interest rate spread				2.85			3.07
Net yield on interest-earning assets				3.02	%		3.19	%

Other Income

Other income for the three months ended June 30, 2000 was $98.9 million, an increase of $19.7 million, or 24.8%, over the $79.2 million for the three months ended June 30, 1999. The increase was primarily attributable to income from retail banking and leasing operations. Retail banking income increased $10.9 million, or 21.5%, as we continued to introduce our products into new markets acquired through mergers. Income from leasing operations increased $8.7 million, primarily driven by residual values on underlying equipment realized upon termination of leases.

Other income for the six months ended June 30, 2000 was $181.5 million, an increase of $35.1 million, or 23.9%, over the $146.5 million for the six months ended June 30, 1999. The increase was primarily attributable to income from retail banking, leasing operations, and the BOLI program. The reasons for the increases in income from retail banking and leasing operations are substantially the same as for the second quarter results discussed in the above paragraph. The increase in the line item “other” was attributable to the BOLI program. During the year ended December 31, 1999, we increased our BOLI portfolio by $630.0 million. The related income on the BOLI asset is recorded in the line item “other” and is the primary reason for the $9.8 million increase in the line item “other” over the comparable period in 1999.

Administrative Expenses

Administrative expenses were $167.5 million for the three months ended June 30, 2000, an increase of $22.3 million, or 15.4%, as compared to the second quarter of 1999. Each year included merger-related expenses. There were $20.8 million of merger-related expenses recorded in the three months ended June 30, 2000, and $3.5 million for the three months ended June 30, 1999. Excluding these merger-related charges, our administrative expenses were $146.7 million for the three months ended June 30, 2000 and $141.7 million for the three months ended June

10

30, 1999. This resulted in a comparable ratio of administrative expenses to average assets (excluding the merger- related charges) of 1.88% and 1.84% for the three months ended June 30, 2000 and 1999, respectively. Our efficiency ratio (excluding the merger-related charges) was 43.50% for the three months ended June 30, 2000, an improvement when compared to 45.30% for the three months ended June 30, 1999. See the above discussion in “Other Income” regarding additional factors that contributed to the improvement in our efficiency ratio.

Administrative expenses were $310.3 million for the six months ended June 30, 2000, an increase of $21.9 million, or 7.6%, as compared to the six months ended June 30, 1999. Each year included merger-related expenses. There were $24.1 million of merger-related expenses recorded in the six months ended June 30, 2000, and $5.7 million for the six months ended June 30, 1999. Excluding these merger-related charges, our administrative expenses were $286.2 million for the six months ended June 30, 2000 and $282.6 million for the six months ended June 30, 1999. This resulted in a comparable ratio of administrative expenses to average assets (excluding the merger-related charges) of 1.86% and 1.85% for the six months ended June 30, 2000 and 1999, respectively. Our efficiency ratio (excluding the merger-related charges) was 43.45% for the six months ended June 30, 2000, an improvement when compared to 45.88% for the six months ended June 30, 1999. See the above discussion in “Other Income” regarding additional factors that contributed to the improvement in our efficiency ratio.

Federal Income Taxes

Federal income tax expense for the three months ended June 30, 2000 was $48.6 million, as compared to $51.0 million for the same period in 1999. The primary reason for this 4.7% decrease in the provision for federal income taxes was a 4.7% decrease in pre-tax book income. The effective tax rate was 32.0% for the 2000 and 1999 periods, respectively.

Federal income tax expense for the six months ended June 30, 2000 was $101.2 million, essentially unchanged when compared to federal income tax expense of $100.9 million for the same period in 1999. The effective tax rates were 32.0% and 32.3% for the 2000 and 1999 periods, respectively.

FINANCIAL CONDITION

Overview

At June 30, 2000, total assets were $32.2 billion, as compared to total assets of $31.8 billion at December 31, 1999. Contributing to the increase in total assets was the growth in our loan portfolio since December 31, 1999. Figure 5 illustrates our continued emphasis in originating consumer and commercial loans due to the higher yields and shorter terms provided by these types of loans. Additionally, the adjustable-rate portion of our one-to-four family portfolio increased by $835.7 million, or 14.7%, since December 31, 1999.

11

Loans and Leases

Composition of Loans and Leases (Figure 5)

				6/30/00			12/31/99
				(Dollars in thousands)
Loan and lease portfolio, net
	One-to-four family:
		Permanent:
			Fixed rate	$	5,077,841		$	5,755,393
			Adjustable rate		6,538,729			5,703,042
		Construction			294,784			276,172
					11,911,354			11,734,607
	Commercial real estate:
		Multifamily			1,202,393			1,276,004
		Other			772,498			673,972
					1,974,891			1,949,976
	Consumer:
		Retail			5,052,418			4,502,023
		Automobile			2,697,127			2,497,956
					7,749,545			6,999,979
	Business:
		Leasing			1,354,663			1,137,895
		Corporate banking			682,615			676,793
					2,037,278			1,814,688
	Loans and leases before allowance for loan and lease losses				23,673,068			22,499,250
	Allowance for loan and lease losses				(186,194	)		(186,400	)
			Loans and leases, net	$	23,486,874		$	22,312,850
Portfolio of loans serviced for others				$	11,616,497		$	10,798,563

12

Loan and Lease Activity (Figure 6)

					Three Months Ended				Six Months Ended
					6/30/00		6/30/99		6/30/00		6/30/99
							(Dollars in thousands)
Originations:
Real estate:
	Permanent:
		One-to-four family			$	1,394,433	$	1,314,184		$2,414,702	$	2,692,622
		Multifamily				9,374		45,324		14,256		144,199
		Commercial				52,613		53,394		109,537		135,042
			Total permanent loans			1,456,420		1,412,902		2,538,495		2,971,863
	Construction:
		One-to-four family				169,119		158,226		268,517		262,635
		Multifamily				34,299		28,648		43,863		41,950
		Commercial				19,130		36,806		52,784		51,358
			Total construction loans			222,548		223,680		365,164		355,943
				Total real estate loans originated		1,678,968		1,636,582		2,903,659		3,327,806
Retail consumer						714,285		664,111		1,204,817		1,281,466
Automobile						464,193		393,644		744,195		741,104
Leases						203,137		82,253		307,499		132,520
Corporate banking						210,271		170,667		358,232		297,218
			Total loans and leases originated			3,270,854		2,947,257		5,518,402		5,780,114
Loans purchased						4,142		112,249		7,906		372,003
Sales and principal reductions:
	Loans sold					488,898		485,772		819,016		1,059,742
	Loans exchanged for mortgage-backed securities					1,471,076		717,672		1,471,076		1,866,045
	Principal reductions					1,006,671		1,491,285		2,004,540		3,228,479
		Total sales and principal reductions				2,966,645		2,694,729		4,294,632		6,154,266
			Increase (decrease) before net items		$	308,351	$	364,777		$1,231,676	$	(2,149)

Investment Securities

Figure 7 summarizes our investment portfolios at June 30, 2000 and December 31, 1999. The amounts reflected represent the fair values of investment securities held for trading and available for sale and the amortized cost of investment securities held to maturity.

Investment Securities (Figure 7)

				6/30/00			12/31/99
				(Dollars in thousands)
Trading
	Other			$	—		$	13,380
		Total investment securities held for trading			—			13,380
Available for Sale
	U.S. Treasury and agency securities				331,378			339,687
	Corporate notes and commercial paper				66,335			88,368
	Other				34,961			54,640
		Total investment securities available for sale			432,674			482,695
Held to Maturity
	U.S. Treasury and agency securities				15,000			17,058
	Corporate notes and commercial paper				—			15,659
	Other				13,136			13,289
		Total investment securities held to maturity			28,136			46,006
			Total	$	460,810		$	542,081
	Weighted average rate				7.37	%		7.26	%

13

Mortgage-Backed Securities

Figure 8 summarizes our mortgage-backed securities portfolios at June 30, 2000 and December 31, 1999. The amounts reflected represent the fair values of mortgage-backed securities available for sale and the amortized cost of securities held to maturity.

Mortgage-Backed Securities (Figure 8)

					6/30/00			12/31/99
					(Dollars in thousands)
Available for Sale
	Participation certificates:
		Government agency issues:
			FNMA		$	2,585,049		$	3,023,228
			FHLMC			60,625			95,034
			GNMA			2,364			2,608
	Collateralized mortgage obligations:
		Government agency issues:
			FHLMC			298,368			232,906
			FNMA			230,457			304,018
			GNMA			6,673			7,349
		Private issues				518,444			527,991
		Total mortgage-backed securities available for sale				3,701,980			4,193,134
Held to Maturity
	Participation certificates:
		Government agency issues:
			FNMA			490,918			549,866
			FHLMC			175,516			196,704
			GNMA			93,346			101,468
		Private issues				146,747			162,485
	Collateralized mortgage obligations:
		Government agency issues:
			FNMA			215,207			221,934
			FHLMC			76,348			82,838
		Private issues				512,456			591,951
			Total mortgage-backed securities held to maturity			1,710,538			1,907,246
				Total	$	5,412,518		$	6,100,380
		Weighted average rate				7.25	%		7.04	%

14

Asset Quality

Analysis of the Allowance for Loan and Lease Losses (Figure 9)

					Three Months Ended						Six Months Ended
					6/30/00			6/30/99			6/30/00			6/30/99
					(Dollars in thousands)
Allowance for loan and lease losses
	Balance, beginning of period				$	185,267		$	181,584		$	186,400		$	184,989
	Provision for loan and lease losses					11,509			7,843			20,107			14,613
	Loans and leases charged off:
		Mortgage				(1,399	)		(2,648	)		(3,285	)		(3,724	)
		Automobile				(6,786	)		(6,183	)		(13,881	)		(14,309	)
		Retail consumer				(4,664	)		(445	)		(7,387	)		(1,982	)
		Leases				—			—			—			(900	)
		Corporate banking				(313	)		(86	)		(436	)		(534	)
			Total charge-offs			(13,162	)		(9,362	)		(24,989	)		(21,449	)
	Recoveries:
		Mortgage				315			508			564			762
		Automobile				1,515			1,681			3,100			3,054
		Retail consumer				564			77			764			266
		Leases				—			—			—			—
		Corporate banking				186			18			248			114
			Total recoveries			2,580			2,284			4,676			4,196
				Net loan and lease charge-offs		(10,582	)		(7,078	)		(20,313	)		(17,253	)
	Balance, end of period				$	186,194		$	182,349		$	186,194		$	182,349
	Net charge-offs to average loans and leases (annualized)					.18	%		.13	%		.17	%		.15	%

Figure 10 sets forth information concerning nonperforming assets and additional information on the allowance for loan and lease losses. At June 30, 2000, we had no outstanding commitments to lend additional funds to borrowers whose loans were on nonaccrual or restructured status.

15

Nonperforming Assets (Figure 10)

					6/30/00			12/31/99
					(Dollars in thousands)
Nonperforming loans and leases:
	Nonaccrual loans and leases:
		Real estate mortgage loans:
			One-to-four family(1)		$	68,671		$	75,682
			Multifamily and commercial			6,614			3,369
			Construction and land			5,074			1,095
				Total real estate mortgage loans		80,359			80,146
		Retail consumer				49,712			39,638
		Automobile				268			482
		Corporate banking				7,836			6,037
		Leases				—			—
				Total nonaccrual loans and leases		138,175			126,303
	Accruing loans and leases delinquent more than 90 days:
		Real estate mortgage loans				—			—
		Retail consumer(1)				1,908			2,562
		Automobile				4,275			4,973
		Corporate banking				7,286			2,463
		Leases				2,475			—
				Total accruing loans and leases delinquent more than 90 days		15,944			9,998
		Restructured real estate mortgage loans				671			1,009
				Total nonperforming loans and leases		154,790			137,310
Real estate acquired through foreclosure and other						23,065			24,453
				Total nonperforming assets		177,855			161,763
				Less government guaranteed loans		20,293			18,841
				Nonperforming assets net of government guaranteed loans	$	157,562		$	142,922
Ratio of:
	Nonperforming loans and leases to total loans and leases					.66	%		.62	%
	Nonperforming assets to total assets					.55			.51
	Allowance for loan and lease losses to:
		Nonperforming loans and leases				120.29			135.75
		Total loans and leases before allowance				.79			.83
Ratio of (excluding government guaranteed nonperforming loans):
	Nonperforming loans and leases to total loans and leases					.57			.53
	Nonperforming assets to total assets					.49			.45
	Allowance for loan and lease losses to:
		Nonperforming loans and leases				138.44			157.34
		Total loans and leases before allowances				.79	%		.83	%

(1) Includes government guaranteed loans.

At June 30, 2000, there were $72.1 million of loans and leases not reflected in the table above, where known information about possible credit problems of borrowers caused management to have doubts as to the ability of the borrower to comply with present repayment terms and that may result in disclosure of such loans and leases in the future.

16

SOURCES OF FUNDS

General

Deposits have historically been the most important source of our funds for use in lending and for general business purposes. We also derive funds from FHLB advances, reverse repurchase agreements and other borrowings, principal repayments on loans and mortgage-backed securities, funds provided by operations and proceeds from the sale of loans and loan participations.

Deposits

Deposit inflows and outflows are significantly influenced by general interest rates, market conditions and competitive factors. We reprice our deposits primarily based on competitive conditions. In order to decrease the volatility of our deposits, we impose stringent early withdrawal penalties on our certificates of deposit. Consumer and commercial deposits are attracted principally from within our primary market areas through the offering of a broad range of deposit instruments.

Composition of Deposits (Figure 11)

			6/30/00					12/31/99
					Weighted					Weighted
					Average					Average
			Amount		Rate			Amount		Rate
					(Dollars in thousands)
Checking accounts:
	Interest-bearing		$	2,357,297		2.45	%	$	2,066,453		2.05	%
	Noninterest-bearing			1,381,803		—			1,263,290		—
Savings accounts				1,553,565		1.54			2,065,127		1.61
Money market accounts				3,921,289		3.85			3,170,435		3.41
Certificates of deposit				9,355,003		5.57			10,508,670		5.31
		Total deposits, net	$	18,568,957		4.06		$	19,073,975		3.89
Including the annualized effect of applicable interest rate risk management instruments						3.99	%				3.79	%

Investment securities and mortgage-backed securities with a book value of $506.2 million at June 30, 2000 and $544.4 million at December 31, 1999, were pledged to secure public deposits and for other purposes required or permitted by law.

Borrowings

At June 30, 2000, borrowings primarily consisted of FHLB advances. These positions were secured by our investment in the stock of the FHLB, as well as $11.3 billion in certain real estate loans and $2.9 billion in mortgage-backed securities.

Federal Home Loan Bank Advances (Figure 12)

		6/30/00					12/31/99
				Weighted					Weighted
				Average					Average
		Amount		Rate			Amount		Rate
		(Dollars in thousands)
Short-term		$	5,905,248		6.21	%	$	4,115,000		5.43	%
Long-term:
	Fixed-rate advances		3,836,909		5.18			4,512,941		5.10
	Variable-rate advances		409,604		6.55			598,209		6.21
	Total advances, net	$	10,151,761		5.83	%	$	9,226,150		5.32	%

17

Interest Rate Risk Management

We utilize various types of interest rate contracts in managing our interest rate risk profile. We utilize fixed receipt swaps to convert certain of our longer term callable certificates of deposit into short-term variable instruments. Under these agreements we have agreed to receive interest from the counterparty on a notional amount at a fixed rate defined in the agreement, and to pay interest at a floating rate indexed to LIBOR. We utilize fixed payment swaps to convert certain of our floating-rate or short-term, fixed-rate liabilities into longer term, fixed-rate instruments. Under these agreements we have 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.

Interest Rate Swaps (Figure 13)

			6/30/00								12/31/99
			Notional		Receiving			Paying			Notional		Receiving			Paying
			Principal		Interest			Interest			Principal		Interest			Interest
			Amount		Rate			Rate			Amount		Rate			Rate
								(Dollars in thousands)
Fixed Payment and Variable
	Receipt Maturing in:
		2002	$	25,000		6.22	%(1)		6.44	%	$	25,000		5.58	%(1)		6.44	%
Variable Payment and Fixed
	Receipt Maturing in:
		2000	$	40,000		5.55	%		6.65	%		40,000		5.55	%		6.16	%
		2001		420,000		6.38			6.56			420,000		6.38			6.14
		2002		310,000		7.57			6.67			—		—			—
		2003		120,000		6.14			6.64			120,000		6.14			6.14
		2004		580,000		7.01			6.51			580,000		7.01			6.15
		2005		395,000		7.93			6.62			25,000		7.00			5.87
		2006		40,000		7.00			6.52			40,000		7.00			6.37
		2009		65,000		7.32			6.59			65,000		7.32			6.16
		Total	$	1,970,000		7.08	%		6.58	%(1)	$	1,290,000		6.69	%		6.15	%(1)

(1) Rates are based upon LIBOR.

Interest rate risk management instruments reduced interest expense as follows:

Net Benefit of Interest Rate Risk Management (Figure 14)

			Three Months Ended						Six Months Ended
			6/30/00			6/30/99			6/30/00			6/30/99
						(Dollars in thousands)
Interest expense (income):
	Deposits		$	(2,691	)	$	(2,188	)	$	(5,672	)	$	(4,307	)
	FHLB advances			—			—			—			86
	Reverse repurchase agreements			—			(114	)		—			(236	)
	Other borrowings			—			87			—			169
		Total net benefit	$	(2,691	)	$	(2,215	)	$	(5,672	)	$	(4,288	)

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 securities 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 lower cost alternative sources of funds such as

18

FHLB advances and reverse repurchase agreements. Management also considers our interest-sensitivity profile when deciding on alternative sources of funds. At June 30, 2000, our one-year gap was a negative 13.33% of total assets. See Item 3 “Quantitative and Qualitative Disclosure About Market Risk” regarding further information on our interest rate risk profile.

We are required by regulation to maintain specific minimum levels of liquid investments. Regulations currently in effect require us 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. Charter One Bank’s average regulatory liquidity ratio for the second quarter of 2000 was 4.90%.

We anticipate that we will have sufficient funds available to meet our commitments. At June 30, 2000, we had outstanding commitments to originate loans and leases of $1.7 billion, unfunded consumer lines of credit totaling $2.6 billion and unfunded corporate banking lines of credit totaling $141.3 million. We do not expect all of these lines to be used by the borrowers. Outstanding letters of credit totaled $75.6 million as of June 30, 2000. Certificates of deposit scheduled to mature in one year or less at June 30, 2000 totaled $7.8 billion. We believe that a significant portion of the amounts maturing will remain with us because they are retail deposits. We believe we have significant borrowing capacity with the FHLB and investment banking firms to meet any need for additional borrowings and sources of funds.

Capital and Dividends

On October 20, 1999, our Board of Directors authorized a buyback to repurchase up to 3.3 million shares of Charter One common stock in a program of open market or privately negotiated purchases. As of March 31, 2000, we had purchased all of the shares authorized under this buyback for a total cost of $68.6 million. The repurchased shares are reserved in treasury for later reissue in connection with employee benefit plans.

On April 26, 2000, our Board of Directors authorized a new buyback to repurchase up to 7.5 million shares of Charter One common stock in a program of open market purchases or privately negotiated transactions. The repurchased shares will be reserved in treasury for later reissue in connection with future stock dividends as well as employee benefit plans. As of June 30, 2000, we had purchased all of the shares authorized under this buyback for a total cost of $170.7 million.

On July 18, 2000, the Board of Directors of Charter One authorized management to repurchase up to 10% of the Company’s outstanding common stock in a buyback program. The repurchased shares will be reserved in treasury for later reissue in connection with future stock dividends as well as employee benefit plans. As of August 4, 2000, we had purchased 2,854,400 shares authorized under this buyback for a total cost of $62.5 million.

As a financial holding company, Charter One is subject to regulation by the Federal Reserve Board (“FRB”) under the Bank Holding Company Act of 1956 as amended, and the regulations of the FRB, including various capital requirements. Charter One Commercial and Charter One Bank, F.S.B. are subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation 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 our 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 Charter One 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 1 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 the institution to meet specific capital adequacy guidelines and the regulatory framework for prompt corrective action that involve quantitative measures of an institution’s 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,

19

and other factors.

The actual regulatory capital ratios calculated for Charter One, Charter One 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:

Regulatory Capital (Figure 15)

		6/30/00
												To Be “Well Capitalized”
							For Capital					Under Prompt Corrective
		Actual					Adequacy Purposes					Action Provisions
		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(Dollars in thousands)
Charter One:
	Total capital to risk-weighted assets	$	2,392,320		10.23	%	$	1,870,205		>8.00	%	$	2,337,756		>10.00	%
	Tier 1 capital to risk-weighted assets		2,203,264		9.42			935,103		>4.00			1,402,654		>6.00
	Tier 1 capital to average assets		2,203,264		7.10			1,240,594		>4.00			1,550,742		>5.00
Charter One Commercial:
	Total capital to risk-weighted assets		42,614		46.96			7,259		>8.00			9,074		>10.00
	Tier I capital to risk-weighted assets		42,614		46.96			3,630		>4.00			5,445		>6.00
	Tier I capital to average assets		42,614		12.67			13,449		>4.00			16,812		>5.00
Charter One Bank, F.S.B.:
	Total capital to risk-weighted assets		2,317,316		10.38			1,785,514		>8.00			2,231,893		>10.00
	Tier I capital to risk-weighted assets		1,814,089		8.13			N/A		N/A			1,339,136		>6.00
	Core capital to adjusted tangible assets		1,832,567		5.72			1,281,917		>4.00			1,602,396		>5.00
	Tangible capital to tangible assets		1,831,897		5.72			480,709		>1.50			N/A		N/A

		12/31/99
												To Be “Well Capitalized”
							For Capital					Under Prompt Corrective
		Actual					Adequacy Purposes					Action Provisions
		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(Dollars in thousands)
Charter One:
	Total capital to risk-weighted assets	$	2,404,336		11.16	%	$	1,722,825		>8.00	%	$	2,153,532		>10.00	%
	Tier I capital to risk-weighted assets		2,213,534		10.28			861,413		>4.00			1,292,119		>6.00
	Tier I capital to average assets		2,213,534		7.05			1,255,645		>4.00			1,569,567		>5.00
Charter One Commercial:
	Total capital to risk-weighted assets		41,337		40.92			8,081		>8.00			10,101		>10.00
	Tier I capital to risk-weighted assets		41,337		40.92			4,040		>4.00			6,061		>6.00
	Tier I capital to average assets		41,337		13.66			12,104		>4.00			15,129		>5.00
Charter One Bank, F.S.B.:
	Total capital to risk-weighted assets		2,115,163		10.00			1,691,462		>8.00			2,114,327		>10.00
	Tier I capital to risk-weighted assets		1,605,506		7.59			N/A		N/A			1,268,596		>6.00
	Core capital to adjusted tangible assets		1,619,927		5.10			1,270,858		>4.00			1,588,572		>5.00
	Tangible capital to tangible assets		1,618,856		5.10			476,566		>1.50			N/A		N/A

As of December 31, 1999, 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. As of December 31, 1999, the most recent notification from the FRB categorized Charter One as “well capitalized” under the regulatory framework for Prompt Corrective Action. To be categorized as well capitalized, Charter One and Charter One Bank, F.S.B. must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table above. There are no conditions or events since that notification that have changed Charter One’s or Charter One Bank, F.S.B.’s respective category. Charter One Commercial’s capital ratios exceed the minimum required to be well capitalized. Management does not know of any reasons why Charter One Commercial would not be considered well capitalized; however, as of June 30, 2000, Charter One Commercial had not received a classification from its respective regulator.

20

Management believes that, as of June 30, 2000, Charter One, Charter One 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.

Quarterly Stock Prices and Dividends (Figure 16)

		Three Months Ended
		6/30/00		3/31/00		12/31/99		9/30/99		6/30/99
Market price of common stock:
	High	$	27.00	$	21.00	$	26.44	$	26.91	$	30.60
	Low		18.13		15.25		17.50		21.08		25.18
	Close		23.00		21.00		19.13		23.13		26.49
Dividends declared and paid			.18		.16		.16		.16		.15

ITEM 3. Quantitative and Qualitative Disclosure About Market Risk

A comprehensive qualitative and quantitative analysis regarding market risk was disclosed in our December 31, 1999 Form 10-K. The assumptions used in our model have been updated as of June 30, 2000. The table below indicates the estimated impact on net income under the various interest rate scenarios as a percentage of base case earnings projections.

Changes in		Estimated Percentage Change
Interest Rates		in Future Net Income
(basis points)		12 Months			24 Months
Base Case
	+200 Over one year		(11.78	)%		(15.64	)%
	+100 Over one year		(5.89	)		(7.61	)
	-100 Over one year		5.62			7.11
	-200 Over one year		10.22			12.07

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.

PART II – OTHER INFORMATION

ITEM 5. Other Information

Cash Dividend

On July 18, 2000, the Board of Directors of Charter One declared a regular quarterly cash dividend of 18 cents per common share. The dividend is payable August 21, 2000 to shareholders of record as of August 7, 2000.

Stock Dividend

On July 18, 2000, the Board of Directors of Charter One declared a 5% stock dividend which will be distributed September 30, 2000 to shareholders of record on September 14, 2000.

Share Repurchase

On July 18, 2000, the Board of Directors of Charter One authorized management to repurchase up to 10% of the Company’s outstanding common stock in a buyback program. The repurchased shares will be reserved in treasury for later reissue in connection with future stock dividends as well as employee benefit plans.

21

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibit 11 — Computation of Per Share Earnings

     Exhibit 27 — Financial Data Schedule

(b) Reports on Form 8-K — None

SIGNATURES

Pursuant to the requirements 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.

	CHARTER ONE FINANCIAL, INC.
Date: August 9, 2000	/s/ Richard W. Neu
	Richard W. Neu
	Executive Vice President and Chief Financial Officer
	(Duly Authorized Officer and Principal
	Financial Officer)

22 EX-11 2 ex11.htm EXHIBIT 11

Exhibit 11

CHARTER ONE FINANCIAL, INC.
COMPUTATION OF PER SHARE EARNINGS

		Three Months Ended				Six Months Ended
		6/30/00		6/30/99		6/30/00		6/30/99
		(Dollars in thousands, except per share data)
Basic earnings per share:
	Weighted average number of common shares outstanding		207,241,293		214,209,456		208,333,201		214,187,266
	Net income	$	103,287	$	108,376	$	214,996	$	211,322
	Basic earnings per share	$	.50	$	.51	$	1.03	$	.99
Diluted earnings per share:
	Weighted average number of common shares outstanding		207,241,293		214,209,456		208,333,201		214,187,266
	Add common stock equivalents for shares issuable under stock option plans		3,848,209		5,315,730		3,253,434		5,406,719
	Weighted average number of common and common equivalent shares outstanding		211,089,502		219,525,186		211,586,635		219,593,985
	Net income	$	103,287	$	108,376	$	214,996	$	211,322
	Diluted earnings per share	$	.49	$	.49	$	1.02	$	.96

EX-11

Exhibit 11--Comp Per Share

EX-27

 

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CHARTER ONE FINANCIAL, INC. AND
SUBSIDIARIES AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000

                             
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               JUN-30-2000
<CASH>                                         516,847
<INT-BEARING-DEPOSITS>                          14,789
<FED-FUNDS-SOLD>                                   470
<TRADING-ASSETS>                                     0
<INVESTMENTS-HELD-FOR-SALE>                  4,134,654
<INVESTMENTS-CARRYING>                       1,738,674
<INVESTMENTS-MARKET>                         1,739,596
<LOANS>                                     23,673,068
<ALLOWANCE>                                    186,194
<TOTAL-ASSETS>                              32,222,262
<DEPOSITS>                                  18,568,957
<SHORT-TERM>                                 5,958,335
<LIABILITIES-OTHER>                            836,561
<LONG-TERM>                                  4,514,092
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                         2,127
<OTHER-SE>                                   2,342,190
<TOTAL-LIABILITIES-AND-EQUITY>              32,222,262
<INTEREST-LOAN>                                875,219
<INTEREST-INVEST>                              186,896
<INTEREST-OTHER>                                17,553
<INTEREST-TOTAL>                             1,079,668
<INTEREST-DEPOSIT>                             361,923
<INTEREST-EXPENSE>                             252,709
<INTEREST-INCOME-NET>                          465,036
<LOAN-LOSSES>                                   20,107
<SECURITIES-GAINS>                               5,036
<EXPENSE-OTHER>                                310,257
<INCOME-PRETAX>                                316,187
<INCOME-PRE-EXTRAORDINARY>                     214,996
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   214,996
<EPS-BASIC>                                       1.03
<EPS-DILUTED>                                     1.02
<YIELD-ACTUAL>                                    3.02
<LOANS-NON>                                    138,175
<LOANS-PAST>                                    15,944
<LOANS-TROUBLED>                                   671
<LOANS-PROBLEM>                                 72,121
<ALLOWANCE-OPEN>                               186,400
<CHARGE-OFFS>                                   24,989
<RECOVERIES>                                     4,676
<ALLOWANCE-CLOSE>                              186,194
<ALLOWANCE-DOMESTIC>                           186,194
<ALLOWANCE-FOREIGN>                                  0
<ALLOWANCE-UNALLOCATED>                              0