##### Table of Contents



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SECURITIES
AND EXCHANGE COMMISSION

Washington, D.C. 20549




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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, 2003                                              |  | 
|
|
|
|
|
| |  |      |  | OR                                                                                        |  | 
|
|
|
|
|
| |  | [  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |  | 

Commission file number 001-15495



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


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 34-1567092                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation
or organization) |  | (I.R.S. Employer
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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X   No

The number of shares outstanding of the registrants sole class of common stock
as of July 31 2003 was 225,667,959.



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TABLE OF CONTENTS



|                                         |                                                                                               |                                                |  |  |  |  |  | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION          
|                                         | ITEM 1. Financial Statements                                                                 
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME             
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                                         |                                                                                               | NOTES TO CONSOLIDATED 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                            
|                                         | ITEM 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION             
|                                         | ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|                                         | ITEM 5. Other Information                                                                    
|                                         | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                              
|INDEX TO EXHIBITS                       
|EX-11 Computation of Per Share Earnings 
|EX-31.1 Rule 13a-14(a) CEO Certification
|EX-31.2 Rule 13a-14(a) CFO Certification
|EX-32 Section 1350 Certifications       



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##### Table of Contents



TABLE OF CONTENTS

|                  |    |  |    |                                                                                       |                               |  |    |  | 
|----------------- | -- |  | -- | ------------------------------------------------------------------------------------- | ----------------------------- |  | -- |  | 
|Item              |    |  |    |                                                                                       |                               |  |   
|Number            |    |  |    |                                                                                       | Page                         
|                  |    |  |    |                                                                                       |                              
|                  |    |  |    |                                                                                       | PART I  FINANCIAL STATEMENTS |  |    |  | 
|                 
|                 
|                 
|                 
|                  | 1. |  |    | Financial Statements                                                                  |                               |  |    | 
|                 
|                 
|                 
|                 
|                  |    |  |    | Consolidated Statements of Financial Condition 
June 30, 2003 and December 31, 2002  |                               |  | 1  | 
|                 
|                 
|                 
|                 
|                  |    |  |    | Consolidated Statements of Income 
Three and six months ended June 30, 2003 and 2002 |                               |  | 2  | 
|                 
|                 
|                 
|                 
|                  |    |  |    | Consolidated Statements of Cash Flows 
Six months ended June 30, 2003 and 2002       |                               |  | 3  | 
|                 
|                 
|                 
|                 
|                  |    |  |    | Notes to Consolidated Financial Statements                                            |                               |  | 4  | 
|                 
|                 
|                 
|                 
|                  | 2. |  |    | Managements Discussion and Analysis of Financial Condition and Results of Operations |                               |  | 7  | 
|                 
|                 
|                 
|                 
|                  | 3. |  |    | Quantitative and Qualitative Disclosure About Market Risk                             |                               |  | 23 | 
|                 
|                 
|                 
|                 
|                  | 4. |  |    | Controls and Procedures                                                               |                               |  | 23 | 
|                 
|                 
|                 
|                 
|                  |    |  |    |                                                                                       | PART II  OTHER INFORMATION   |  |    |  | 
|                 
|                 
|                 
|                 
|                  | 4. |  |    | Submission of Matters to a Vote of Security Holders                                   |                               |  | 24 | 
|                 
|                 
|                 
|                 
|                  | 5. |  |    | Other Information                                                                     |                               |  | 24 | 
|                 
|                 
|                 
|                 
|                  | 6. |  |    | Exhibits and Reports on Form 8-K                                                      |                               |  | 25 | 
|                 
|                 
|                 
|                 
|Signatures        |    |  | 25 |                                                                                      
|                 
|                 
|                 
|                 
|Index to Exhibits |    |  | 26 |                                                                                      





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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. Financial Statements




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

|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |            |            |            | 
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------ | ---------- | ---------------------- | ---------- | ---------- | ---------- | ---------- | ---------- | 
|                                                      |                                                                                                                   |                                 |                                            |            | 6/30/03                |            | 12/31/02  
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |           
|                                                      |                                                                                                                   |                                 |                                            |            | (Dollars in thousands,
|                                                      |                                                                                                                   |                                 |                                            |            | except per share data)
|ASSETS                                                |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|Cash accounts                                         |                                                                                                                   | $                               | 576,479                                    |            |                        | $          | 436,970    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Interest-bearing deposits with banks                  |                                                                                                                   |                                 | 9,539                                      |            |                        |            | 9,731      |           
|                                                     
|                                                     
|                                                     
|                                                     
|Federal funds sold and other                          |                                                                                                                   |                                 | 10,514                                     |            |                        |            | 512        |           
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                      |                                                                                                                   | Total cash and cash equivalents |                                            |            | 596,532                |            |            |            | 447,213    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Investment securities:                                |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Available for sale                                                                                                |                                 |                                            | 336,126    |                        |            |            | 210,095    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Held to maturity (fair value of $3,996 and $4,276)                                                                |                                 |                                            | 3,691      |                        |            |            | 3,973      |           
|                                                     
|                                                     
|                                                     
|                                                     
|Mortgage-backed securities:                           |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Available for sale                                                                                                |                                 |                                            | 14,313,397 |                        |            |            | 11,536,608 |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Held to maturity (fair value of $378,614 and $565,072)                                                            |                                 |                                            | 362,768    |                        |            |            | 540,781    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Loans and leases, net                                 |                                                                                                                   |                                 | 25,127,882                                 |            |                        |            | 25,852,846 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Loans held for sale                                   |                                                                                                                   |                                 | 362,270                                    |            |                        |            | 351,892    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Bank owned life insurance                             |                                                                                                                   |                                 | 834,337                                    |            |                        |            | 829,043    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Federal Home Loan Bank and Federal Reserve Bank stock |                                                                                                                   |                                 | 694,073                                    |            |                        |            | 681,923    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Premises and equipment                                |                                                                                                                   |                                 | 375,256                                    |            |                        |            | 353,730    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued interest receivable                           |                                                                                                                   |                                 | 153,346                                    |            |                        |            | 154,962    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Real estate and other collateral owned                |                                                                                                                   |                                 | 40,220                                     |            |                        |            | 42,980     |           
|                                                     
|                                                     
|                                                     
|                                                     
|Loan servicing assets                                 |                                                                                                                   |                                 | 115,242                                    |            |                        |            | 128,564    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Goodwill                                              |                                                                                                                   |                                 | 433,014                                    |            |                        |            | 386,372    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other assets                                          |                                                                                                                   |                                 | 386,785                                    |            |                        |            | 375,090    |           
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                      |                                                                                                                   | Total assets                    |                                            | $          | 44,134,939             |            |            | $          | 41,896,072 |           
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|Deposits                                              |                                                                                                                   | $                               | 27,939,774                                 |            |                        | $          | 27,527,843 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Federal Home Loan Bank advances                       |                                                                                                                   |                                 | 10,582,255                                 |            |                        |            | 9,037,925  |           
|                                                     
|                                                     
|                                                     
|                                                     
|Federal funds purchased and repurchase agreements     |                                                                                                                   |                                 | 51,399                                     |            |                        |            | 283,912    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other borrowings                                      |                                                                                                                   |                                 | 706,083                                    |            |                        |            | 708,853    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Advance payments by borrowers for taxes and insurance |                                                                                                                   |                                 | 58,593                                     |            |                        |            | 23,595     |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued interest payable                              |                                                                                                                   |                                 | 46,418                                     |            |                        |            | 38,372     |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued expenses and other liabilities                |                                                                                                                   |                                 | 1,387,835                                  |            |                        |            | 1,191,747  |           
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                      |                                                                                                                   | Total liabilities               |                                            |            | 40,772,357             |            |            |            | 38,812,247 |           
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|Commitments and contingencies                         |                                                                                                                   |                                 |                                           |            |                        |            |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Shareholders equity:                                 |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred stock  $.01 par value per share; 20,000,000
shares authorized and unissued                             |                                 |                                            |           |                        |            |            |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock  $.01 par value per share; 360,000,000
shares authorized; 229,946,762 and 227,571,468 shares issued |                                 |                                            | 2,299      |                        |            |            | 2,276      |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Additional paid-in capital                                                                                        |                                 |                                            | 2,270,580  |                        |            |            | 2,193,095  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Retained earnings                                                                                                 |                                 |                                            | 1,009,784  |                        |            |            | 824,564    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Less 3,851,660 and 2,781,151 shares of common stock held in treasury at cost                                      |                                 |                                            | (116,652   | )                      |            |            | (82,610    | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated other comprehensive income                                                                            |                                 |                                            | 196,571    |                        |            |            | 146,500    |           
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                      |                                                                                                                   |                                 | Total shareholders equity                 |            |                        | 3,362,582  |            |            |            | 3,083,825  | 
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           
|                                                      |                                                                                                                   |                                 | Total liabilities and shareholders equity |            | $                      | 44,134,939 |            |            | $          | 41,896,072 | 
|                                                      |                                                                                                                   |                                 |                                            |            |                        |            |            |           

See Notes to Consolidated Financial Statements.

1



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##### Table of Contents






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

|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |             |           | 
|------------------------------------- | ----------------------------------- | ------------------------------------------------------------- | ------- | --------------------------------------------- | ------- | ---------------- | ------- | ----------- | ------- | - | ------- | ----------- | --------- | ------- |  |  |  | - | ------- | ----------- | --------- | 
|                                      |                                     |                                                               |         | Three Months Ended                            |         | Six Months Ended
|                                      |                                     |                                                               |         |                                               |         |                 
|                                      |                                     |                                                               |         | 6/30/03                                       |         | 6/30/02          |         | 6/30/03     |         |   |         |             |           | 6/30/02
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |        
|                                      |                                     |                                                               |         | (Dollars in thousands, except per share data)
|Interest income:                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                     
|                                     
|                                     
|                                     
|                                      | Loans and leases                    |                                                               | $       | 367,602                                       |         |                  | $       | 415,057     |         |   | $       | 745,326     |           |         |  |  |  |   | $       | 842,895     |          
|                                     
|                                     
|                                     
|                                     
|                                      | Mortgage-backed securities:         |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |             |          
|                                     
|                                     
|                                     
|                                     
|                                      |                                     | Available for sale                                            |         |                                               | 154,490 |                  |         |             | 141,773 |   |         |             | 303,801   |         |  |  |  |   |         |             | 252,901   | 
|                                     
|                                     
|                                     
|                                     
|                                      |                                     | Held to maturity                                              |         |                                               | 6,858   |                  |         |             | 12,261  |   |         |             | 15,127    |         |  |  |  |   |         |             | 27,061    | 
|                                     
|                                     
|                                     
|                                     
|                                      | Investment securities:              |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |             |          
|                                     
|                                     
|                                     
|                                     
|                                      |                                     | Available for sale                                            |         |                                               | 3,297   |                  |         |             | 2,625   |   |         |             | 6,340     |         |  |  |  |   |         |             | 5,587     | 
|                                     
|                                     
|                                     
|                                     
|                                      |                                     | Held to maturity                                              |         |                                               | 56      |                  |         |             | 60      |   |         |             | 110       |         |  |  |  |   |         |             | 131       | 
|                                     
|                                     
|                                     
|                                     
|                                      | Other interest-earning assets       |                                                               |         | 7,856                                         |         |                  |         | 9,478       |         |   |         | 15,241      |           |         |  |  |  |   |         | 17,390      |          
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Total interest income                                         |         |                                               | 540,159 |                  |         |             | 581,254 |   |         |             | 1,085,945 |         |  |  |  |   |         |             | 1,145,965 | 
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Interest expense:                     |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                     
|                                     
|                                     
|                                     
|                                      | Deposits                            |                                                               |         | 126,734                                       |         |                  |         | 169,576     |         |   |         | 260,477     |           |         |  |  |  |   |         | 339,977     |          
|                                     
|                                     
|                                     
|                                     
|                                      | Federal Home Loan Bank advances     |                                                               |         | 104,025                                       |         |                  |         | 103,927     |         |   |         | 203,824     |           |         |  |  |  |   |         | 207,643     |          
|                                     
|                                     
|                                     
|                                     
|                                      | Other borrowings                    |                                                               |         | 13,969                                        |         |                  |         | 9,884       |         |   |         | 27,172      |           |         |  |  |  |   |         | 17,381      |          
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Total interest expense                                        |         |                                               | 244,728 |                  |         |             | 283,387 |   |         |             | 491,473   |         |  |  |  |   |         |             | 565,001   | 
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Net interest income                                           |         |                                               | 295,431 |                  |         |             | 297,867 |   |         |             | 594,472   |         |  |  |  |   |         |             | 580,964   | 
|                                     
|                                     
|                                     
|                                     
|Provision for loan and lease losses   |                                     |                                                               | 35,360  |                                               |         |                  | 55,277  |             |         |   | 96,831  |             |           |         |  |  |  |   | 83,994  |            
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Net interest income after provision for loan
and lease losses |         |                                               | 260,071 |                  |         |             | 242,590 |   |         |             | 497,641   |         |  |  |  |   |         |             | 496,970   | 
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Other income:                         |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                     
|                                     
|                                     
|                                     
|                                      | Retail banking                      |                                                               |         | 97,087                                        |         |                  |         | 83,543      |         |   |         | 181,187     |           |         |  |  |  |   |         | 157,299     |          
|                                     
|                                     
|                                     
|                                     
|                                      | Mortgage banking                    |                                                               |         | (23,895                                       | )       |                  |         | 9,168       |         |   |         | (23,922     | )         |         |  |  |  |   |         | 20,458      |          
|                                     
|                                     
|                                     
|                                     
|                                      | Leasing operations                  |                                                               |         | (12,230                                       | )       |                  |         | 317         |         |   |         | (19,086     | )         |         |  |  |  |   |         | 587         |          
|                                     
|                                     
|                                     
|                                     
|                                      | Net gains                           |                                                               |         | 108,549                                       |         |                  |         | 37,840      |         |   |         | 185,202     |           |         |  |  |  |   |         | 59,567      |          
|                                     
|                                     
|                                     
|                                     
|                                      | Bank owned life insurance and other |                                                               |         | 8,450                                         |         |                  |         | 8,924       |         |   |         | 16,406      |           |         |  |  |  |   |         | 18,432      |          
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Total other income                                            |         |                                               | 177,961 |                  |         |             | 139,792 |   |         |             | 339,787   |         |  |  |  |   |         |             | 256,343   | 
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Administrative expenses:              |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                     
|                                     
|                                     
|                                     
|                                      | Compensation and employee benefits  |                                                               |         | 90,790                                        |         |                  |         | 80,645      |         |   |         | 177,846     |           |         |  |  |  |   |         | 157,897     |          
|                                     
|                                     
|                                     
|                                     
|                                      | Net occupancy and equipment         |                                                               |         | 30,466                                        |         |                  |         | 27,634      |         |   |         | 61,652      |           |         |  |  |  |   |         | 56,197      |          
|                                     
|                                     
|                                     
|                                     
|                                      | Marketing expenses                  |                                                               |         | 20,205                                        |         |                  |         | 10,012      |         |   |         | 33,852      |           |         |  |  |  |   |         | 18,841      |          
|                                     
|                                     
|                                     
|                                     
|                                      | Federal deposit insurance premiums  |                                                               |         | 1,125                                         |         |                  |         | 1,106       |         |   |         | 2,267       |           |         |  |  |  |   |         | 2,317       |          
|                                     
|                                     
|                                     
|                                     
|                                      | Other administrative expenses       |                                                               |         | 52,168                                        |         |                  |         | 49,219      |         |   |         | 102,429     |           |         |  |  |  |   |         | 95,526      |          
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Total administrative expenses                                 |         |                                               | 194,754 |                  |         |             | 168,616 |   |         |             | 378,046   |         |  |  |  |   |         |             | 330,778   | 
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Income before income taxes            |                                     |                                                               | 243,278 |                                               |         |                  | 213,766 |             |         |   | 459,382 |             |           |         |  |  |  |   | 422,535 |            
|                                     
|                                     
|                                     
|                                     
|Income taxes                          |                                     |                                                               | 77,241  |                                               |         |                  | 67,871  |             |         |   | 145,854 |             |           |         |  |  |  |   | 134,155 |            
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      |                                     | Net income                                                    |         | $                                             | 166,037 |                  |         | $           | 145,895 |   |         | $           | 313,528   |         |  |  |  |   |         | $           | 288,380   | 
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Basic earnings per share(1)           |                                     | $                                                             | .74     |                                               |         | $                | .63     |             |         | $ | 1.40    |             |           |         |  |  |  | $ | 1.24    |            
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Diluted earnings per share(1)         |                                     | $                                                             | .72     |                                               |         | $                | .61     |             |         | $ | 1.36    |             |           |         |  |  |  | $ | 1.21    |            
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Average common shares outstanding(1): |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                     
|                                     
|                                     
|                                     
|                                      | Basic                               |                                                               |         | 225,501,687                                   |         |                  |         | 231,197,406 |         |   |         | 225,249,543 |           |         |  |  |  |   |         | 231,441,018 |          
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|                                      | Diluted                             |                                                               |         | 231,095,694                                   |         |                  |         | 239,123,292 |         |   |         | 230,778,271 |           |         |  |  |  |   |         | 238,672,614 |          
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            
|Cash dividends declared per share(1)  |                                     | $                                                             | .24     |                                               |         | $                | .21     |             |         | $ | .46     |             |           |         |  |  |  | $ | .40     |            
|                                      |                                     |                                                               |         |                                               |         |                  |         |             |         |   |         |             |           |         |  |  |  |   |         |            



---

|(1) |  | Restated to reflect the 5% stock dividend issued September 30, 2002.
|--- |  | --------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

2



---



##### Table of Contents






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

|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |            |            |          |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------- | ---------- | ---------------------- | ---------- | --------- | ---------- | ---------- | -------- | -
|                                                   |                                                                                   |                                                                                         |                                           |            | Six Months Ended      
|                                                   |                                                                                   |                                                                                         |                                           |            |                       
|                                                   |                                                                                   |                                                                                         |                                           |            | 6/30/03                |            | 6/30/02  
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |          
|                                                   |                                                                                   |                                                                                         |                                           |            | (Dollars in thousands)
|Cash flows from operating activities:              |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net income                                                                        |                                                                                         | $                                         | 313,528    |                        |            | $         | 288,380    |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                                         |                                           |            |                        |            |           |            |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Provision for loan and lease losses                                                     |                                           |            | 96,831                 |            |           |            | 83,994     |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Net gains                                                                               |                                           |            | (185,202               | )          |           |            | (59,567    | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Accretion of discounts, amortization of premiums, and amortization of
depreciation, net |                                           |            | 137,532                |            |           |            | 51,533     |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Origination of loans held for sale                                                      |                                           |            | (1,648,230             | )          |           |            | (1,125,258 | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Proceeds from sale of loans held for sale                                               |                                           |            | 1,646,068              |            |           |            | 1,122,671  |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Increase (decrease) in accrued interest payable                                         |                                           |            | 8,046                  |            |           |            | (19,675    | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Other                                                                                   |                                           |            | 179,197                |            |           |            | 300,996    |         
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                   |                                                                                   |                                                                                         | Net cash provided by operating activities |            |                        | 547,770    |           |            |            | 643,074  |  
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|Cash flows from investing activities:              |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net principal disbursed on loans and leases                                       |                                                                                         |                                           | (4,770,293 | )                      |            |           | (2,968,722 | )         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from principal repayments and maturities of:                             |                                                                                         |                                           |            |                        |            |           |            |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Mortgage-backed securities held to maturity                                             |                                           |            | 180,454                |            |           |            | 258,232    |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Mortgage-backed securities available for sale                                           |                                           |            | 2,544,391              |            |           |            | 817,069    |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Investment securities held to maturity                                                  |                                           |            | 541                    |            |           |            | 1,751      |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Investment securities available for sale                                                |                                           |            | 28,825                 |            |           |            | 21,059     |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from sale of:                                                            |                                                                                         |                                           |            |                        |            |           |            |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Mortgage-backed securities available for sale                                           |                                           |            | 5,821,613              |            |           |            | 4,416,575  |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Investment securities available for sale                                                |                                           |            | 2,379                  |            |           |            | 645        |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Federal Home Loan Bank and Federal Reserve Bank stock                                   |                                           |            | 15,107                 |            |           |            | 7,538      |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Purchase of:                                                                      |                                                                                         |                                           |            |                        |            |           |            |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Mortgage-backed securities available for sale                                           |                                           |            | (5,108,641             | )          |           |            | (2,431,548 | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Investment securities available for sale                                                |                                           |            | (57,171                | )          |           |            | (29,315    | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Federal Home Loan Bank and Federal Reserve Bank stock                                   |                                           |            | (7,430                 | )          |           |            | (41,588    | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Loans                                                                                   |                                           |            | (44,874                | )          |           |            | (10,090    | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                                   | Net cash received (paid) in connection with business combinations                       |                                           |            | 77,944                 |            |           |            | (90,425    | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                                                                             |                                                                                         |                                           | (111,290   | )                      |            |           | (109,662   | )         
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                   |                                                                                   |                                                                                         | Net cash used in investing activities     |            |                        | (1,428,445 | )         |            |            | (158,481 | )
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|Cash flows from financing activities:              |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net decrease in short-term borrowings                                             |                                                                                         |                                           | (762,513   | )                      |            |           | (975,170   | )         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from long-term borrowings                                                |                                                                                         |                                           | 2,007,512  |                        |            |           | 420,832    |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Repayments of long-term borrowings                                                |                                                                                         |                                           | (9,860     | )                      |            |           | (11,057    | )         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Increase (decrease) in deposits                                                   |                                                                                         |                                           | (85,758    | )                      |            |           | 1,190,934  |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Increase (decrease) in advance payments by borrowers for taxes and insurance      |                                                                                         |                                           | 34,998     |                        |            |           | (2,281     | )         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Payment of dividends on common stock                                              |                                                                                         |                                           | (103,514   | )                      |            |           | (92,560    | )         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from issuance of common stock                                            |                                                                                         |                                           | 31,761     |                        |            |           | 40,378     |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Purchase of treasury stock                                                        |                                                                                         |                                           | (82,632    | )                      |            |           | (179,109   | )         
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                   |                                                                                   | Net cash provided by financing activities                                               |                                           |            | 1,029,994              |            |           |            | 391,967    |         
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|Net increase in cash and cash equivalents          |                                                                                   |                                                                                         | 149,319                                   |            |                        |            | 876,560   |           
|                                                  
|                                                  
|                                                  
|                                                  
|Cash and cash equivalents, beginning of the period |                                                                                   |                                                                                         | 447,213                                   |            |                        |            | 516,520   |           
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|Cash and cash equivalents, end of period           |                                                                                   | $                                                                                       | 596,532                                   |            |                        | $          | 1,393,080 |           
|                                                   |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|Supplemental disclosure of cash flow information:  |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Cash paid for interest on deposits and borrowings                                 |                                                                                         | $                                         | 482,629    |                        |            | $         | 667,955    |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Cash paid for income taxes                                                        |                                                                                         |                                           | 12,000     |                        |            |           | 4,500      |           
|                                                  
|                                                  
|                                                  
|                                                  
|Supplemental schedule of noncash activities:       |                                                                                   |                                                                                         |                                           |            |                        |            |           |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Loans exchanged for mortgage-backed securities                                    |                                                                                         |                                           | 5,765,725  |                        |            |           | 4,256,953  |           
|                                                  
|                                                  
|                                                  
|                                                  



---

See Notes to Consolidated Financial Statements.

3



---



##### Table of Contents






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 for the year ended December 31, 2002.
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. |  | Charter One has one operating segment, consumer banking, which offers an
array of products and services to its customers. Pursuant to its consumer
banking strategy, emphasis is placed on building relationships and
identifying cross-sell opportunities with its customers, as opposed to
building specific lines of business. As a result, Charter One works as an
integrated unit to customize solutions for its customers, with business
line emphasis and product offerings changing over time as needs and
demands change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|3. |  | In November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation (FIN) No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. This interpretation expands the disclosures to be
made by a guarantor in its financial statements about its obligations
under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee.
FIN 45 clarifies the requirements of Statement of Financial Accounting
Standards (SFAS) No. 5, Accounting for Contingencies, relating to
guarantees. In general, FIN 45 applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on changes in an underlying that is related to an
asset, liability, or equity security of the guaranteed party. Certain
guarantee contracts are excluded from both the disclosure and recognition
requirements of FIN 45, including, among others, guarantees relating to
employee compensation, residual value guarantees under capital lease
arrangements, commercial letters of credit, loan commitments, subordinated
interests in a special purpose entity, and guarantees of a companys own
future performance. Other guarantees are subject to the disclosure
requirements of FIN 45 but not to the recognition provisions and include,
among others, a guarantee accounted for as a derivative instrument under
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, a parents guarantee of debt owed to a third
party by its subsidiary or vice versa, and a guarantee which is based on
performance, not price. The disclosure requirements of FIN 45 are
effective for the Company as of December 31, 2002, and require disclosure
of the nature of the guarantee, the maximum potential amount of future
payments that the guarantor could be required to make under the guarantee,
and the current amount of the liability, if any, for the guarantors
obligations under the guarantee. The recognition requirements of FIN 45
are to be applied prospectively to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material impact
on the Companys consolidated financial condition or results of
operations.
|  
|4. |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation -Transition and Disclosure, an amendment of SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides
alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 to
require prominent disclosure about the effects on reported net income of
an entitys accounting policy decisions with respect to stock-based
employee compensation. Finally, SFAS No. 148 amends Accounting Principles
Board (APB) Opinion No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. The
Company has elected to continue application of APB Opinion No. 25 and
related interpretations in accounting for its stock-based employee
compensation plans. Accordingly, no stock-based employee compensation
cost is, or is expected to be, reflected in net income, as all options
granted under the Companys stock-based employee compensation plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant. Had stock-based employee compensation costs 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, as amended by SFAS No. 148, the Companys net income and
earnings per share would have been reduced to the pro forma amounts
indicated below (per share data has been restated to reflect all stock
dividends as of June 30, 2003):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

4



---



##### Table of Contents



|                            |                                                                                                                         |  |                                               |         |                  |  |         |         |         |  |   |         |  |  |   |         | 
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | ---------------- |  | ------- | ------- | ------- |  | - | ------- |  |  | - | ------- | 
|                            |                                                                                                                         |  | Three Months Ended                            |         | Six Months Ended
|                            |                                                                                                                         |  |                                               |         |                 
|                            |                                                                                                                         |  | 6/30/03                                       |         | 6/30/02          |  | 6/30/03 |         | 6/30/02
|                            |                                                                                                                         |  |                                               |         |                  |  |         |         |        
|                            |                                                                                                                         |  | (Dollars in thousands, except per share data)
|Net income:                 |                                                                                                                         |  |                                               |         |                  |  |         |         |         |  |   |         |  |  |   |        
|                           
|                           
|                           
|                           
|                            | As reported                                                                                                             |  | $                                             | 166,037 |                  |  | $       | 145,895 |         |  | $ | 313,528 |  |  | $ | 288,380 | 
|                           
|                           
|                           
|                           
|                            | Less: Total stock-based employee compensation
expense determined under the fair value
method
for all awards, net of tax |  |                                               | 7,448   |                  |  |         | 6,985   |         |  |   | 15,018  |  |  |   | 14,084  | 
|                            |                                                                                                                         |  |                                               |         |                  |  |         |         |         |  |   |         |  |  |   |         | 
|                            | Pro forma                                                                                                               |  | $                                             | 158,589 |                  |  | $       | 138,910 |         |  | $ | 298,510 |  |  | $ | 274,296 | 
|                            |                                                                                                                         |  |                                               |         |                  |  |         |         |         |  |   |         |  |  |   |         | 
|Basic earnings per share:   |                                                                                                                         |  |                                               |         |                  |  |         |         |         |  |   |         |  |  |   |        
|                           
|                           
|                           
|                           
|                            | As reported                                                                                                             |  | $                                             | .74     |                  |  | $       | .63     |         |  | $ | 1.40    |  |  | $ | 1.24    | 
|                           
|                           
|                           
|                           
|                            | Pro forma                                                                                                               |  |                                               | .70     |                  |  |         | .60     |         |  |   | 1.33    |  |  |   | 1.19    | 
|                           
|                           
|                           
|                           
|Diluted earnings per share: |                                                                                                                         |  |                                               |         |                  |  |         |         |         |  |   |         |  |  |   |        
|                           
|                           
|                           
|                           
|                            | As reported                                                                                                             |  |                                               | .72     |                  |  |         | .61     |         |  |   | 1.36    |  |  |   | 1.21    | 
|                           
|                           
|                           
|                           
|                            | Pro forma                                                                                                               |  |                                               | .69     |                  |  |         | .58     |         |  |   | 1.29    |  |  |   | 1.15    | 



| |  | The fair value of each stock option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in the three and six months ended June 30, 2003 and 2002:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                    |             |                  |  |         |             |         |  |  |             |   |  |  |             |  
|----------------------- |  | ------------------ | ----------- | ---------------- |  | ------- | ----------- | ------- |  |  | ----------- | - |  |  | ----------- | -
|                        |  | Three Months Ended |             | Six Months Ended
|                        |  |                    |             |                 
|                        |  | 6/30/03            |             | 6/30/02          |  | 6/30/03 |             | 6/30/02
|                        |  |                    |             |                  |  |         |             |        
|Dividend yield          |  |                    | 3.00        | %                |  |         | 3.00        | %       |  |  | 3.00        | % |  |  | 3.00        | %
|                       
|                       
|                       
|                       
|Volatility              |  |                    | 47.17-47.19 | %                |  |         | 35.95-35.99 | %       |  |  | 47.17-47.26 | % |  |  | 35.94-36.12 | %
|                       
|                       
|                       
|                       
|Risk-free interest rate |  |                    | 2.68-3.33   | %                |  |         | 4.39-4.86   | %       |  |  | 2.68-3.36   | % |  |  | 4.39-4.98   | %
|                       
|                       
|                       
|                       
|Life of grant           |  | 6 years            |             | 6 years          |  | 6 years |             | 6 years



|   |  | The estimated weighted-average date of grant fair value (based on the above
option-pricing model and assumptions) was $10.76 and $10.85 for stock
options granted in the three months ended June 30, 2003 and 2002,
respectively, and $10.98 and $8.94 for stock options granted in the six
months ended June 30, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|5. |  | In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. FIN 46 provides guidance on how to identify a variable
interest entity (VIE) and determine when the assets, liabilities,
noncontrolling interests, and results of operations of a VIE need to be
included in a companys consolidated financial statements. FIN 46 also
requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The provisions of the
interpretation became effective upon issuance. The adoption of FIN 46 did
not have a material impact on the Companys consolidated financial
condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|6. |  | In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends
SFAS No. 133 for certain decisions made by the FASB as part of the
Derivatives Implementation Group (DIG) process. For those amendments
that relate to SFAS No. 133 implementation guidance, the specific SFAS No.
133 Implementation Issue necessitating the amendment is identified. If the
amendment relates to a cleared issue, the clearance date also is noted.
SFAS No. 149 also amends SFAS No. 133 to incorporate clarifications of the
definition of a derivative. SFAS No. 149 contains amendments relating to
FASB Concepts Statement No. 7, Using Cash Flow Information and Present
Value in Accounting Measurements, SFAS No. 65, Accounting for Certain
Mortgage Banking Activities, SFAS No. 91, Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases, SFAS No. 95, Statement of Cash Flows, and SFAS
No. 126, Exemption from Certain Required Disclosures about Financial
Instruments for Certain Nonpublic Entities.
|  
|   |  | SFAS No. 149 is effective for contracts entered into or modified after June
30, 2003, except as stated below and for hedging relationships designated
after June 30, 2003. In addition, except as stated below, all provisions of
SFAS No. 149 should be applied prospectively. The provisions of SFAS No.
149 that relate to SFAS No. 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective effective dates.
In addition, guidance related to forward purchases or sales of when-issued
securities or other securities that do not yet exist, should be applied to
both existing contracts and new contracts entered into after June 30, 2003.
The Company believes the                                                                                                                                                                                                                                                                                                                                                                             

5



---



##### Table of Contents





|   |  | adoption of SFAS No. 149 will not have a material
impact on its consolidated financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards on how to classify and
measure certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires an issuer to classify
certain freestanding financial instruments as liabilities, which may have
been previously classified as equity, because those instruments embody
obligations of the issuer. SFAS No. 150 also requires disclosure of the
nature and terms of the financial instruments and the rights and
obligations embodied in those instruments. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and is
otherwise effective as of the first interim period beginning after June
15, 2003. The Company believes the adoption of SFAS No. 150 will not have
a material impact on its consolidated financial position or results of
operations.
|  
|8. |  | On June 6, 2003, the Company completed its acquisition of Advance Bancorp
(Advance), the holding company of Advance Bank, an Illinois
state-chartered commercial bank headquartered in Lansing, Illinois. On
June 6, 2003, Advance had assets of $667.5 million and deposits of $482.1
million in 14 branches located in Cook County, Illinois. The Company
issued 2,389,795 common shares and recorded $46.6 million of goodwill
based on a preliminary determination of the estimated fair values of the
assets and liabilities acquired as a result of this transaction. The
Company included the results of operations of Advance in its Consolidated
Financial Statements from the effective date of the acquisition. Pro
forma results of operations for this acquisition, had the acquisition
occurred as of January 1, 2003, are not significant and, accordingly, are
not provided.                                                                                                                                   

6



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##### Table of Contents






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. As of June 30, 2003, the Company owned
all of the outstanding capital stock of Charter One Bank, N.A., a national bank
and Advance Bank, an Illinois state-chartered commercial bank. We sometimes
refer to these financial institutions in this document as the Bank. The
Banks primary business is providing consumer banking services to certain major
markets in Ohio, Michigan, Illinois, New York, and Vermont, in some markets of
Massachusetts, and in one location in Connecticut. As of June 30, 2003, the
Bank and its subsidiaries were doing business through 522 full-service
branches, 28 loan production offices and 953 ATMs. On July 11, 2003, Advance
Bank was merged into Charter One Bank, N.A.

Discussion of Forward-Looking Statements

This document, including information incorporated by reference, contains, and
future filings by Charter One on Form 10-K, Form 10-Q and Form 8-K and future
oral and written statements and press releases by Charter One and its
management may contain, forward-looking statements about Charter One 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, including revenue creation, lending origination, operating
efficiencies, loan sales, charge-offs and loan loss provisions, deposits and
refinancing of liabilities, growth opportunities, interest rates, acquisition
and divestiture opportunities, and synergies, efficiencies, cost savings and
funding advantages expected to be realized from prior acquisitions. These
forward-looking statements are based on currently available competitive,
financial and economic data and managements views and assumptions regarding
future events. These forward-looking statements are inherently uncertain, and
investors must recognize that actual results may differ from those expressed or
implied in the forward-looking statements. Accordingly, Charter One cautions
readers not to place undue reliance on any forward-looking statements.

Many of these forward-looking statements appear throughout this document.
Words such as may, could, should, would, believe, anticipate, estimate, expect,
intend, plan and similar expressions are intended to identify these
forward-looking statements. The important factors discussed below, as well as
other factors discussed elsewhere in this document and factors 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. Among the factors that could cause our actual results to
differ from these forward-looking statements are:



| |  | the strength of the United States economy in general and the strength
of the local economies in which we conduct our operations; general
economic conditions, either nationally or regionally, may be less
favorable than expected, resulting in, among other things, a
deterioration in the credit quality of our loans and leases and other
assets;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve
Board;                                                                                                                                                                                                         
| 
| |  | financial markets, monetary and interest rate fluctuations,
particularly the relative relationship of short-term interest rates to
long-term interest rates;                                                                                                                                                                                         
| 
| |  | the timely development of and acceptance of new products and services
of Charter One and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors products and services;                                                                                            
| 
| |  | the impact of changes in financial services laws and regulations
(including laws and regulations concerning taxes, accounting
standards, banking, securities and insurance); legislative or
regulatory changes may adversely affect the business in which we are
engaged;                                                                            
| 
| |  | the impact of technological changes;                                                                                                                                                                                                                                                                                                                 

7



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##### Table of Contents





| |  | our ability to successfully integrate acquisitions into our existing
operations, and the availability of new acquisitions, joint ventures
and alliance opportunities that build shareholder value;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in consumer spending and saving habits; and                                                                                                                                               
| 
| |  | our success at managing the risks involved in the foregoing.                                                                                                                                      

Charter One 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.

RESULTS OF OPERATIONS

Performance Overview

Figure 1 sets forth financial results and annualized performance ratios for the
three and six months ended June 30, 2003 and 2002. Per share data have been
restated to reflect the 5% stock dividend issued September 30, 2002.

Selected Financial Results and Ratios(Figure 1)

|                                               |  |                                               |         |                  |  |         |         |         |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | --------------------------------------------- | ------- | ---------------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                               |  | Three Months Ended                            |         | Six Months Ended
|                                               |  |                                               |         |                 
|                                               |  | 6/30/03                                       |         | 6/30/02          |  | 6/30/03 |         | 6/30/02
|                                               |  |                                               |         |                  |  |         |         |        
|                                               |  | (Dollars in thousands, except per share data)
|Net income                                     |  | $                                             | 166,037 |                  |  | $       | 145,895 |         |  | $ | 313,528 |   |  | $ | 288,380 |  
|                                              
|                                              
|                                              
|                                              
|Diluted earnings per share                     |  |                                               | .72     |                  |  |         | .61     |         |  |   | 1.36    |   |  |   | 1.21    |  
|                                              
|                                              
|                                              
|                                              
|Return on average assets                       |  |                                               | 1.50    | %                |  |         | 1.51    | %       |  |   | 1.44    | % |  |   | 1.53    | %
|                                              
|                                              
|                                              
|                                              
|Return on average equity                       |  |                                               | 19.86   |                  |  |         | 19.85   |         |  |   | 19.17   |   |  |   | 19.78   |  
|                                              
|                                              
|                                              
|                                              
|Return on average tangible equity(1)           |  |                                               | 22.74   |                  |  |         | 22.84   |         |  |   | 22.02   |   |  |   | 22.67   |  
|                                              
|                                              
|                                              
|                                              
|Average equity to average assets               |  |                                               | 7.55    |                  |  |         | 7.60    |         |  |   | 7.51    |   |  |   | 7.76    |  
|                                              
|                                              
|                                              
|                                              
|Net interest income to administrative
expenses |  |                                               | 1.52    | x                |  |         | 1.77    | x       |  |   | 1.57    | x |  |   | 1.76    | x
|                                              
|                                              
|                                              
|                                              
|Administrative expenses to average assets      |  |                                               | 1.76    | %                |  |         | 1.74    | %       |  |   | 1.74    | % |  |   | 1.76    | %
|                                              
|                                              
|                                              
|                                              
|Efficiency ratio(2)                            |  |                                               | 41.14   |                  |  |         | 38.53   |         |  |   | 40.46   |   |  |   | 39.50   |  



---

|(1) |  | Computed as the ratio of net income, excluding the amortization of other
intangible assets, to average tangible equity.
|--- |  | -----------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Computed as the ratio of total administrative expenses to net interest
income and total other income.                  

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. 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.
Noninterest-bearing demand deposit accounts are included in noninterest-bearing
liabilities. The cost of liabilities includes the annualized effect of
interest rate risk management instruments.

8



---



##### Table of Contents



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

|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |      |      |      | 
|----------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------------ | ---------- | ---------------------- | ---------- | -------- | ------- | ------- | ------- | ------- | ---- | -------- | ---- | --------- | ---------- | ---------- | ---------- | ------- | ------- | ------- | ------- | ------ | ---- | ---- | ---- | 
|                                                                        |                                       |                                       |                                            |            | Three Months Ended    
|                                                                        |                                       |                                       |                                            |            |                       
|                                                                        |                                       |                                       |                                            |            | 6/30/03                |            | 6/30/02 
|                                                                        |                                       |                                       |                                            |            |                        |            |         
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      | Avg.     |      |           |            |            |            |         |         |         |         | Avg.  
|                                                                        |                                       |                                       |                                            |            | Average                |            |          |         |         |         | Yield/  |      | Average  |      |           |            |            |            | Yield/ 
|                                                                        |                                       |                                       |                                            |            | Balance                |            | Interest |         | Cost    |         | Balance |      | Interest |      | Cost     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |          
|                                                                        |                                       |                                       |                                            |            | (Dollars in thousands)
|Interest-earning assets:                                                |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Loans and leases                      |                                       | $                                          | 26,101,819 |                        |            | $        | 367,602 |         |         |         | 5.64 | %        |      | $         | 24,838,010 |            |            | $       | 415,057 |         |         |        | 6.69 | %   
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Mortgage-backed securities:           |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Available for sale                    |                                            |            | 14,010,057             |            |          |         | 154,490 |         |         |      | 4.41     |      |           |            | 9,367,419  |            |         |         | 141,773 |         |        |      | 6.05 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Held to maturity                      |                                            |            | 395,598                |            |          |         | 6,858   |         |         |      | 6.94     |      |           |            | 759,826    |            |         |         | 12,261  |         |        |      | 6.45 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Investment securities:                |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Available for sale                    |                                            |            | 256,677                |            |          |         | 3,297   |         |         |      | 5.14     |      |           |            | 152,179    |            |         |         | 2,625   |         |        |      | 6.90 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Held to maturity                      |                                            |            | 3,957                  |            |          |         | 56      |         |         |      | 5.74     |      |           |            | 4,819      |            |         |         | 60      |         |        |      | 4.97 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Other interest-earning assets         |                                       |                                            | 839,597    |                        |            |          | 7,856   |         |         |         | 3.70 |          |      |           | 1,028,371  |            |            |         | 9,478   |         |         |        | 3.65 |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       | Total interest-earning assets              |            |                        | 41,607,705 |          |         |         | 540,159 |         |      |          | 5.19 |           |            |            | 36,150,624 |         |         |         | 581,254 |        |      |      | 6.43 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|Allowance for loan and lease losses                                     |                                       |                                       | (360,448                                   | )          |                        |            |          |         |         |         |         |      |          |      | (257,591  | )          |            |            |         |         |         |         |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Noninterest-earning assets                                              |                                       |                                       | 3,044,576                                  |            |                        |            |          |         |         |         |         |      |          |      | 2,767,624 |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       | Total assets                               |            | $                      | 44,291,833 |          |         |         |         |         |      |          |      |           |            | $          | 38,660,657 |         |         |         |         |        |      |      |      | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|Interest-bearing liabilities:                                           |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Deposits:                             |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Checking accounts                     |                                            | $          | 6,951,974              |            |          |         | 23,412  |         |         |      | 1.35     |      |           | $          | 5,883,423  |            |         |         | 30,456  |         |        |      | 2.08 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Money market and savings
accounts     |                                            |            | 8,332,278              |            |          |         | 31,204  |         |         |      | 1.50     |      |           |            | 8,519,541  |            |         |         | 50,252  |         |        |      | 2.37 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Certificates of deposit               |                                            |            | 9,733,110              |            |          |         | 72,118  |         |         |      | 2.97     |      |           |            | 10,093,412 |            |         |         | 88,868  |         |        |      | 3.53 |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       | Total deposits                             |            |                        | 25,017,362 |          |         |         | 126,734 |         |      |          | 2.03 |           |            |            | 24,496,376 |         |         |         | 169,576 |        |      |      | 2.78 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        | Federal Home Loan Bank advances       |                                       |                                            | 11,397,410 |                        |            |          | 104,025 |         |         |         | 3.66 |          |      |           | 7,878,506  |            |            |         | 103,927 |         |         |        | 5.29 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Other borrowings                      |                                       |                                            | 874,062    |                        |            |          | 13,969  |         |         |         | 6.38 |          |      |           | 584,882    |            |            |         | 9,884   |         |         |        | 6.74 |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       | Total borrowings                           |            |                        | 12,271,472 |          |         |         | 117,994 |         |      |          | 3.85 |           |            |            | 8,463,388  |         |         |         | 113,811 |        |      |      | 5.39 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       | Total interest-bearing liabilities         |            |                        | 37,288,834 |          |         |         | 244,728 |         |      |          | 2.63 |           |            |            | 32,959,764 |         |         |         | 283,387 |        |      |      | 3.45 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|Noninterest-bearing liabilities:                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Demand deposit accounts               |                                       |                                            | 2,308,993  |                        |            |          |         |         |         |         |      |          |      |           | 1,743,736  |            |            |         |         |         |         |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Other noninterest-bearing
liabilities |                                       |                                            | 1,349,173  |                        |            |          |         |         |         |         |      |          |      |           | 1,017,623  |            |            |         |         |         |         |        |      |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       | Total noninterest-bearing
liabilities |                                            |            | 3,658,166              |            |          |         |         |         |         |      |          |      |           |            | 2,761,359  |            |         |         |         |         |        |      |      |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       |                                       | Total liabilities                          |            |                        | 40,947,000 |          |         |         |         |         |      |          |      |           |            |            | 35,721,123 |         |         |         |         |        |      |      |      | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Shareholders equity                                                    |                                       |                                       | 3,344,833                                  |            |                        |            |          |         |         |         |         |      |          |      | 2,939,534 |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|                                                                        |                                       |                                       | Total liabilities and
shareholders equity |            | $                      | 44,291,833 |          |         |         |         |         |      |          |      |           |            | $          | 38,660,657 |         |         |         |         |        |      |      |      | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|Net interest income                                                     |                                       |                                       |                                            |            |                        | $          | 295,431  |         |         |         |         |      |          |      |           |            |            | $          | 297,867 |         |         |         |        |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |         |         |      |          |      |           |            |            |            |         |         |         |         |        |     
|Interest rate spread                                                    |                                       |                                       |                                            |            |                        |            |          |         |         |         | 2.56    |      |          |      |           |            |            |            |         |         |         |         | 2.98   |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net yield on average interest-
earning assets                           |                                       |                                       |                                            |            |                        |            |          |         |         |         | 2.84    |      |          |      |           |            |            |            |         |         |         |         | 3.30   |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Average interest-earning assets to
average interest-bearing liabilities |                                       |                                       |                                            |            |                        |            |          |         |         |         | 111.58  | %    |          |      |           |            |            |            |         |         |         |         | 109.68 | %   

9



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##### Table of Contents



|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |      |      |      | 
|----------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------------ | ---------- | ---------------------- | ---------- | -------- | ------- | ------- | --------- | ------- | ---- | -------- | ---- | --------- | ---------- | --------- | ---------- | ------- | ------- | ------- | --------- | ------ | ---- | ---- | ---- | 
|                                                                        |                                       |                                       |                                            |            | Six Months Ended      
|                                                                        |                                       |                                       |                                            |            |                       
|                                                                        |                                       |                                       |                                            |            | 6/30/03                |            | 6/30/02 
|                                                                        |                                       |                                       |                                            |            |                        |            |         
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      | Avg.     |      |           |            |           |            |         |         |         |           | Avg.  
|                                                                        |                                       |                                       |                                            |            | Average                |            |          |         |         |           | Yield/  |      | Average  |      |           |            |           |            | Yield/ 
|                                                                        |                                       |                                       |                                            |            | Balance                |            | Interest |         | Cost    |           | Balance |      | Interest |      | Cost     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |          
|                                                                        |                                       |                                       |                                            |            | (Dollars in thousands)
|Interest-earning assets:                                                |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Loans and leases                      |                                       | $                                          | 25,977,336 |                        |            | $        | 745,326 |         |           |         | 5.75 | %        |      | $         | 25,182,491 |           |            | $       | 842,895 |         |           |        | 6.71 | %   
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Mortgage-backed securities:           |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Available for sale                    |                                            |            | 13,337,098             |            |          |         | 303,801 |           |         |      | 4.56     |      |           |            | 8,377,993 |            |         |         | 252,901 |           |        |      | 6.04 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Held to maturity                      |                                            |            | 438,005                |            |          |         | 15,127  |           |         |      | 6.91     |      |           |            | 819,302   |            |         |         | 27,061  |           |        |      | 6.61 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Investment securities:                |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Available for sale                    |                                            |            | 231,906                |            |          |         | 6,340   |           |         |      | 5.47     |      |           |            | 148,564   |            |         |         | 5,587   |           |        |      | 7.52 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Held to maturity                      |                                            |            | 4,008                  |            |          |         | 110     |           |         |      | 5.51     |      |           |            | 5,262     |            |         |         | 131     |           |        |      | 4.96 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Other interest-earning assets         |                                       |                                            | 801,391    |                        |            |          | 15,241  |         |           |         | 3.78 |          |      |           | 937,964    |           |            |         | 17,390  |         |           |        | 3.69 |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total interest-earning assets              |            |                        | 40,789,744 |          |         |         | 1,085,945 |         |      |          | 5.33 |           |            |           | 35,471,576 |         |         |         | 1,145,965 |        |      |      | 6.47 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|Allowance for loan and lease losses                                     |                                       |                                       | (343,860                                   | )          |                        |            |          |         |         |           |         |      |          |      | (256,464  | )          |           |            |         |         |         |           |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Noninterest-earning assets                                              |                                       |                                       | 3,097,175                                  |            |                        |            |          |         |         |           |         |      |          |      | 2,371,827 |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total assets                               |            | $                      | 43,543,059 |          |         |         |           |         |      |          |      |           |            | $         | 37,586,939 |         |         |         |           |        |      |      |      | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|Interest-bearing liabilities:                                           |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Deposits:                             |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Checking accounts                     |                                            | $          | 7,245,197              |            |          |         | 54,030  |           |         |      | 1.50     |      |           | $          | 5,959,645 |            |         |         | 66,836  |           |        |      | 2.26 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Money market and savings
accounts     |                                            |            | 8,131,890              |            |          |         | 61,530  |           |         |      | 1.53     |      |           |            | 7,615,664 |            |         |         | 87,482  |           |        |      | 2.32 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                       | Certificates of deposit               |                                            |            | 9,648,034              |            |          |         | 144,917 |           |         |      | 3.03     |      |           |            | 9,935,478 |            |         |         | 185,659 |           |        |      | 3.77 |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total deposits                             |            |                        | 25,025,121 |          |         |         | 260,477   |         |      |          | 2.10 |           |            |           | 23,510,787 |         |         |         | 339,977   |        |      |      | 2.92 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        | Federal Home Loan Bank advances       |                                       |                                            | 10,906,526 |                        |            |          | 203,824 |         |           |         | 3.76 |          |      |           | 7,974,697  |           |            |         | 207,643 |         |           |        | 5.25 |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Other borrowings                      |                                       |                                            | 870,299    |                        |            |          | 27,172  |         |           |         | 6.24 |          |      |           | 523,134    |           |            |         | 17,381  |         |           |        | 6.64 |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total borrowings                           |            |                        | 11,776,825 |          |         |         | 230,996   |         |      |          | 3.95 |           |            |           | 8,497,831  |         |         |         | 225,024   |        |      |      | 5.33 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total interest-bearing liabilities         |            |                        | 36,801,946 |          |         |         | 491,473   |         |      |          | 2.69 |           |            |           | 32,008,618 |         |         |         | 565,001   |        |      |      | 3.56 | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|Noninterest-bearing liabilities:                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Demand deposit accounts               |                                       |                                            | 2,163,822  |                        |            |          |         |         |           |         |      |          |      |           | 1,691,166  |           |            |         |         |         |           |        |      |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Other noninterest-bearing
liabilities |                                       |                                            | 1,306,110  |                        |            |          |         |         |           |         |      |          |      |           | 971,291    |           |            |         |         |         |           |        |      |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       | Total noninterest-bearing
liabilities |                                            |            | 3,469,932              |            |          |         |         |           |         |      |          |      |           |            | 2,662,457 |            |         |         |         |           |        |      |      |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total liabilities                          |            |                        | 40,271,878 |          |         |         |           |         |      |          |      |           |            |           | 34,671,075 |         |         |         |           |        |      |      |      | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Shareholders equity                                                    |                                       |                                       | 3,271,181                                  |            |                        |            |          |         |         |           |         |      |          |      | 2,915,864 |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|                                                                        |                                       |                                       | Total liabilities and
shareholders equity |            | $                      | 43,543,059 |          |         |         |           |         |      |          |      |           |            | $         | 37,586,939 |         |         |         |           |        |      |      |      | 
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|Net interest income                                                     |                                       |                                       |                                            |            |                        | $          | 594,472  |         |         |           |         |      |          |      |           |            |           | $          | 580,964 |         |         |           |        |     
|                                                                        |                                       |                                       |                                            |            |                        |            |          |         |         |           |         |      |          |      |           |            |           |            |         |         |         |           |        |     
|Interest rate spread                                                    |                                       |                                       |                                            |            |                        |            |          |         |         |           | 2.64    |      |          |      |           |            |           |            |         |         |         |           | 2.91   |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net yield on average interest-
earning assets                           |                                       |                                       |                                            |            |                        |            |          |         |         |           | 2.91    |      |          |      |           |            |           |            |         |         |         |           | 3.28   |     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Average interest-earning assets to
average interest-bearing liabilities |                                       |                                       |                                            |            |                        |            |          |         |         |           | 110.83  | %    |          |      |           |            |           |            |         |         |         |           | 110.82 | %   

10



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##### Table of Contents



Figure 3 shows 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. Amortization of
net deferred loan costs and automobile dealer reserves included as a reduction
in interest income was $28.9 million and $24.6 million for the three months
ended June 30, 2003 and 2002, respectively, and $56.4 million and $48.1 million
for the six months ended June 30, 2003 and 2002, respectively.

Rate/Volume Analysis(Figure 3)

|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |         |         |         |         |  
|----------------------------- | --------------------------------- | ------------------ | ------- | ------- | ------- | --------------------------- | ------- | ------------------------- | ------ | ------ | ------ | -------------------------- | ------ | ------- | ------- | -------- | ------- | -------- | -------- | ------ | ------- | ------- | ------ | ------- | ------- | ------- | ------- | -
|                              |                                   |                    |         |         |         | Three Months Ended June 30, |         | Six Months Ended June 30,
|                              |                                   |                    |         |         |         |                             |         |                          
|                              |                                   |                    |         |         |         | 2003 v. 2002                |         | 2003 v. 2002             
|                              |                                   |                    |         |         |         |                             |         |                          
|                              |                                   |                    |         |         |         | Increase (decrease) due to  |         |                           |        |        |        | Increase (decrease) due to |        |         |         |         
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |         
|                              |                                   |                    |         |         |         | Rate                        |         | Volume                    |        | Total  |        | Rate                       |        | Volume  |         | Total   
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |         
|                              |                                   |                    |         |         |         | (Dollars in thousands)     
|Interest income:              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |        
|                             
|                             
|                             
|                             
|                              | Loans and leases                  |                    | $       | (68,681 | )       |                             | $       | 21,226                    |        |        | $      | (47,455                    | )      |         | $       | (124,139 | )       |          | $        | 26,570 |         |         | $      | (97,569 | )      
|                             
|                             
|                             
|                             
|                              | Mortgage-backed securities:       |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |         |        
|                             
|                             
|                             
|                             
|                              |                                   | Available for sale |         |         | (45,226 | )                           |         |                           | 57,943 |        |        |                            | 12,717 |         |         |          | (72,828 | )        |          |        | 123,728 |         |        |         | 50,900  |        
|                             
|                             
|                             
|                             
|                              |                                   | Held to maturity   |         |         | 852     |                             |         |                           | (6,255 | )      |        |                            | (5,403 | )       |         |          | 1,184   |          |          |        | (13,118 | )       |        |         | (11,934 | )      
|                             
|                             
|                             
|                             
|                              | Investment securities:            |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |         |        
|                             
|                             
|                             
|                             
|                              |                                   | Available for sale |         |         | (795    | )                           |         |                           | 1,467  |        |        |                            | 672    |         |         |          | (1,805  | )        |          |        | 2,558   |         |        |         | 753     |        
|                             
|                             
|                             
|                             
|                              |                                   | Held to maturity   |         |         | 8       |                             |         |                           | (12    | )      |        |                            | (4     | )       |         |          | 12      |          |          |        | (33     | )       |        |         | (21     | )      
|                             
|                             
|                             
|                             
|                              | Other interest-earning assets     |                    |         | 142     |         |                             |         | (1,764                    | )      |        |        | (1,622                     | )      |         |         | 438      |         |          |          | (2,587 | )       |         |        | (2,149  | )      
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |         |        
|                              |                                   |                    |         | Total   |         | (113,700                    | )       |                           |        | 72,605 |        |                            |        | (41,095 | )       |          |         | (197,138 | )        |        |         | 137,118 |        |         |         | (60,020 | )      
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |        
|Interest expense:             |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |        
|                             
|                             
|                             
|                             
|                              | Checking accounts                 |                    |         | (11,915 | )       |                             |         | 4,871                     |        |        |        | (7,044                     | )      |         |         | (25,331  | )       |          |          | 12,525 |         |         |        | (12,806 | )      
|                             
|                             
|                             
|                             
|                              | Money market and savings
accounts |                    |         | (18,024 | )       |                             |         | (1,024                    | )      |        |        | (19,048                    | )      |         |         | (32,596  | )       |          |          | 6,644  |         |         |        | (25,952 | )      
|                             
|                             
|                             
|                             
|                              | Certificates of deposit           |                    |         | (13,669 | )       |                             |         | (3,081                    | )      |        |        | (16,750                    | )      |         |         | (35,505  | )       |          |          | (5,237 | )       |         |        | (40,742 | )      
|                             
|                             
|                             
|                             
|                              | Federal Home Loan Bank
advances   |                    |         | (30,763 | )       |                             |         | 30,861                    |        |        |        | 98                         |        |         |         | (57,550  | )       |          |          | 53,731 |         |         |        | (3,819  | )      
|                             
|                             
|                             
|                             
|                              | Other borrowings                  |                    |         | (24     | )       |                             |         | 4,109                     |        |        |        | 4,085                      |        |         |         | (1,478   | )       |          |          | 11,269 |         |         |        | 9,791   |        
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |         |        
|                              |                                   |                    |         | Total   |         |                             | (74,395 | )                         |        |        | 35,736 |                            |        |         | (38,659 | )        |         |          | (152,460 | )      |         |         | 78,932 |         |         |         | (73,528 | )
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |         |        
|Change in net interest income |                                   | $                  | (39,305 | )       |         | $                           | 36,869  |                           |        | $      | (2,436 | )                          |        | $       | (44,678 | )        |         | $        | 58,186   |        |         | $       | 13,508 |        
|                              |                                   |                    |         |         |         |                             |         |                           |        |        |        |                            |        |         |         |          |         |          |          |        |         |         |        |        

Net interest income was $295.4 million for the three months ended June 30,
2003, down $2.4 million, or .8%, from the second quarter of 2002. Net yield on
average interest-earning assets during the second quarter of 2003 was 2.84%,
down 46 basis points from the second quarter of 2002. The reduction in net
interest income and the net yield resulted from downward pressure on asset
yields in the declining interest rate environment, offset in part by the
benefits obtained from deposit and borrowings repricings in the past year.

Net interest income was $594.5 million for the six months ended June 30, 2003,
up $13.5 million, or 2.3%, from the comparable period in 2002. The increase in
net interest income was due to the growth in interest-earning assets, as well
as benefits obtained from deposit and borrowings repricings in the past year.
Net yield on average interest-earning assets during the six months ended June
30, 2003 was 2.91%, down 37 basis points from the comparable period in 2002.
The reduction in the net yield resulted from downward pressure on asset yields
in the declining interest rate environment, offset in part by the benefits
obtained from deposit and borrowings repricings in the past year.

In the present interest rate environment, Charter One expects to maintain its
asset size at flat levels throughout the remainder of 2003. This will be
accomplished with an approximate $2 billion reduction in Charter Ones combined
one-to-four family and mortgage-backed securities portfolios by the end of 2003, offset
by an expected increase in non one-to-four family loans. As a result of
this strategy and assuming no additional reductions in core deposit repricings,
net interest income could experience further pressure in the near term.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the three months ended June 30,
2003 was $35.4 million, a decrease of $19.9 million from the three months ended
June 30, 2002. As part of the Banks conversion in May 2002 to a national bank
subject to regulation by the Office of the Comptroller of the Currency (OCC),
the Company conformed various policies and reporting practices associated with
asset quality to more closely compare to those of

11



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##### Table of Contents



its commercial bank peers. These changes neither increased nor decreased ultimate net loan and lease
charge-offs. They only affected the timing of recognizing net consumer asset
charge-offs through the allowance for loan and lease losses and the disclosure
of underperforming consumer assets. Consumer assets include single-family,
retail consumer, automobile and consumer finance loan portfolios. These changes
had no impact on Charter Ones non-consumer loan portfolios, which include
commercial real estate and corporate loans and its lease portfolio, as these
portfolios already conformed with OCC-regulated banking practices.

The most significant effect of the change in charge-off policy was in the
automobile and consumer finance portfolios. Prior to the second quarter of
2002, automobile loans were charged off at the point of repossessed collateral
disposition. Beginning with the second quarter of 2002, consistent with
OCC-regulated banking practices, automobile loans going through repossession or
bankruptcies were written down to the net realizable value of the collateral at
the time of the repossession or bankruptcy discharge. Any automobile loan that
reached the 120-day delinquency point was charged off completely. Charge-offs
in the consumer finance portfolio were previously recognized at the point of
foreclosure. Beginning with the second quarter of 2002, consistent with
OCC-regulated banking practices, consumer finance loans, along with other loans
backed by single-family residential real estate collateral, were reflected at
the lower of cost or net realizable value at the earliest point of six payments
past due or foreclosure. These policy changes resulted in an additional $27.3
million of charge-offs recognized during the second quarter of 2002.

The provision for loan and lease losses for the six months ended June 30, 2003
was $96.8 million, an increase of $12.8 million from the comparable period in
2002. The increased provision year over year was necessary to cover higher
charge-offs and maintain the allowance for loan and lease losses at a level
considered adequate to absorb losses inherent in the loan and lease portfolio.
Additionally, the provision for loan and lease losses was increased to reflect
the continued weakening in the national economy in the first six months of
2003, specifically in the airline industry.

Excluding the charge-offs associated with the 2002 policy change discussed
above, net charge-offs totaled $19.9 million and $53.4 million in the three and
six months ended June 30, 2003, respectively, compared to $22.6
million and $48.2 million in the three and six months ended June 30, 2002,
respectively. The $53.4 million of net charge-offs for 2003 included a $6.1
million charge-off related to the resolution of a $19.6 million airline lease
in the first quarter of 2003, as well as a $2.1 million charge-off on an
airline lease in the second quarter of 2003.

The Companys aircraft leasing portfolio totaled $359.9 million at June 30,
2003, or 1.4% of its total loans and leases. The aircraft leasing portfolio
includes $258.4 million to domestic air carriers, with the remainder on
corporate jets and cargo planes leased to corporations. The Company has no
direct exposure to US Air, United Airlines, American Airlines or Air Canada.

See Financial Condition  Asset Quality for further information regarding our
allowance for loan and lease losses.

Other Income

Other income for the three months ended June 30, 2003 was $178.0 million, an
increase of $38.2 million, or 27.3%, over the $139.8 million for the three
months ended June 30, 2002. The increase was primarily attributable to income
from retail banking and net gains on sales. Retail banking income increased
$13.5 million, or 16.2%, over the comparable period in 2002. The biggest driver
of the increase was deposit-related revenue, which totaled $84.9 million in the
second quarter of 2003, up 18.9% over the year ago quarter. Deposit-related
revenue reflected the benefits of the Companys strategy to emphasize
noninterest-bearing checking account growth. The other components of retail
banking revenue include fees from retail brokerage activities ($8.4 million,
down 5.6% from the year ago quarter) and other revenue related to retail
operations ($3.8 million, up 18.0% from the year ago quarter).

With respect to retail franchise development activities, we plan aggressive de novo
expansion during 2003 and 2004. The expansion is expected to include 125 new
banking centers, with 97 in-store and 28 traditional locations. The 2003 goal
is to open approximately 85 new banking centers, with 69 in-store and 16
traditional locations. The Company opened 31 banking centers during the second
quarter of 2003, bringing the total for the first six months to 47 new banking
centers, the majority of which were in-store locations.

Net gains totaled $108.5 million for the second quarter of 2003, an increase of
$70.7 million over the second quarter of 2002. The $3.2 billion of
mortgage-backed securities sold during the second quarter 2003 were sold to
meet balance sheet and interest rate risk management objectives. We did not
utilize any special-purpose entities for the sale of any of our mortgage-backed
securities.

12



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##### Table of Contents



With respect to the decline in mortgage banking income, we recorded a permanent
impairment charge of $37.2 million and increased the valuation allowance on
loan servicing assets by $9.5 million in the second quarter of 2003 to an
ending valuation allowance of $132.9 million, due to increasing prepayment
speeds. Total mortgage banking income, excluding the $37.2 impairment charge
and $9.5 million increase to the valuation allowance, was $22.8 million in the
second quarter of 2003. In the year ago quarter, mortgage banking income
totaled $15.6 million, excluding a $6.4 million increase in the valuation
allowance. As a result of the strong loan origination and securitization
activity in the past 12 months, the portfolio of loans serviced for others
increased to $18.9 billion, up 12.2% since June 30, 2002. The related loan
servicing asset was reduced to .61% of the portfolio at $115.2 million at June
30, 2003. With an average servicing spread of 36 basis points, that translates
into a servicing asset valuation of 1.69 times the servicing spread.

Leasing operations reflected a loss of $12.2 million in the second quarter of
2003, compared to income of $317,000 for the second quarter of 2002. The
decline in income resulted from $12.8 million in residual adjustments, which
were primarily related to the Companys aircraft leasing portfolio. See
Provision for Loan and Lease Losses above and Financial Condition  Asset
Quality below for further discussion regarding the Companys aircraft leasing
portfolio.

Other income for the six months ended June 30, 2003 was $339.8 million, an
increase of $83.4 million, or 32.6%, over the $256.3 million for the six months
ended June 30, 2002. Retail banking income increased $23.9 million, or 15.2%,
for the six months ended June 30, 2003. Net gains on sales totaled $185.2
million for the six months ended June 30, 2003, an increase of $125.6 million
over the comparable 2002 period. Mortgage banking operations reflected a loss
of $23.9 million for the six months ended June 30, 2003, compared to income of
$20.5 million for the six months ended June 30, 2002. Leasing operations
reflected a loss of $19.1 million for the six months ended June 30, 2003,
compared to income of $587,000 for the six months ended June 30, 2002. The
reasons for these increases or changes were substantially the same as for the
second quarter results discussed in the above paragraph.

On April 27, 2003, MasterCard International, Inc. agreed to settle a class
action lawsuit with Wal-Mart Stores, Inc. and other retailers regarding, among
other things, the acceptance of debit cards and the processing of debit
transactions. We issue MasterCard debit cards to the majority of our checking
account customers. Over the past few years, revenue generated by debit
point-of-sale transactions has been one of our fastest growing sources of
revenue. The revenue generated from a specific transaction depends on whether
it is processed off line (signature based) or on line (PIN based). Off-line
transactions tend to generate a higher level of revenue than on-line
transactions. During the six months ended June 30, 2003, gross revenue from
signature-based debit transactions totaled $23.7 million. Preliminary
information on the settlement includes a reduction in the signature-based fee
collected from merchants of at least 33% beginning on August 1, 2003. Assuming
no increase in debit card volume over six month levels, the lower fee would
translate into a reduction in net income of approximately $4.0 million for the
five-month period from August 1, 2003 to December 31, 2003.

Administrative Expenses

Administrative expenses were $194.8 million for the three months ended June 30,
2003, an increase of $26.1 million, or 15.5%, from the second quarter of 2002.
The increase in administrative expenses was primarily attributable to increased
marketing costs and compensation costs associated with the Companys
significant retail expansion program discussed in Other Income above. Our
efficiency ratio was 41.14% for the three months ended June 30, 2003, compared
to 38.53% for the three months ended June 30, 2002.

Administrative expenses were $378.0 million for the six months ended June 30,
2003, an increase of $47.3 million, or 14.3%, from the 2002 period. The
increase in administrative expenses was substantially the same as for the
second quarter results discussed in the above paragraph. Our efficiency ratio
was 40.46% for the six months ended June 30, 2003, compared to 39.50% for the
six months ended June 30, 2002.

Federal Income Tax

Federal income tax expense for the three months ended June 30, 2003 was $77.2
million, compared to $67.9 million for the same period in 2002. The primary
reason for this increase in the provision for federal income taxes was an
increase in pre-tax income. The effective tax rate was 31.8% for both the 2003
and 2002 periods.

Federal income tax expense for the six months ended June 30, 2002 was $145.9
million, compared to $134.2 million for the same period in 2002. The primary
reason for this increase in the provision for federal income taxes was an
increase in pre-tax income. The effective tax rate was 31.8% for both the 2003
and 2002 periods.

13



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##### Table of Contents



FINANCIAL CONDITION

At June 30, 2003, total assets were $44.1 billion, compared to total assets of
$41.9 billion at December 31, 2002. As illustrated in Figure 5 below, loan and
lease originations totaled a record $12.7 billion in the six months ended June
30, 2003, compared to $9.5 billion in the six months ended June 30, 2002.
Non-one-to-four family loan originations totaled $5.9 billion, or 46.9% of the
total. The non-one-to-four family activity was led by $2.3 billion in consumer loans
and $2.0 billion in auto finance loans.

As discussed in Results of Operations  Net Interest Income, we intend to
limit balance sheet growth in the current interest rate environment by reducing
our one-to-four family exposure, leaving asset levels flat for the rest of
2003. This strategy will likely constrain the growth in net interest
income for the near term. At this point in time, we are targeting a $2 billion reduction in
our one-to-four family loans and mortgage-backed securities portfolios by the end of
2003, offset by an expected increase in non one-to-four family loans.
At June 30, 2003, we had committed to sell
$1.1 billion in mortgage-backed securities for a pre-tax gain of
$33.6 million to be recognized in the third quarter of 2003.

Loans and Leases

Composition of Loans and
Leases (Figure 4)

|                                       |                                                             |                   |                 |                          |           |                        |            |            |           |           |            | 
|-------------------------------------- | ----------------------------------------------------------- | ----------------- | --------------- | ------------------------ | --------- | ---------------------- | ---------- | ---------- | --------- | --------- | ---------- | 
|                                       |                                                             |                   |                 |                          |           | 6/30/03                |            | 12/31/02  
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       |                                                             |                   |                 |                          |           | (Dollars in thousands)
|One-to-four family:                    |                                                             |                   |                 |                          |           |                        |            |           
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Permanent:        |                 |                          |           |                        |            |            |           |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             |                   | Fixed rate      |                          | $         | 5,411,639              |            |            | $         | 5,869,554 |           
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             |                   | Adjustable rate |                          |           | 2,577,778              |            |            |           | 2,437,166 |           
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Construction      |                 |                          | 418,485   |                        |            |            | 427,729   |          
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       |                                                             |                   | 8,407,902       |                          |           |                        | 8,734,449  |           
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       | Commercial real estate:                                     |                   |                 |                          |           |                        |            |            |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Multifamily       |                 |                          | 942,689   |                        |            |            | 953,688   |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Commercial        |                 |                          | 1,481,178 |                        |            |            | 1,307,593 |          
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       |                                                             |                   | 2,423,867       |                          |           |                        | 2,261,281  |           
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       | Consumer:                                                   |                   |                 |                          |           |                        |            |            |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Retail            |                 |                          | 4,180,702 |                        |            |            | 5,494,453 |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Automobile        |                 |                          | 6,247,964 |                        |            |            | 5,606,329 |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Consumer finance  |                 |                          | 1,038,517 |                        |            |            | 984,772   |          
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       |                                                             |                   | 11,467,183      |                          |           |                        | 12,085,554 |           
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       | Business:                                                   |                   |                 |                          |           |                        |            |            |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Leasing           |                 |                          | 2,104,713 |                        |            |            | 2,133,468 |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                             | Corporate banking |                 |                          | 1,462,880 |                        |            |            | 1,318,003 |          
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       |                                                             |                   | 3,567,593       |                          |           |                        | 3,451,471  |           
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       | Loans and leases before allowance for loan and lease losses |                   |                 | 25,866,545               |           |                        |            | 26,532,755 |          
|                                      
|                                      
|                                      
|                                      
|                                       | Allowance for loan and lease losses                         |                   |                 | (376,393                 | )         |                        |            | (328,017   | )        
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|                                       |                                                             |                   |                 | Loans and leases, net(1) |           | $                      | 25,490,152 |            |           | $         | 26,204,738 | 
|                                       |                                                             |                   |                 |                          |           |                        |            |           
|Portfolio of loans serviced for others |                                                             | $                 | 18,948,077      |                          |           | $                      | 16,893,609 |           
|                                       |                                                             |                   |                 |                          |           |                        |            |           



---

|(1) |  | Includes loans held for sale.
|--- |  | -----------------------------

14



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##### Table of Contents



Loan and Lease Activity
(Figure 5)

|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |           |           |           |            |  
|---------------------------------------------------- | ---------------------------------------------- | ------------------ | --------------------------------- | ------------------------------------ | --------- | ---------------------- | --------- | ---------------- | --------- | --------- | --------- | --------- | --------- | ---------- | ---------- | --------- | --------- | --------- | ---------- | -
|                                                     |                                                |                    |                                   |                                      |           | Three Months Ended     |           | Six Months Ended
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                 
|                                                     |                                                |                    |                                   |                                      |           | 6/30/03                |           | 6/30/02          |           | 6/30/03   |           | 6/30/02  
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |          
|                                                     |                                                |                    |                                   |                                      |           | (Dollars in thousands)
|Originations:                                        |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|Real estate:                                         |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Permanent:                                     |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                | One-to-four family |                                   | $                                    | 3,555,968 |                        |           | $                | 1,974,839 |           |           | $         | 6,651,686 |            |            | $         | 4,632,833 |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                | Multifamily        |                                   |                                      | 57,451    |                        |           |                  | 23,979    |           |           |           | 108,891   |            |            |           | 59,698    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                | Commercial         |                                   |                                      | 60,226    |                        |           |                  | 34,686    |           |           |           | 150,439   |            |            |           | 126,774   |          
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     |                                                |                    | Total permanent loans             |                                      |           | 3,673,645              |           |                  |           | 2,033,504 |           |           |           | 6,911,016  |            |           |           | 4,819,305 |           
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     | Construction:                                  |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                | One-to-four family |                                   |                                      | 53,537    |                        |           |                  | 40,686    |           |           |           | 89,093    |            |            |           | 77,030    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                | Multifamily        |                                   |                                      | 7,613     |                        |           |                  |          |           |           |           | 26,896    |            |            |           | 24,988    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                | Commercial         |                                   |                                      | 30,246    |                        |           |                  | 15,489    |           |           |           | 41,076    |            |            |           | 81,723    |          
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     |                                                |                    | Total construction loans          |                                      |           | 91,396                 |           |                  |           | 56,175    |           |           |           | 157,065    |            |           |           | 183,741   |           
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     |                                                |                    |                                   | Total real estate loans originated   |           |                        | 3,765,041 |                  |           |           | 2,089,679 |           |           |            | 7,068,081  |           |           |           | 5,003,046  |  
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|Retail consumer                                      |                                                |                    | 1,209,221                         |                                      |           |                        | 938,328   |                  |           |           | 2,288,511 |           |           |            | 1,937,055  |          
|                                                    
|                                                    
|                                                    
|                                                    
|Automobile                                           |                                                |                    | 1,026,245                         |                                      |           |                        | 781,763   |                  |           |           | 2,007,359 |           |           |            | 1,465,808  |          
|                                                    
|                                                    
|                                                    
|                                                    
|Consumer finance                                     |                                                |                    | 122,839                           |                                      |           |                        | 55,338    |                  |           |           | 224,766   |           |           |            | 111,421    |          
|                                                    
|                                                    
|                                                    
|                                                    
|Leases                                               |                                                |                    | 73,946                            |                                      |           |                        | 117,544   |                  |           |           | 175,517   |           |           |            | 210,585    |          
|                                                    
|                                                    
|                                                    
|                                                    
|Corporate banking                                    |                                                |                    | 473,677                           |                                      |           |                        | 399,173   |                  |           |           | 922,003   |           |           |            | 752,813    |          
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     |                                                |                    | Total loans and leases originated |                                      |           | 6,670,969              |           |                  |           | 4,381,825 |           |           |           | 12,686,237 |            |           |           | 9,480,728 |           
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|Acquired through business combinations and
purchases |                                                |                    | 403,324                           |                                      |           |                        | 206,640   |                  |           |           | 407,089   |           |           |            | 211,355    |          
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |           |           |          
|Sales and principal reductions:                      |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loans sold                                     |                    |                                   | 885,179                              |           |                        |           | 481,161          |           |           |           | 1,648,230 |           |            |            | 1,125,258 |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loans exchanged for mortgage backed securities |                    |                                   | 2,346,609                            |           |                        |           | 1,539,682        |           |           |           | 5,765,725 |           |            |            | 4,256,953 |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal reductions                           |                    |                                   | 3,260,094                            |           |                        |           | 2,479,838        |           |           |           | 6,285,924 |           |            |            | 5,423,231 |          
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     |                                                |                    |                                   | Total sales and principal reductions |           |                        | 6,491,882 |                  |           |           | 4,500,681 |           |           |            | 13,699,879 |           |           |           | 10,805,442 |  
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          
|                                                     |                                                |                    |                                   | Increase (decrease) before net items |           | $                      | 582,411   |                  |           | $         | 87,784    |           |           | $          | (606,553   | )         |           | $         | (1,113,359 | )
|                                                     |                                                |                    |                                   |                                      |           |                        |           |                  |           |           |           |           |           |            |            |          

Investment and Mortgage-Backed Securities

Figures 6 and 7 summarize our investment and mortgage-backed securities
portfolios at June 30, 2003 and December 31, 2002. The amounts reflected
represent the fair value of securities available for sale and the amortized
cost of securities held to maturity.

Investment Securities
(Figure 6)

|                   |                                                      |                                                |       |         |                        |         |          |         |         |         | 
|------------------ | ---------------------------------------------------- | ---------------------------------------------- | ----- | ------- | ---------------------- | ------- | -------- | ------- | ------- | ------- | 
|                   |                                                      |                                                |       |         | 6/30/03                |         | 12/31/02
|                   |                                                      |                                                |       |         |                        |         |         
|                   |                                                      |                                                |       |         | (Dollars in thousands)
|Available for Sale |                                                      |                                                |       |         |                        |         |          |        
|                  
|                  
|                  
|                  
|                   | U.S. Treasury and agency securities                  |                                                | $     | 164,107 |                        |         | $        | 91,462  |        
|                  
|                  
|                  
|                  
|                   | Securities of U.S. states and political subdivisions |                                                |       | 41,956  |                        |         |          | 1,898   |        
|                  
|                  
|                  
|                  
|                   | Corporate and other securities                       |                                                |       | 130,063 |                        |         |          | 116,735 |        
|                   |                                                      |                                                |       |         |                        |         |          |        
|                   |                                                      | Total investment securities available for sale |       |         | 336,126                |         |          |         | 210,095 |        
|                   |                                                      |                                                |       |         |                        |         |          |        
|Held to Maturity   |                                                      |                                                |       |         |                        |         |          |        
|                  
|                  
|                  
|                  
|                   | U.S. Treasury and agency securities                  |                                                |       |        |                        |         |          | 3,943   |        
|                  
|                  
|                  
|                  
|                   | Securities of U.S. states and political subdivisions |                                                |       | 3,661   |                        |         |          |        |        
|                  
|                  
|                  
|                  
|                   | Corporate and other securities                       |                                                |       | 30      |                        |         |          | 30      |        
|                   |                                                      |                                                |       |         |                        |         |          |        
|                   |                                                      | Total investment securities held to maturity   |       |         | 3,691                  |         |          |         | 3,973   |        
|                   |                                                      |                                                |       |         |                        |         |          |        
|                   |                                                      |                                                | Total |         | $                      | 339,817 |          |         | $       | 214,068 | 
|                   |                                                      |                                                |       |         |                        |         |          |        
|                   | Weighted average rate                                |                                                |       | 4.36    | %                      |         |          | 5.64    | %      
|                   |                                                      |                                                |       |         |                        |         |          |        

15



---



##### Table of Contents



Mortgage-Backed
Securities (Figure 7)

|                   |                                      |                                   |                                                     |       |            |                        |            |          |            |            |            | 
|------------------ | ------------------------------------ | --------------------------------- | --------------------------------------------------- | ----- | ---------- | ---------------------- | ---------- | -------- | ---------- | ---------- | ---------- | 
|                   |                                      |                                   |                                                     |       |            | 6/30/03                |            | 12/31/02
|                   |                                      |                                   |                                                     |       |            |                        |            |         
|                   |                                      |                                   |                                                     |       |            | (Dollars in thousands)
|Available for Sale |                                      |                                   |                                                     |       |            |                        |            |         
|                  
|                  
|                  
|                  
|                   | Participation certificates:          |                                   |                                                     |       |            |                        |            |          |           
|                  
|                  
|                  
|                  
|                   |                                      | U.S. government and agency issues |                                                     | $     | 12,621,035 |                        |            | $        | 10,051,046 |           
|                  
|                  
|                  
|                  
|                   |                                      | Private issues                    |                                                     |       | 456        |                        |            |          |           |           
|                  
|                  
|                  
|                  
|                   | Collateralized mortgage obligations: |                                   |                                                     |       |            |                        |            |          |           
|                  
|                  
|                  
|                  
|                   |                                      | U.S. government and agency issues |                                                     |       | 1,435,076  |                        |            |          | 1,068,518  |           
|                  
|                  
|                  
|                  
|                   |                                      | Private issues                    |                                                     |       | 256,830    |                        |            |          | 417,044    |           
|                   |                                      |                                   |                                                     |       |            |                        |            |         
|                   |                                      |                                   | Total mortgage-backed securities available for sale |       |            | 14,313,397             |            |          |            | 11,536,608 |           
|                   |                                      |                                   |                                                     |       |            |                        |            |         
|Held to Maturity   |                                      |                                   |                                                     |       |            |                        |            |         
|                  
|                  
|                  
|                  
|                   | Participation certificates:          |                                   |                                                     |       |            |                        |            |          |           
|                  
|                  
|                  
|                  
|                   |                                      | U.S. government and agency issues |                                                     |       | 243,901    |                        |            |          | 311,398    |           
|                  
|                  
|                  
|                  
|                   |                                      | Private issues                    |                                                     |       | 35,158     |                        |            |          | 51,717     |           
|                  
|                  
|                  
|                  
|                   | Collateralized mortgage obligations: |                                   |                                                     |       |            |                        |            |          |           
|                  
|                  
|                  
|                  
|                   |                                      | U.S. government and agency issues |                                                     |       | 50,220     |                        |            |          | 96,130     |           
|                  
|                  
|                  
|                  
|                   |                                      | Private issues                    |                                                     |       | 33,489     |                        |            |          | 81,536     |           
|                   |                                      |                                   |                                                     |       |            |                        |            |         
|                   |                                      |                                   | Total mortgage-backed securities held to maturity   |       |            | 362,768                |            |          |            | 540,781    |           
|                   |                                      |                                   |                                                     |       |            |                        |            |         
|                   |                                      |                                   |                                                     | Total |            | $                      | 14,676,165 |          |            | $          | 12,077,389 | 
|                   |                                      |                                   |                                                     |       |            |                        |            |         
|                   |                                      | Weighted average rate             |                                                     |       | 4.71       | %                      |            |          | 4.95       | %         
|                   |                                      |                                   |                                                     |       |            |                        |            |         

Asset Quality

Being mindful of an economy that continues to exhibit weakness, particularly in
the non-consumer sectors, Charter One continued to strengthen its level of loan
loss reserves as shown in Figure 8 below. Charter One has a Reserve Adequacy
Committee that sets target levels for the allowance for loan and lease losses.
The Committee meets quarterly and its membership includes management as well as
independent Directors. That Committee considers several factors as it sets
target levels of reserves that are deemed adequate to absorb losses inherent in
the loan and lease portfolio. Those factors include internal measurements of
asset quality (such as charge-off trends, delinquency data, asset
classification trends, and nonperforming and underperforming loan trends), the
overall economic environment in which Charter One operates, and the size and
mix of the loan and lease portfolio. All outstanding loans and leases are
considered when evaluating the adequacy of the allowance for loan and lease
losses. These various factors are utilized to calculate a range of reserves.
Based upon the range calculated, the Committee then sets target levels for
reserves. See also Provision for Loan and Lease Losses for further
discussion.

16



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##### Table of Contents



Analysis of the Allowance for
Loan and Lease Losses (Figure 8)

|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |         |         |         |  
|------------------------------------ | -------------------------------------------------------- | ---------------------- | ----------------- | ------------------------------ | ------- | ---------------------- | ------- | ---------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | -
|                                     |                                                          |                        |                   |                                |         | Three Months Ended     |         | Six Months Ended
|                                     |                                                          |                        |                   |                                |         |                        |         |                 
|                                     |                                                          |                        |                   |                                |         | 6/30/03                |         | 6/30/02          |         | 6/30/03 |         | 6/30/02
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |        
|                                     |                                                          |                        |                   |                                |         | (Dollars in thousands)
|Allowance for loan and lease losses: |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Balance, beginning of period                             |                        | $                 | 355,926                        |         |                        | $       | 258,605          |         |         | $       | 328,017 |         |         | $       | 255,478 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Provision for loan and lease losses                      |                        |                   | 35,360                         |         |                        |         | 55,277           |         |         |         | 96,831  |         |         |         | 83,994  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Acquired through business combination                    |                        |                   | 4,969                          |         |                        |         | 3,184            |         |         |         | 4,969   |         |         |         | 3,184   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Loans and leases charged off:                            |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | One-to-four family     |                   |                                | (1,036  | )                      |         |                  | (3,056  | )       |         |         | (1,706  | )       |         |         | (4,032  | )      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Commercial real estate |                   |                                | (253    | )                      |         |                  | (117    | )       |         |         | (753    | )       |         |         | (918    | )      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Retail consumer        |                   |                                | (2,596  | )                      |         |                  | (5,530  | )       |         |         | (6,074  | )       |         |         | (7,788  | )      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Automobile             |                   |                                | (13,628 | )                      |         |                  | (29,675 | )       |         |         | (30,078 | )       |         |         | (46,595 | )      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Consumer finance       |                   |                                | (3,975  | )                      |         |                  | (11,628 | )       |         |         | (8,512  | )       |         |         | (15,450 | )      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Leases                 |                   |                                | (2,095  | )                      |         |                  | (1,801  | )       |         |         | (8,156  | )       |         |         | (2,261  | )      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Corporate banking      |                   |                                | (2,652  | )                      |         |                  | (2,014  | )       |         |         | (9,897  | )       |         |         | (6,037  | )      
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |        
|                                     |                                                          |                        | Total charge-offs |                                |         | (26,235                | )       |                  |         | (53,821 | )       |         |         | (65,176 | )       |         |         | (83,081 | )      
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |        
|                                     | Recoveries:                                              |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | One-to-four family     |                   |                                | 41      |                        |         |                  | 32      |         |         |         | 58      |         |         |         | 34      |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Commercial real estate |                   |                                | 61      |                        |         |                  | 9       |         |         |         | 209     |         |         |         | 130     |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Retail consumer        |                   |                                | 548     |                        |         |                  | 359     |         |         |         | 981     |         |         |         | 762     |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Automobile             |                   |                                | 4,561   |                        |         |                  | 3,123   |         |         |         | 8,676   |         |         |         | 5,531   |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Consumer finance       |                   |                                | 235     |                        |         |                  | 32      |         |         |         | 340     |         |         |         | 95      |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Leases                 |                   |                                | 606     |                        |         |                  |        |         |         |         | 999     |         |         |         |        |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                          | Corporate banking      |                   |                                | 321     |                        |         |                  | 355     |         |         |         | 489     |         |         |         | 1,028   |        
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |        
|                                     |                                                          |                        | Total recoveries  |                                |         | 6,373                  |         |                  |         | 3,910   |         |         |         | 11,752  |         |         |         | 7,580   |        
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |        
|                                     |                                                          |                        |                   | Net loan and lease charge-offs |         |                        | (19,862 | )                |         |         | (49,911 | )       |         |         | (53,424 | )       |         |         | (75,501 | )
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |        
|                                     | Balance, end of period                                   |                        | $                 | 376,393                        |         |                        | $       | 267,155          |         |         | $       | 376,393 |         |         | $       | 267,155 |        
|                                     |                                                          |                        |                   |                                |         |                        |         |                  |         |         |         |         |         |         |         |         |        
|                                     | Net charge-offs to average loans and leases
(annualized) |                        |                   | .30                            | %       |                        |         | .80              | %       |         |         | .41     | %       |         |         | .60     | %      

In terms of nonperforming asset disclosures, Charter Ones policy, prior to the
second quarter of 2002, was to place all consumer assets backed by residential
real estate on nonaccrual status (disclosed as nonperforming) at 90 days
delinquent. Beginning in the second quarter of 2002, consistent with
OCC-regulated banking practices, loans backed by residential real estate are
being placed on nonaccrual status (nonperforming) at six payments past due as
long as the loan is well secured and in the process of collection.

Figure 9 sets forth information concerning nonperforming and underperforming
assets for the periods reported. Underperforming assets consist of (1)
nonperforming assets (nonaccrual loans and leases, restructured real estate
mortgage loans, and real estate acquired through foreclosure and other
collateral owned) and (2) accruing loans and leases delinquent more than 90
days. The recently completed acquisition of Advance Bancorp added $11.6
million and $12.2 million in nonperforming assets (multifamily and commercial)
and underperforming assets, respectively, to the June 30, 2003 balance reported
below.

17



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##### Table of Contents



Nonperforming and
Underperforming Assets (Figure 9)

|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |          |        |        |         | 
|------------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------------------------------------------ | ------------------------------------ | ------ | ---------------------- | ------- | -------- | ------ | ------ | ------- | 
|                                                        |                                                                                          |                                         |                                                              |                                      |        | 6/30/03                |         | 12/31/02
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         |                                                              |                                      |        | (Dollars in thousands)
|Nonperforming assets:                                   |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Nonaccrual loans and leases:                                                             |                                         |                                                              |                                      |        |                        |         |          |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Real estate mortgage loans:             |                                                              |                                      |        |                        |         |          |        |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          |                                         | One-to-four family                                           |                                      | $      | 25,723                 |         |          | $      | 27,904 |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          |                                         | Multifamily and commercial                                   |                                      |        | 16,764                 |         |          |        | 5,369  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          |                                         | Construction and land                                        |                                      |        | 27,483                 |         |          |        | 9,885  |        
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         |                                                              | Total real estate mortgage loans     |        |                        | 69,970  |          |        |        | 43,158  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Retail consumer                         |                                                              |                                      | 10,652 |                        |         |          | 13,937 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Automobile                              |                                                              |                                      |       |                        |         |          |       |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Consumer finance                        |                                                              |                                      | 43,175 |                        |         |          | 40,227 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Leases                                  |                                                              |                                      | 6,877  |                        |         |          | 6,211  |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Corporate banking                       |                                                              |                                      | 35,595 |                        |         |          | 39,098 |       
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         |                                                              | Total nonaccrual loans and leases    |        |                        | 166,269 |          |        |        | 142,631 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Restructured real estate mortgage loans                                                  |                                         |                                                              | 488                                  |        |                        |         | 501      |       
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         |                                                              | Total nonperforming loans and leases |        |                        | 166,757 |          |        |        | 143,132 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Real estate and other collateral owned                                                   |                                         |                                                              | 39,278                               |        |                        |         | 40,776   |       
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         |                                                              | Total nonperforming assets           |        | $                      | 206,035 |          |        | $      | 183,908 | 
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|Ratio of:                                               |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Nonperforming loans and leases to total loans and leases                                 |                                         |                                                              | .65                                  | %      |                        |         | .55      | %     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Nonperforming assets to total assets                                                     |                                         |                                                              | .47                                  |        |                        |         | .44      |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Nonperforming assets to total loans, leases and real estate and other collateral owned   |                                         |                                                              | .81                                  |        |                        |         | .70      |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Allowance for loan and lease losses to:                                                  |                                         |                                                              |                                      |        |                        |         |          |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Nonperforming loans and leases          |                                                              |                                      | 225.71 |                        |         |          | 229.17 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Total loans and leases before allowance |                                                              |                                      | 1.46   |                        |         |          | 1.24   |       
|                                                       
|                                                       
|                                                       
|                                                       
|Accruing loans and leases delinquent more than 90 days: |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Real estate mortgage loans:                                                              |                                         |                                                              |                                      |        |                        |         |          |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | One-to-four family                      |                                                              | $                                    | 18,056 |                        |         | $        | 25,643 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Multifamily and commercial              |                                                              |                                      | 396    |                        |         |          |       |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                                                          | Construction and land                   |                                                              |                                      |       |                        |         |          |       |       
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         | Total real estate mortgage loans                             |                                      |        | 18,452                 |         |          |        | 25,643 |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Retail consumer                                                                          |                                         |                                                              | 3,056                                |        |                        |         | 4,758    |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Automobile                                                                               |                                         |                                                              | 2,254                                |        |                        |         | 3,621    |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Consumer finance                                                                         |                                         |                                                              | 21,172                               |        |                        |         | 26,739   |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Leases                                                                                   |                                         |                                                              |                                     |        |                        |         | 19       |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Corporate banking                                                                        |                                         |                                                              | 117                                  |        |                        |         | 1,536    |       
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                        |                                                                                          |                                         | Total accruing loans and leases delinquent more than 90 days |                                      | $      | 45,051                 |         |          | $      | 62,316 |        
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|Total underperforming assets                            |                                                                                          | $                                       | 251,086                                                      |                                      |        | $                      | 246,224 |         
|                                                        |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|Ratio of:                                               |                                                                                          |                                         |                                                              |                                      |        |                        |         |         
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Underperforming assets to total assets                                                   |                                         |                                                              | .57                                  | %      |                        |         | .59      | %     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Underperforming assets to total loans, leases and real estate and other collateral owned |                                         |                                                              | .98                                  |        |                        |         | .94      |       

Loans and leases not reflected in the table above, but where known information
about possible credit problems of borrowers causes management to have serious
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 as underperforming
assets in the future, are commonly referred to as potential problem loans and
leases. The amount included in potential problem loans and leases results from
an evaluation, on a loan-by-loan basis, of loans and leases classified as
substandard. The amount of potential problem loans and leases was $25.7
million at June 30, 2003, down from $61.9 million at March 31, 2003 and up from
$14.8 million at December 31, 2002. The vast majority of our potential problem
loans and leases, as well as our underperforming assets, are collateralized.

18



---



##### Table of Contents



SOURCES OF FUNDS

Deposits

Composition of Deposits
(Figure 10)

|                                            |                     |                             |                     |           |                        |            |          |      |          |      |           |           |            |            |          |      |      |      | 
|------------------------------------------- | ------------------- | --------------------------- | ------------------- | --------- | ---------------------- | ---------- | -------- | ---- | -------- | ---- | --------- | --------- | ---------- | ---------- | -------- | ---- | ---- | ---- | 
|                                            |                     |                             |                     |           | 6/30/03                |            | 12/31/02
|                                            |                     |                             |                     |           |                        |            |         
|                                            |                     |                             |                     |           |                        |            |          |      | Weighted |      |           |           |            |            | Weighted
|                                            |                     |                             |                     |           |                        |            |          |      | Average  |      |           |           |            |            | Average 
|                                            |                     |                             |                     |           | Amount                 |            | Rate     |      | Amount   |      | Rate     
|                                            |                     |                             |                     |           |                        |            |          |      |          |      |          
|                                            |                     |                             |                     |           | (Dollars in thousands)
|Checking accounts:                          |                     |                             |                     |           |                        |            |          |      |          |      |           |           |            |            |          |     
|                                           
|                                           
|                                           
|                                           
|                                            | Interest-bearing    |                             | $                   | 6,493,279 |                        |            |          | 1.12 | %        |      | $         | 7,460,530 |            |            |          | 1.80 | %   
|                                           
|                                           
|                                           
|                                           
|                                            | Noninterest-bearing |                             |                     | 2,656,047 |                        |            |          |     |          |      |           | 2,189,903 |            |            |          |     |     
|                                            |                     |                             |                     |           |                        |            |          |      |          |      |           |           |            |            |          |     
|                                            |                     | Total checking accounts     |                     |           | 9,149,326              |            |          |      | 0.79     |      |           |           | 9,650,433  |            |          |      | 1.39 |     
|                                           
|                                           
|                                           
|                                           
|Money market and savings accounts           |                     |                             | 8,475,706           |           |                        |            | 1.28     |      |          |      | 8,157,534 |           |            |            | 1.51     |     
|                                            |                     |                             |                     |           |                        |            |          |      |          |      |           |           |            |            |          |     
|                                            |                     | Total transactions accounts |                     |           | 17,625,032             |            |          |      | 1.03     |      |           |           | 17,807,967 |            |          |      | 1.45 |     
|                                           
|                                           
|                                           
|                                           
|Certificates of deposit                     |                     |                             | 10,314,742          |           |                        |            | 3.17     |      |          |      | 9,719,876 |           |            |            | 3.61     |     
|                                            |                     |                             |                     |           |                        |            |          |      |          |      |           |           |            |            |          |     
|                                            |                     |                             | Total deposits, net |           | $                      | 27,939,774 |          |      |          | 1.82 |           |           | $          | 27,527,843 |          |      |      | 2.21 | 
|                                            |                     |                             |                     |           |                        |            |          |      |          |      |           |           |            |            |          |     
|Including the effect of interest rate swaps |                     |                             |                     |           |                        |            | 1.72     | %    |          |      |           |           |            |            | 2.06     | %   

Investment securities and mortgage-backed securities with a par value of $526.6
million at June 30, 2003 and $489.0 million at December 31, 2002, were pledged
to secure public deposits and for other purposes required or permitted by law.

Borrowings

At June 30, 2003, borrowings consisted primarily of Federal Home Loan Bank
(FHLB) advances. These positions were secured by our investment in the stock
of the FHLB, as well as $8.6 billion in certain real estate loans and $6.9
billion in mortgage-backed securities.

FHLB Advances (Figure
11)

|                                            |                        |                     |            |                        |            |          |      |          |      |      |           |           |           |          |      |      |      | 
|------------------------------------------- | ---------------------- | ------------------- | ---------- | ---------------------- | ---------- | -------- | ---- | -------- | ---- | ---- | --------- | --------- | --------- | -------- | ---- | ---- | ---- | 
|                                            |                        |                     |            | 6/30/03                |            | 12/31/02
|                                            |                        |                     |            |                        |            |         
|                                            |                        |                     |            |                        |            |          |      | Weighted |      |      |           |           |           | Weighted
|                                            |                        |                     |            |                        |            |          |      | Average  |      |      |           |           |           | Average 
|                                            |                        |                     |            | Amount                 |            | Rate     |      | Amount   |      | Rate
|                                            |                        |                     |            |                        |            |          |      |          |      |     
|                                            |                        |                     |            | (Dollars in thousands)
|Short-term                                  |                        | $                   | 2,165,000  |                        |            |          | 1.50 | %        |      | $    | 2,595,000 |           |           |          | 1.34 | %   
|                                           
|                                           
|                                           
|                                           
|Long-term:                                  |                        |                     |            |                        |            |          |      |          |      |      |           |           |           |          |      |     
|                                           
|                                           
|                                           
|                                           
|                                            | Fixed-rate advances    |                     |            | 5,994,195              |            |          |      | 5.67     |      |      |           | 6,024,560 |           |          |      | 5.68 |     
|                                           
|                                           
|                                           
|                                           
|                                            | Variable-rate advances |                     |            | 2,409,605              |            |          |      | 1.28     |      |      |           | 409,605   |           |          |      | 1.23 |     
|                                            |                        |                     |            |                        |            |          |      |          |      |      |           |           |           |          |      |     
|Total advances                              |                        |                     | 10,568,800 |                        |            |          | 3.82 |          |      |      | 9,029,165 |           |           |          | 4.23 |     
|                                           
|                                           
|                                           
|                                           
|Plus unamortized premium on advances        |                        |                     | 13,455     |                        |            |          |     |          |      |      | 8,760     |           |           |          |     |     
|                                            |                        |                     |            |                        |            |          |      |          |      |      |           |           |           |          |      |     
|                                            |                        | Total advances, net |            | $                      | 10,582,255 |          |      |          | 3.78 |      |           | $         | 9,037,925 |          |      |      | 4.18 | 
|                                            |                        |                     |            |                        |            |          |      |          |      |      |           |           |           |          |      |     
|Including the effect of interest rate swaps |                        |                     |            |                        |            |          | 3.87 | %        |      |      |           |           |           |          | 4.26 | %   

Interest Rate Swaps

We use interest rate swaps as one of the tools to manage our interest rate risk
profile (defined as the sensitivity of our earnings and economic value to
changes in interest rates). We utilize fixed receipt callable interest rate
swaps to convert certain longer-term callable certificates of deposit into
short-term and medium-term variable instruments. Under certain of these
agreements totaling $210.0 million in notional principal amount, 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 during the entire term of the interest rate swap. In other agreements
totaling $1.7 billion in notional principal amount, 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 fixed rate, converting to floating rate
indexed to LIBOR after the first two years of the interest rate swap term.
Such interest rate swaps are designated and qualify as fair value hedges under
SFAS No. 133. We have assumed no ineffectiveness in the respective hedging
relationships. Any gain or loss on the interest rate swap was offset by a gain
or loss on the certificates of deposit during the period of change in fair
values.

We utilize fixed payment interest rate swaps to convert certain floating-rate
FHLB advances into fixed-rate instruments. Under these agreements totaling
$409.6 million in notional principal amount, 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

19



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##### Table of Contents



notional principal
amounts. Such interest rate swaps are designated and qualify as cash flow
hedges under SFAS No. 133. We have assumed no ineffectiveness in the
respective hedging relationships. Any gain or loss on the interest rate swaps
was offset by the expected future cash flows on the FHLB advances during the
period of change in fair values.

We utilized a fixed receipt interest rate swap to convert our $400.0 million of
subordinated notes into a variable instrument. Under this agreement, 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. Such interest rate swap is designated and qualifies as a
fair value hedge under SFAS No. 133. We have assumed no ineffectiveness in the
hedging relationship. Any gain or loss on the interest rate swap was offset by
a gain or loss on the subordinated notes during the period of change in fair
values.

In May 2002, we entered into $575.0 million of fixed payment and variable
receipt interest rate swaps related to the issuance of the Banks subordinated
notes. However, these interest rate swaps did not qualify for hedge accounting
under SFAS No. 133. For the six months ended June 30, 2003, the net unrealized
loss attributed to these interest rate swaps decreased $2.3 million to an
ending balance of $23.6 million. The corresponding interest rate swap
liabilities were recognized in our Consolidated Statements of Financial
Condition at June 30, 2003 under the caption Accrued expenses and other
liabilities.

Information on the interest rate swaps, by maturity date, is as follows:

Interest Rate Swaps
(Figure 12)

|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |      |      |     
|---------------------------------- | ---- | ----- | - | ---------------------- | --------- | --------- |  | -------- | ---- | --------- |  | --------- | ---- | -------- | - | --------- | --------- |  |  | ---- | ---- | ---- |  | ---- | ---- | ----
|                                   |      |       |   | 6/30/03                |           | 12/31/02 
|                                   |      |       |   |                        |           |          
|                                   |      |       |   | Notional               |           | Receiving |  | Paying   |      | Notional  |  | Receiving |      | Paying  
|                                   |      |       |   | Principal              |           | Interest  |  | Interest |      | Principal |  | Interest  |      | Interest
|                                   |      |       |   | Amount                 |           | Rate      |  | Rate     |      | Amount    |  | Rate      |      | Rate    
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |         
|                                   |      |       |   | (Dollars in thousands)
|Fixed
Payment and Fixed
Receipt(1) |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|                                  
|                                  
|                                  
|                                  
|                                   | 2007 |       | $ | 1,005,000              |           |           |  | 4.31     | %    |           |  | 2.75      | %    |          | $ | 1,005,000 |           |  |  | 4.31 | %    |      |  | 2.75 | %   
|                                  
|                                  
|                                  
|                                  
|                                   | 2008 |       |   | 670,000                |           |           |  | 3.55     |      |           |  | 1.94      |      |          |   |          |           |  |  |     |      |      |  |     |     
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|                                   |      | Total |   | $                      | 1,675,000 |           |  |          | 4.00 | %         |  |           | 2.42 | %        |   | $         | 1,005,000 |  |  |      | 4.31 | %    |  |      | 2.75 | %   
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|Fixed
Payment and Variable
Receipt |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|                                  
|                                  
|                                  
|                                  
|                                   | 2003 |       | $ | 409,605                |           |           |  | 1.17     | %    |           |  | 3.55      | %    |          | $ | 409,605   |           |  |  | 1.42 | %    |      |  | 3.55 | %   
|                                  
|                                  
|                                  
|                                  
|                                   | 2004 |       |   | 375,000                |           |           |  | 1.29     |      |           |  | 3.66      |      |          |   | 375,000   |           |  |  | 1.40 |      |      |  | 3.66 |     
|                                  
|                                  
|                                  
|                                  
|                                   | 2006 |       |   | 200,000                |           |           |  | 1.29     |      |           |  | 4.69      |      |          |   | 200,000   |           |  |  | 1.40 |      |      |  | 4.69 |     
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|                                   |      | Total |   | $                      | 984,605   |           |  |          | 1.24 | %(2)      |  |           | 3.82 | %        |   | $         | 984,605   |  |  |      | 1.41 | %(2) |  |      | 3.82 | %   
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|Variable Payment and Fixed
Receipt |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|                                  
|                                  
|                                  
|                                  
|                                   | 2004 |       | $ |                       |           |           |  |         | %    |           |  |          | %    |          | $ | 315,000   |           |  |  | 2.80 | %    |      |  | 1.57 | %   
|                                  
|                                  
|                                  
|                                  
|                                   | 2005 |       |   | 210,000                |           |           |  | 2.12     |      |           |  | 1.26      |      |          |   |          |           |  |  |     |      |      |  |     |     
|                                  
|                                  
|                                  
|                                  
|                                   | 2007 |       |   |                       |           |           |  |         |      |           |  |          |      |          |   | 555,000   |           |  |  | 5.51 |      |      |  | 1.55 |     
|                                  
|                                  
|                                  
|                                  
|                                   | 2012 |       |   | 400,000                |           |           |  | 5.76     |      |           |  | 1.29      |      |          |   | 400,000   |           |  |  | 5.76 |      |      |  | 1.75 |     
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     
|                                   |      | Total |   | $                      | 610,000   |           |  |          | 4.51 | %         |  |           | 1.28 | %(2)     |   | $         | 1,270,000 |  |  |      | 4.92 | %    |  |      | 1.62 | %(2)
|                                   |      |       |   |                        |           |           |  |          |      |           |  |           |      |          |   |           |           |  |  |      |      |      |  |     



---

|(1) |  | Converts to variable payment indexed to LIBOR after the first two years
of the interest rate swap agreement.
|--- |  | ------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Rates are based upon LIBOR.                                                                                 

Additionally, we have entered into forward fixed payment and variable receipt
interest rate swaps totaling $3.9 billion in notional principal amount that are
not reflected in Figure 12 above. 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. These forward interest rate swaps become effective between September
2003 and August 2004. The forward interest rate swaps mature between January
2006 and August 2007. The weighted average fixed payment rate on these forward
interest rate swaps is 2.85%. The forward interest rate swaps will convert
certain floating-rate FHLB advances into fixed-rate instruments. Such interest
rate swaps are designated and qualify as cash flow hedges under SFAS No. 133.

Information on these forward interest rate swaps, by effective date, is as
follows:

20



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##### Table of Contents



Forward Interest Rate Swaps(Figure 13)

|                                           |                                     |                     |       |   |                        |           |          |  |        |      |  
|------------------------------------------ | ----------------------------------- | ------------------- | ----- | - | ---------------------- | --------- | -------- |  | ------ | ---- | -
|                                           |                                     |                     |       |   |                        |           |          |  | Paying
|                                           |                                     |                     |       |   | Notional               |           | Interest
|                                           |                                     |                     |       |   | Amount                 |           | Rate    
|                                           |                                     |                     |       |   |                        |           |         
|                                           |                                     |                     |       |   | (Dollars in thousands)
|Fixed Payment and Variable Receipt Forward |                                     |                     |       |   |                        |           |          | 
|                                          
|                                          
|                                          
|                                          
|                                           | Interest Rate Swaps Effective Date: |                     |       |   |                        |           |          |  |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                     | Third quarter 2003  |       | $ | 202,967                |           |          |  | 3.00   | %   
|                                          
|                                          
|                                          
|                                          
|                                           |                                     | Fourth quarter 2003 |       |   | 206,638                |           |          |  | 3.05   |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                     | First quarter 2004  |       |   | 1,000,000              |           |          |  | 2.87   |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                     | Second quarter 2004 |       |   | 1,500,000              |           |          |  | 2.84   |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                     | Third quarter 2004  |       |   | 1,000,000              |           |          |  | 2.79   |     
|                                           |                                     |                     |       |   |                        |           |          | 
|                                           |                                     |                     | Total |   | $                      | 3,909,605 |          |  |        | 2.85 | %
|                                           |                                     |                     |       |   |                        |           |          | 

The fair value of the Companys interest rate swap contracts 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.
Information on the fair values of the interest rate swaps is as follows:

Fair Value of Interest Rate
Swaps (Figure 14)

|                        |                              |                  |   |                        |        |          |   |         |        | 
|----------------------- | ---------------------------- | ---------------- | - | ---------------------- | ------ | -------- | - | ------- | ------ | 
|                        |                              |                  |   | 6/30/03                |        | 12/31/02
|                        |                              |                  |   |                        |        |         
|                        |                              |                  |   | (Dollars in thousands)
|Unrealized gain (loss): |                              |                  |   |                        |        |          |   |        
|                       
|                       
|                       
|                       
|                        | Fair value hedges            |                  | $ | 90,018                 |        |          | $ | 84,341  |       
|                       
|                       
|                       
|                       
|                        | Cash flow hedges             |                  |   | (50,618                | )      |          |   | (10,152 | )     
|                       
|                       
|                       
|                       
|                        | Unhedged interest rate swaps |                  |   | (23,597                | )      |          |   | (25,905 | )     
|                        |                              |                  |   |                        |        |          |   |         |       
|                        |                              | Total fair value |   | $                      | 15,803 |          |   | $       | 48,284 | 
|                        |                              |                  |   |                        |        |          |   |        

The net benefit of interest rate swaps included in interest expense is as
follows:

Net Benefit of Interest Risk
Management (Figure 15)

|                           |                              |                   |   |                        |        |                  |   |         |         |         |   |         |         |   |   |         |         |  
|-------------------------- | ---------------------------- | ----------------- | - | ---------------------- | ------ | ---------------- | - | ------- | ------- | ------- | - | ------- | ------- | - | - | ------- | ------- | -
|                           |                              |                   |   | Three Months Ended     |        | Six Months Ended
|                           |                              |                   |   |                        |        |                 
|                           |                              |                   |   | 6/30/03                |        | 6/30/02          |   | 6/30/03 |         | 6/30/02
|                           |                              |                   |   |                        |        |                  |   |         |         |        
|                           |                              |                   |   | (Dollars in thousands)
|Interest expense (income): |                              |                   |   |                        |        |                  |   |         |         |         |   |         |         |   |   |        
|                          
|                          
|                          
|                          
|                           | Deposits                     |                   | $ | (7,408                 | )      |                  | $ | (11,971 | )       |         | $ | (17,190 | )       |   | $ | (23,383 | )      
|                          
|                          
|                          
|                          
|                           | FHLB advances                |                   |   | 2,335                  |        |                  |   | 1,750   |         |         |   | 4,579   |         |   |   | 3,486   |        
|                          
|                          
|                          
|                          
|                           | Subordinated notes           |                   |   | (4,434                 | )      |                  |   | (1,737  | )       |         |   | (8,825  | )       |   |   | (1,737  | )      
|                          
|                          
|                          
|                          
|                           | Unhedged interest rate swaps |                   |   | 3,860                  |        |                  |   | 1,352   |         |         |   | 7,658   |         |   |   | 1,352   |        
|                           |                              |                   |   |                        |        |                  |   |         |         |         |   |         |         |   |   |        
|                           |                              | Total net benefit |   | $                      | (5,647 | )                |   | $       | (10,606 | )       |   | $       | (13,778 | ) |   | $       | (20,282 | )
|                           |                              |                   |   |                        |        |                  |   |         |         |         |   |         |         |   |   |        

Liquidity

Our principal sources of funds are deposits, advances from the FHLB of
Cincinnati, federal funds purchased and 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 to supplement deposits with longer term and/or lower cost
alternative sources of funds such as FHLB advances and federal funds purchased
and repurchase agreements. We may, from time to time, decide to price deposits
aggressively for strategic reasons which may result in significant deposit
inflows.

In the ordinary course of business, we enter 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. We anticipate that we
will have sufficient funds available to meet our commitments. As of June 30,
2003, there were outstanding commitments to originate $2.8 billion of mortgage
loans and other loans and leases, all at market rates. Terms of the
commitments extend up to nine months, but are generally less than two months.
Additionally, there were outstanding unfunded consumer lines of credit of $5.0
billion and corporate banking lines of credit of $340.3 million as of June 30,
2003. Substantially all of the consumer loans, including

21



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##### Table of Contents



consumer lines of
credit, are secured by equity in the borrowers residences. The Company does
not expect all of these lines to be used by the borrowers. Outstanding letters
of credit totaled $125.5 million as of June 30, 2003.

Capital and Dividends

On April 23, 2002, the Companys Board of Directors authorized management to
repurchase up to 10% of the Companys outstanding common stock, or
approximately 22 million shares, under a program of open market purchases or
privately negotiated transactions. This program replaced the repurchase
program that had been in effect since July 18, 2000 and under which the Company
repurchased approximately 15.0 million shares for a total cost of $394.8
million. The Company repurchased 2.7 million shares under the new
authorization during the six months ended June 30, 2003 at an average cost of
$30.30 per share. This brought the total number of shares repurchased under
this program to 10.7 million shares at an average cost of $30.81 per share.
Shares and per share data discussed in this paragraph have not been restated to
reflect the 5% stock dividend issued September 30, 2002.

Charter One, a financial holding company, 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 Bank, N.A. and Advance Bank are subject to various
regulatory capital requirements administered by the OCC and the Illinois
Commissioner of Banking and Real Estate, 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, 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. The institutions capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require Charter One and the Bank 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. The actual
regulatory capital ratios calculated for Charter One and the Bank, along with
the capital amounts and ratios for capital adequacy purposes and the amounts
required to be categorized as well capitalized, are as follows:

Regulatory Capital
(Figure 16)

|                        |                                        |  |                        |           |                   |  |                          |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |       |  
|----------------------- | -------------------------------------- |  | ---------------------- | --------- | ----------------- |  | ------------------------ | ----- | ----- |  | ----------- | --------- | ----- |  | - | ---- | - |  | - | --------- |  |  | - | ----- | -
|                        |                                        |  |                        |           |                   |  |                          |       |       |  | 6/30/03     |           |       |  |   |      |   |  |  
|                        |                                        |  |                       
|                        |                                        |  |                        |           |                   |  |                          |       |       |  | For Capital |           |       |  |   |      |   |  |  
|                        |                                        |  | Actual                 |           | Adequacy Purposes |  | To Be "Well Capitalized"
|                        |                                        |  |                        |           |                   |  |                         
|                        |                                        |  | Amount                 |           | Ratio             |  | Amount                   |       | Ratio |  | Amount      |           | Ratio
|                        |                                        |  |                        |           |                   |  |                          |       |       |  |             |           |      
|                        |                                        |  | (Dollars in thousands)
|Charter One:            |                                        |  |                        |           |                   |  |                          |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Total capital to risk-weighted assets  |  | $                      | 3,454,162 |                   |  |                          | 11.83 | %     |  | $           | 2,336,571 |       |  | > | 8.00 | % |  | $ | 2,920,714 |  |  | > | 10.00 | %
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to risk-weighted
assets |  |                        | 2,689,609 |                   |  |                          | 9.21  |       |  |             | 1,168,286 |       |  | > | 4.00 |   |  |   | 1,752,428 |  |  | > | 6.00  |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to average assets       |  |                        | 2,689,609 |                   |  |                          | 6.16  |       |  |             | 1,746,389 |       |  | > | 4.00 |   |  |   | N/A       |  |  |   | N/A   |  
|                       
|                       
|                       
|                       
|Charter One Bank, N.A.: |                                        |  |                        |           |                   |  |                          |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Total capital to risk-weighted assets  |  |                        | 3,420,180 |                   |  |                          | 11.86 |       |  |             | 2,306,834 |       |  | > | 8.00 |   |  |   | 2,883,543 |  |  | > | 10.00 |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to risk-weighted
assets |  |                        | 2,327,190 |                   |  |                          | 8.07  |       |  |             | 1,153,417 |       |  | > | 4.00 |   |  |   | 1,730,126 |  |  | > | 6.00  |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to average assets       |  |                        | 2,327,190 |                   |  |                          | 5.36  |       |  |             | 1,735,300 |       |  | > | 4.00 |   |  |   | 2,169,125 |  |  | > | 5.00  |  
|                       
|                       
|                       
|                       
|Advance Bank(1):        |                                        |  |                        |           |                   |  |                          |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Total capital to risk-weighted assets  |  |                        | 49,709    |                   |  |                          | 12.70 |       |  |             | 31,307    |       |  | > | 8.00 |   |  |   | 39,134    |  |  | > | 10.00 |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to risk-weighted
assets |  |                        | 44,817    |                   |  |                          | 11.45 |       |  |             | 15,654    |       |  | > | 4.00 |   |  |   | 23,480    |  |  | > | 6.00  |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to average assets       |  |                        | 44,817    |                   |  |                          | 7.70  |       |  |             | 23,267    |       |  | > | 4.00 |   |  |   | 29,083    |  |  | > | 5.00  |  

22



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##### Table of Contents



|                        |                                        |  |                        |           |                   |                          |        |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |       |  
|----------------------- | -------------------------------------- |  | ---------------------- | --------- | ----------------- | ------------------------ | ------ | ----- | ----- |  | ----------- | --------- | ----- |  | - | ---- | - |  | - | --------- |  |  | - | ----- | -
|                        |                                        |  |                        |           |                   |                          |        |       |       |  | 12/31/02    |           |       |  |   |      |   |  |  
|                        |                                        |  |                       
|                        |                                        |  |                        |           |                   |                          |        |       |       |  | For Capital |           |       |  |   |      |   |  |  
|                        |                                        |  | Actual                 |           | Adequacy Purposes | To Be "Well Capitalized"
|                        |                                        |  |                        |           |                   |                         
|                        |                                        |  | Amount                 |           | Ratio             |                          | Amount |       | Ratio |  | Amount      |           | Ratio
|                        |                                        |  |                        |           |                   |                          |        |       |       |  |             |           |      
|                        |                                        |  | (Dollars in thousands)
|Charter One:            |                                        |  |                        |           |                   |                          |        |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Total capital to risk-weighted assets  |  | $                      | 3,239,604 |                   |                          |        | 11.67 | %     |  | $           | 2,220,734 |       |  | > | 8.00 | % |  | $ | 2,775,917 |  |  | > | 10.00 | %
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to risk-weighted
assets |  |                        | 2,513,577 |                   |                          |        | 9.05  |       |  |             | 1,110,367 |       |  | > | 4.00 |   |  |   | 1,665,550 |  |  | > | 6.00  |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to average assets       |  |                        | 2,513,577 |                   |                          |        | 6.10  |       |  |             | 1,648,861 |       |  | > | 4.00 |   |  |   | N/A       |  |  |   | N/A   |  
|                       
|                       
|                       
|                       
|Charter One Bank, N.A.: |                                        |  |                        |           |                   |                          |        |       |       |  |             |           |       |  |   |      |   |  |   |           |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Total capital to risk-weighted assets  |  |                        | 3,150,686 |                   |                          |        | 11.36 |       |  |             | 2,219,719 |       |  | > | 8.00 |   |  |   | 2,774,649 |  |  | > | 10.00 |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to risk-weighted
assets |  |                        | 2,091,615 |                   |                          |        | 7.54  |       |  |             | 1,109,860 |       |  | > | 4.00 |   |  |   | 1,664,789 |  |  | > | 6.00  |  
|                       
|                       
|                       
|                       
|                        | Tier 1 capital to average assets       |  |                        | 2,091,615 |                   |                          |        | 5.11  |       |  |             | 1,636,187 |       |  | > | 4.00 |   |  |   | 2,045,234 |  |  | > | 5.00  |  



---

|(1) |  | On June 6, 2003, Charter One completed its acquisition of Advance
Bancorp, the holding company of Advance Bank. The merger of Advance Bank
into Charter One Bank, N.A. was effective July 11, 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management believes that, as of June 30, 2003, Charter One and the Bank
individually met the 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 17)

|                                            |       |  |                    |       |         |  |          |       |         |  |         |       |  |  |     |       |  |  |     |       | 
|------------------------------------------- | ----- |  | ------------------ | ----- | ------- |  | -------- | ----- | ------- |  | ------- | ----- |  |  | --- | ----- |  |  | --- | ----- | 
|                                            |       |  | Three Months Ended
|                                            |       |  |                   
|                                            |       |  | 6/30/03            |       | 3/31/03 |  | 12/31/02 |       | 9/30/02 |  | 6/30/02
|                                            |       |  |                    |       |         |  |          |       |         |  |        
|Market price of common stock (NYSE: CF)(1): |       |  |                    |       |         |  |          |       |         |  |         |       |  |  |     |       |  |  |     |      
|                                           
|                                           
|                                           
|                                           
|                                            | High  |  | $                  | 32.59 |         |  | $        | 30.74 |         |  | $       | 31.48 |  |  | $   | 33.42 |  |  | $   | 34.77 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Low   |  |                    | 27.24 |         |  |          | 27.05 |         |  |         | 23.89 |  |  |     | 25.81 |  |  |     | 29.30 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Close |  |                    | 31.18 |         |  |          | 27.66 |         |  |         | 28.73 |  |  |     | 29.72 |  |  |     | 32.74 | 
|                                           
|                                           
|                                           
|                                           
|Dividends declared and paid(1)              |       |  | .24                |       |         |  | .22      |       |         |  | .22     |       |  |  | .21 |       |  |  | .21 |      



---

|(1) |  | Restated to reflect the 5% stock dividend issued September 30, 2002.
|--- |  | --------------------------------------------------------------------




ITEM 3. Quantitative and Qualitative Disclosure About Market Risk

At June 30, 2003, our one-year gap was 12.45% of total interest-earning assets.

A comprehensive qualitative and quantitative analysis regarding market risk was
disclosed in our December 31, 2002 Form 10-K. The assumptions used in our
model have been updated as of June 30, 2003. The table below indicates the
estimated impact on net interest income under the various interest rate
scenarios as a percentage of base case net interest income projections.

|                    |  |                               |       |   
|------------------- |  | ----------------------------- | ----- | --
|Changes in          |  | Estimated Percentage Change  
|Interest Rates      |  | in Future Net Interest Income
|(basis points)(1)   |  | 12 Months                    
|                    |  |                              
|+200 over one year  |  |                               | (4.61 | )%
|                   
|                   
|                   
|                   
|+100 over one year  |  |                               | (2.21 | ) 
|                   
|                   
|                   
|                   
|- 100 over one year |  |                               | 1.56  |   



---

|(1) |  | In general, short and long-term
rates are assumed to increase or decrease, in
parallel fashion, across all four quarters and then
remain unchanged. However, the rates paid on core
deposits are assumed to reprice at only half the
increment in the case of the up and down 100 basis points scenarios and
up 200 basis points scenario.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.




ITEM 4. Controls and Procedures

An evaluation of the Companys disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Act)) as of June 30, 2003 was carried out under the supervision and with the participation
of the Companys Chief Executive Officer, Chief Financial Officer and several
other members of the Companys senior management. The Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures as currently in effect are effective in
ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the Act is (i) accumulated and communicated
to the Companys management (including the Chief Executive Officer and Chief
Financial Officer) in

23



---



##### Table of Contents



a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms.
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended
June 30, 2003, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

The Company intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has
timely access to all material financial and non-financial information
concerning the Companys business. While the Company believes the present
design of its disclosure controls and procedures is effective to achieve its
goal, future events affecting its business may cause the Company to modify its
disclosure controls and procedures.




PART II  OTHER INFORMATION




ITEM 4. Submission of Matters to a
Vote of Security Holders

(a) (b) (c) The Company held its annual meeting of shareholders on April 22,
2003. The following matters were voted on at the meeting:

|                                                                                |                                                                                                             |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- |  | --- | ----------- | -------- |  |  | --------- |  |  |  |  |  |  |  |  | 
|                                                                                |                                                                                                             |  | For |             | Withheld |  |  |           | 
|                                                                                |                                                                                                             |  |     |             |          | 
|1. The election of seven directors, set forth
below, with terms ending in 2006: |                                                                                                             |  |     |             |          |  |  |           |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Phillip Wm. Fisher                                                                                          |  |     | 197,759,802 |          |  |  | 2,322,555 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Mark D. Grossi                                                                                              |  |     | 197,625,478 |          |  |  | 2,456,879 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Karen R. Hitchcock                                                                                          |  |     | 191,012,629 |          |  |  | 9,069,727 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | John D. Koch                                                                                                |  |     | 197,665,285 |          |  |  | 2,417,071 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Michael P. Morley                                                                                           |  |     | 191,735,612 |          |  |  | 8,346,745 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Joseph C. Scully                                                                                            |  |     | 197,731,684 |          |  |  | 2,350,672 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | John P. Tierney                                                                                             |  |     | 190,961,526 |          |  |  | 9,120,830 |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | The following are the names of the directors
(and remaining terms) whose terms continued after
the meeting:
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Herbert G. Chorbajian (term ending 2005)                                                                    |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Barbara J. Mahone (term ending 2005)                                                                        |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Richard W. Neu (term ending 2005)                                                                           |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Victor A. Ptak (term ending 2005)                                                                           |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Melvin J. Rachal (term ending 2005)                                                                         |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Leonard S. Simon (term ending 2005)                                                                         |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Patrick J. Agnew (term ending 2004)                                                                         |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Denise Marie Fugo (term ending 2004)                                                                        |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Charles John Koch (term ending 2004)                                                                        |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Ronald F. Poe (term ending 2004)                                                                            |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Jerome L. Schostak (term ending 2004)                                                                       |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Mark Shaevsky (term ending 2004)                                                                            |  |     |             |          |  |  |           |  |  |  |  |  |  |  |  | 

|                                                                                                              |  |     |             |         |  |         |           |           |  |  |           |  |  |        |       | 
|------------------------------------------------------------------------------------------------------------- |  | --- | ----------- | ------- |  | ------- | --------- | --------- |  |  | --------- |  |  | ------ | ----- | 
|                                                                                                              |  |     |             |         |  |         |           |           |  |  |           |  |  | Broker
|                                                                                                              |  | For |             | Against |  | Abstain |           | Non-Votes
|                                                                                                              |  |     |             |         |  |         |           |          
|2. Reapproval of the Charter One Financial, Inc.                                                              |  |     |             |         |  |         |           |           |  |  |           |  |  |        |       | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Top Executive Incentive Goal Achievement
Plan for purposes of satisfying §162(m)
of the Internal Revenue Code |  |     | 190,162,348 |         |  |         | 7,583,222 |           |  |  | 2,334,476 |  |  |        | 2,310 | 




ITEM 5. Other Information

Cash Dividend On July 17, 2003, the Companys Board of Directors declared a
regular quarterly cash dividend of $.26 per share, an 8% increase from $.24 per
share last quarter. The cash dividend is payable August 20, 2003 to
shareholders of record on August 6, 2003.

The Company also indicated that it has discontinued its practice of annual 5%
stock dividends. The Board of Directors believes increasing the cash dividend
is more in keeping with the interests of Charter Ones shareholders.

24



---



##### Table of Contents






ITEM 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits: See Index to Exhibits.                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Reports on Form 8-K: On April 16, 2003, the Company filed a report on Form
8-K containing its earnings release dated April 16, 2003.                                                                       
|   
|    |  | On April 29, 2003, the Company filed a report on Form 8-K containing its
presentation materials for the UBS Warburg 2003 Global Financial Services
Conference in New York, New York held on April 29, 2003.




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 14, 2003 |  | /s/ Charles John Koch                                                                                                                       
|      |  |                 |  | Charles John Koch
Chairman of the Board, President and Chief
Executive Officer
(Duly Authorized Officer and Principal
Executive Officer)    
|     
|Date: |  | August 14, 2003 |  | /s/ Richard W. Neu                                                                                                                          
|      |  |                 |  | Richard W. Neu
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)

25



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##### Table of Contents






INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.1     |  | Registrants Second Restated Certificate of Incorporation, as amended and currently in effect, filed
as Exhibit 3.1 to Registrants Report on Form 10-K for the fiscal year ended December 31, 2000 (File
No. 001-15495), is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3.2     |  | Registrants Bylaws, as amended and restated and currently in effect, filed as Exhibit 3.2 to
Registrants Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 001-15495),
is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.1     |  | Form of Certificate of Common Stock, as currently in effect, filed as Exhibit 4.1 to Registrants
Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 001-15495), is
incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.2     |  | Amended and Restated Stockholder Protection Rights Agreement, dated October 20, 1999, between the
Company and Fleet National Bank (f/k/a BankBoston, N.A.), as rights agent, filed as Exhibit 2 to the
Companys Registration Statement on Form 8-A/A filed on October 30, 1999 (File No. 001-15495), is
incorporated herein by reference.                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.3     |  | The Registrant hereby agrees to furnish to the Securities and Exchange Commission, upon request,
with copies of all instruments defining rights of holders of long-term debt of Charter One and its
consolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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. 000-16311) 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. 000-16311), are incorporated herein by reference.                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.5    |  | 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.                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.6    |  | 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 filed as Exhibit
10.7 to the Registrants Report on Form 10-K for the fiscal year
ended December 31, 1998 (File No. 000-16311), is incorporated
herein by reference. 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.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.7    |  | Amended and Restated Employment Agreements, effective August 1, 1999, between Charter One Financial,
Inc. and Charles John Koch, Richard W. Neu, John D. Koch, Mark D. Grossi, and Robert J. Vana filed
as Exhibit 10.8 to Registrants Report on Form 10-K for the fiscal year ended December 31, 1999
(File No. 000-16311), is incorporated herein by reference.                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.8    |  | Alliance Bancorp 1997 Long-Term Incentive Stock Benefit Plan, filed as an attachment to the proxy
statement for the annual meeting of stockholders of Alliance held on May 28, 1997 (File No.
000-20082), is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.9    |  | Hinsdale Financial Corporation 1994 Incentive Stock Option Plan, filed as an attachment to the proxy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

26



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##### Table of Contents



|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                            
|        |  | statement for the annual meeting of stockholders of Alliance held on February 8, 1995 (File No.
000-20082), is incorporated herein by reference.                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.10   |  | Hinsdale Financial Corporation 1992 Stock Option Plan
for Outside Directors and the Hinsdale Financial Corporation 1992
Incentive Stock Option Plan, filed as attachments to the proxy
statement for the annual meeting of stockholders of Alliance held
on February 10, 1993 (File No. 000-20082) is incorporated herein
by reference.
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.11   |  | Charter One Financial, Inc. 1997 Stock Option and Incentive Plan, as amended and restated, filed as
Exhibit 10.13 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(File No. 001-15495), is incorporated herein by reference.                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.12   |  | 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.                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.13   |  | 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.                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.14   |  | The RCSB Financial, Inc. Non-Employee Director Deferred
Compensation Plan, as amended and restated on December 1, 1998,
filed as Exhibit 10.16 to Registrants Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (File No. 000-16311),
is incorporated herein by reference.                                       
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.15   |  | 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. 000-19843),
is incorporated herein by reference.                                               
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.16   |  | 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. 000-19843), is incorporated herein by reference.                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.17   |  | 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 (File No. 001-19843), is
incorporated herein by reference.                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.18   |  | Employment Agreement, dated November 30, 1998, between Charter One Financial, Inc. and Herbert G.
Chorbajian, filed as Exhibit 10.20 to Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (File No. 000-16311), is incorporated herein by reference.                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.19   |  | 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), is incorporated herein by reference.                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.20   |  | Charter One Bank, N.A.s Director Non-Stock Deferred
Compensation Plan, filed as Exhibit 10.20 to the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
2002 (File No. 001-15495), is incorporated herein by reference.                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.21   |  | Charter One Bank, N.A.s Non-Stock Deferred Compensation Plan, filed as Exhibit 10.21 to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No.
001-15495), is incorporated herein by reference.                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.22   |  | Charter One Bank, N.A.s Stock Deferred Compensation Plan, filed as Exhibit 10.22 to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No.
001-15495), is incorporated herein by reference.                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.23   |  | Master Trust Agreement for Charter One Financial, Inc. Deferred Compensation Plans, filed as Exhibit
10.23 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2002
(File No. 001-15495), is incorporated herein by reference.                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.24   |  | Amendment No. 1 to the amended and restated Charter One Financial, Inc. 1997 Stock Option and
Incentive Plan, filed as Exhibit 10.24 to the Registrant" Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 (File No. 001-15495), is incorporated herein by reference.                                              

27



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##### Table of Contents



|               |  |                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------
|EXHIBIT
NUMBER |  | DESCRIPTION                                                                                       
|11             |  | Statement Regarding Computation of Per Share Earnings                                             
|               |  |                                                                                                   
|31.1           |  | Certification Required by Securities Exchange Act of 1934 Rule 13a-14(a) (Chief Executive Officer)
|               |  |                                                                                                   
|31.2           |  | Certification Required by Securities Exchange Act of 1934 Rule 13a-14(a) (Chief Financial Officer)
|               |  |                                                                                                   
|32             |  | Certifications Required by Section 1350 of Title 18 of the United States Code                     
|               |  |                                                                                                   

28