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RCSB, CHARTER ONE STOCKHOLDERS APPROVE MERGER

The new owners of the RCSB Financial Inc. franchise are acting like a new father -- more than willing to show off their new addition.

And to do that, Cleveland-based Charter One Financial Inc. is prepared to:

Beef up retail operations at the 38 Rochester Community Savings Bank branches in Buffalo and Rochester.

Introduce a host of new and varied products, both for individuals and businesses.

Generally make its presence felt immediately in its two newest markets.

In a word, Charter One will be aggressive, much like RCSB was in 1990 when it entered the Buffalo market prepared to fill the void left by Empire of America, which had gone out of business, and Goldome, which was about to follow suit.

"We would love to grow in Western New York," said Mark D. Grossi, Charter One senior vice president and the man in charge of the entire retail operation for its subsidiary, Charter One Bank FSB.

"We're very serious in growing our retail deposit base and if it makes sense, we would add branches," he said. "We also will be adding substantially to our loan originators and will be putting originators into our retail branches."

Grossi was in Rochester Friday to attend RCSB's special shareholders meeting to formally approve the merger of RCSB into Charter One. The transaction was approved simultaneously by Charter One shareholders some 300 miles away in Cleveland.

Leonard Simon, who had been RCSB chairman and is now Charter One vice chairman, reaffirmed to shareholders what he originally had said when the deal was first announced in May: The combination makes sense.

"We consider this an excellent fit; Charter One has products which allow RCSB to expand its customer offerings," Simon said. Business lending and commercial mortgage lending are among those products.

The Cleveland thrift acquires an institution that has established an extremely strong reputation in mortgage banking and indirect automobile lending.

Since RCSB went public in 1986, its mortgage banking operation has grown its mortgage servicing portfolio from a few hundred million to more than $8 billion. The operation, which has changed its name locally to the familiar Rochester Community Savings Bank from American Home Funding, now originates about $2 billion in mortgages from 58 offices east of the Mississippi River.

American Credit Services Inc., RCSB's auto lending operation, contributes well over $1 billion to the thrift's total loan portfolio.

Still, Charter One, which considers itself a retail-oriented bank, liked the look of RCSB's retail, branch-oriented operation. Auto lending and mortgage banking were just deal sweeteners.

"We were attracted just looking at the bank itself," Grossi said. "We bought the bank, which had two other successful pieces."

When announced in May, the deal, in which 0.91 tax-free shares of Charter One (worth $42.42 per common share) would be exchanged for each RCSB common share, was valued at about twice RCSB's book value and 16 times the thrift's pervious 12-month earnings. Those figures were close to median values for deals made in 1996, according to SNL Securities Research. The deal was valued at $635 million.

However, since the announcement Wall Street obviously has signaled its support for the merger. At today's current Charter One price per share of roughly $63, the deal's value has ballooned to the $837 million range, or roughly 2.6 times book and 22 times trailing 12-month earnings.

"The only way to really tell how the deal works out for Charter One is to take a look three years down the road," said Kevin Timmons, a banking analyst with First Albany Corp. "But everyone in this deal does pretty well; I really can't see how anyone really loses."

One of the saving pieces of the deal is that Charter One is entering what to it is a brand new market. Thus, there is no branch overlap -- and no staffing overlap in the branches. Back-office operations will be transferred to Cleveland from Rochester and the fate of RCSB's two downtown Rochester office buildings remains up in the air, although it's believed the firm's Main and Franklin facility will remain in Charter One's hands.

"It's not like Charter One is lining all of the employees up and picking every other one to get rid of," Timmons said. "They didn't buy the franchise to pillage it; they bought it to build on."

Grossi said Charter One was so impressed with RCSB's mortgage servicing operation that the acquirer is shipping its $8.16 billion residential loan servicing portfolio to Richmond, Va., headquarters of American Home Funding.

Coinciding with Charter One's takeover, the thrift has named former RCSB Executive Vice President Edward J. Pettinella president of Charter One Bank's Western Division and an executive vice president with the parent firm.

"It always helps to have management in place when you make an acquisition," Grossi said.

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