10-Q

TABLE OF CONTENTS

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. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 – Computation of Per Share Earnings
SIGNATURES
EXHIBIT 11 - Computation of Per Share Data

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

FORM 10-Q

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

For the quarterly period ended June 30, 2001

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        

The number of shares outstanding of the registrant’s sole class of common stock as of July 31, 2001 was 214,166,353.

TABLE OF CONTENTS

Item
Number			Page
		PART I — FINANCIAL STATEMENTS
1.	Financial Statements
		Consolidated Statements of Financial Condition — June 30, 2001 and December 31, 2000		1
		Consolidated Statements of Income — Three and six months ended June 30, 2001 and 2000		2
		Consolidated Statements of Cash Flows — Six months ended June 30, 2001 and 2000		3
		Notes to Consolidated Financial Statements		4
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			5
3.	Quantitative and Qualitative Disclosure About Market Risk			20
		PART II – OTHER INFORMATION
4.	Submission of Matters to a Vote of Security Holders			20
5.	Other Information			21
6.	Exhibits and Reports on Form 8-K			21
Signatures				21

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

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

				6/30/01			12/31/00
				(Dollars in thousands,
				except per share data)
ASSETS
Cash and deposits with banks				$	608,420		$	530,771
Federal funds sold and other					13,161			486
		Total cash and cash equivalents			621,581			531,257
Investment securities:
	Available for sale				109,298			426,701
	Held to maturity (fair value of $7,024 and $22,671)				6,827			22,514
Mortgage-backed securities:
	Available for sale				5,621,148			4,087,196
	Held to maturity (fair value of $1,304,095 and $1,531,525)				1,268,993			1,506,175
Loans and leases, net					24,337,829			23,950,172
Loans held for sale					198,491			58,002
Bank owned life insurance					753,840			743,509
Federal Home Loan Bank stock					572,857			568,377
Premises and equipment					334,057			323,911
Accrued interest receivable					156,732			165,990
Real estate and other collateral owned					39,537			27,731
Loan servicing assets					134,286			121,735
Goodwill					164,227			172,411
Other assets					227,517			265,746
		Total assets		$	34,547,220		$	32,971,427
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
	Checking accounts			$	5,101,776		$	3,941,912
	Money market accounts and savings accounts				6,375,715			5,486,158
	Certificates of deposit				9,642,507			10,177,601
			Total deposits		21,119,998			19,605,671
Federal Home Loan Bank advances					9,384,710			9,636,277
Reverse repurchase agreements					171,636			262,326
Other borrowings					292,504			284,808
Advance payments by borrowers for taxes and insurance					54,120			60,761
Accrued interest payable					91,419			54,499
Accrued expenses and other liabilities					865,265			610,881
			Total liabilities		31,979,652			30,515,223
Shareholders’ equity:
	Preferred stock — $.01 par value per share; 20,000,000 shares authorized and unissued				—			—
	Common stock — $.01 par value per share; 360,000,000 shares authorized; 212,681,891 and 212,684,698 shares issued				2,127			2,127
	Additional paid-in capital				1,751,959			1,745,232
	Retained earnings				916,326			786,793
	Less 5,571,193 and 4,456,293 shares of common stock held in treasury at cost				(141,622	)		(100,545	)
	Borrowings of employee investment and stock ownership plan				(628	)		(1,256	)
	Accumulated other comprehensive income				39,406			23,853
			Total shareholders’ equity		2,567,568			2,456,204
			Total liabilities and shareholders’ equity	$	34,547,220		$	32,971,427

See Notes to Consolidated Financial Statements

1

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

			Three Months Ended				Six Months Ended
			6/30/01		6/30/00		6/30/01		6/30/00
			(Dollars in thousands, except per share data)
Interest income:
	Loans and leases		$	458,851	$	447,109	$	925,518	$	875,219
	Mortgage-backed securities:
		Available for sale		84,613		50,065		167,337		105,539
		Held to maturity		23,283		30,908		49,570		63,262
	Investment securities:
		Trading		—		—		—		38
		Available for sale		2,216		8,202		5,052		17,213
		Held to maturity		91		420		236		844
	Other interest-earning assets			10,888		8,894		21,505		17,553
		Total interest income		579,942		545,598		1,169,218		1,079,668
Interest expense:
	Deposits			216,327		181,668		430,784		361,923
	FHLB advances			128,186		125,425		263,933		239,124
	Other borrowings			7,758		6,472		17,349		13,585
		Total interest expense		352,271		313,565		712,066		614,632
		Net interest income		227,671		232,033		457,152		465,036
Provision for loan and lease losses				17,076		11,509		34,804		20,107
		Net interest income after provision for loan and lease losses		210,595		220,524		422,348		444,929
Other income:
	Retail banking			72,130		61,760		139,499		113,498
	Mortgage banking			8,830		14,238		18,310		27,953
	Leasing operations			331		10,394		1,538		11,992
	Net gains			25,580		3,064		41,674		6,611
	Other			9,785		9,441		19,634		21,461
		Total other income		116,656		98,897		220,655		181,515
Administrative expenses:
	Compensation and employee benefits			65,438		71,215		133,537		141,479
	Net occupancy and equipment			26,314		25,351		53,175		49,915
	Federal deposit insurance premiums			932		1,001		1,848		2,006
	Merger expenses			115		20,845		115		24,103
	Amortization of goodwill			4,039		4,046		8,078		8,090
	Other administrative expenses			53,985		45,071		101,656		84,664
		Total administrative expenses		150,823		167,529		298,409		310,257
Income before income taxes				176,428		151,892		344,594		316,187
Income taxes				56,016		48,605		109,392		101,191
		Net income	$	120,412	$	103,287	$	235,202	$	214,996
Basic earnings per share(1)			$	.58	$	.47	$	1.13	$	.98
Diluted earnings per share(1)			$	.57	$	.47	$	1.11	$	.97
Average common shares outstanding(1):
	Basic			207,439,620		217,603,358		207,933,717		218,749,861
	Diluted			212,744,261		221,643,977		213,155,001		222,165,967
Cash dividends declared per share(1)			$	.20	$	.17	$	.38	$	.32

(1) Restated to reflect the 5% stock dividend issued September 30, 2000.

See Notes to Consolidated Financial Statements

2

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

				Six Months Ended
				6/30/01			6/30/00
				(Dollars in thousands)
Cash flows from operating activities:
	Net income			$	235,202		$	214,996
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan and lease losses			34,804			20,107
		Net gains			(45,065	)		(6,094	)
		Accretion of discounts, amortization of premiums, amortization of goodwill and depreciation, net			51,939			58,296
		Origination of loans held for sale			(759,925	)		(201,523	)
		Proceeds from sale of loans held for sale			762,967			201,070
		Proceeds from investment securities held for trading			—			13,418
		Increase (decrease) in accrued interest payable			36,920			(41,186	)
		Other			285,988			162,172
			Net cash provided by operating activities		602,830			421,256
Cash flows from investing activities:
	Net principal disbursed on loans and leases				(3,753,417	)		(2,677,535	)
	Proceeds from principal repayments and maturities of:
		Mortgage-backed securities held to maturity			237,631			196,462
		Mortgage-backed securities available for sale			471,215			126,349
		Investment securities held to maturity			15,946			3,401
		Investment securities available for sale			323,393			54,999
	Proceeds from sale of:
		Mortgage-backed securities available for sale			1,893,114			1,796,393
		Investment securities available for sale			5,104			12,713
		Federal Home Loan Bank stock			6,353			17,624
	Purchase of:
		Mortgage-backed securities available for sale			(652,086	)		—
		Investment securities available for sale			(4,080	)		(10,696	)
		Loans			(11,723	)		(7,906	)
		Loan servicing assets, including those originated			(25,778	)		(16,605	)
		Federal Home Loan Bank stock			—			(50,735	)
		Other			(52,643	)		(21,547	)
			Net cash used in investing activities		(1,546,971	)		(577,083	)
Cash flows from financing activities:
	Net increase (decrease) in short-term borrowings				(340,690	)		1,159,760
	Proceeds from long-term borrowings				517,177			555,057
	Repayments of long-term borrowings				(509,762	)		(983,217	)
	Increase (decrease) in deposits				1,514,400			(505,309	)
	Increase (decrease) in advance payments by borrowers for taxes and insurance				(6,641	)		3,475
	Payment of dividends on common stock				(78,804	)		(71,005	)
	Proceeds from issuance of common stock				31,829			9,452
	Purchase of treasury stock				(93,044	)		(173,812	)
		Net cash provided by (used in) financing activities			1,034,465			(5,599	)
Net increase (decrease) in cash and cash equivalents					90,324			(161,426	)
Cash and cash equivalents, beginning of the period					531,257			693,532
Cash and cash equivalents, end of period				$	621,581		$	532,106
Supplemental disclosure of cash flow information:
	Cash paid for interest on deposits and borrowings			$	858,057		$	656,109
	Cash paid for income taxes				—			6,000
Supplemental schedule of noncash activities:
	Loans exchanged for mortgage-backed securities				3,190,525			1,471,076

See Notes to Consolidated Financial Statements

3

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

1.	These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Charter One Financial, Inc. (the “Company” or “Charter One”) Annual Report on Form 10-K for the year ended December 31, 2000. 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.	As of the close of business on July 2, 2001, Charter One completed its acquisition of Alliance Bancorp (“Alliance”), the holding company of Liberty Federal Bank in Hinsdale, Illinois. At June 30, 2001, Alliance had assets of $2.0 billion and deposits of $1.3 billion. Charter One issued 6.9 million shares in conjunction with the merger, and paid $50.2 million in cash consideration. The merger will be treated as a tax-free reorganization under Section 368 of the Internal Revenue Code and accounted for as a purchase under the new business combinations standards discussed in Note 6 below.
3.	Charter One has one operating segment, consumer banking, which offers a wide array of products and services to its customers. Pursuant to its consumer banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, Charter One prefers to work 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.
4.	Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires that all derivative instruments be reported on the statement of financial condition at fair value and establishes criteria for designation and effectiveness of hedging relationships. The cumulative effect of adopting SFAS No. 133 was not material to the Company’s consolidated financial statements. Management does not anticipate that SFAS No. 133 will significantly increase the volatility of earnings or shareholders’ equity reported in future periods.
5.	In September 2000, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125.” SFAS No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS No. 140 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. In addition to replacing SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” SFAS No. 140 rescinds SFAS No. 127 “Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125.” SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is to be applied prospectively with certain exceptions. The adoption of SFAS No. 140 did not have a material impact on the Company’s financial condition or results of operations.
6.	In July 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” These statements will change the accounting for business combinations and goodwill. SFAS No. 141 will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142 will change the accounting for goodwill and certain intangible assets from an amortization method to an impairment-only approach. Any goodwill arising from the result of business combinations initiated after June 30, 2001 will not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, goodwill and certain intangible assets must be tested for impairment and write-downs may be necessary. Additionally, amortization of goodwill recorded for past business combinations will cease upon adoption of SFAS No. 142 on January 1, 2002. Management expects the annual benefit associated with the elimination of goodwill amortization to be $10.5 million after tax, or $.05 per diluted share.
7.	Certain items in the consolidated financial statements for 2000 have been reclassified to conform to the 2001 presentation.

4

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

HOLDING COMPANY BUSINESS

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

General

Headquartered in Cleveland, Ohio, Charter One Financial, Inc., hereafter referred to as “Charter One” or the “Company,” is a financial holding company. Charter One is a Delaware corporation and owns all of the outstanding capital stock of Charter Michigan Bancorp, Inc. and Charter One Commercial. Charter Michigan Bancorp, Inc. owns all of the outstanding capital stock of Charter One Bank, F.S.B., a federally chartered thrift. The primary business of Charter One is operating these financial institutions which we sometimes refer to in this document collectively as the “Bank.” The Bank’s primary business is providing consumer banking services to certain major markets in Ohio, Michigan, Illinois, New York, Vermont and in some markets of Massachusetts. As of June 30, 2001, the Bank and its subsidiaries were doing business through 423 full-service branches and 29 loan production offices.

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 by Charter One and its management may contain, forward-looking statements about Charter One and its subsidiaries which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, including revenue creation, lending origination, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, acquisition and divestiture opportunities, and synergies, efficiencies, cost savings and funding advantages expected to be realized from prior acquisitions. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify these forward-looking statements.

The important factors we discuss 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.

The following factors, many of which are subject to change based on various other factors beyond our control, could cause our operating and financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements:

• 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 loan assets;

• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

• inflation, interest rate, market and monetary fluctuations;

• the timely development of and acceptance of new products and services of Charter One and its subsidiaries 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 willingness of users to substitute competitors’ products and services for our products and services;

• our success in gaining regulatory approval of our products and services, when required;

• the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); legislative or regulatory changes may adversely affect the business in which we are engaged;

5

• the impact of technological changes;

• acquisitions;

• changes in consumer spending and saving habits; and

• our success at managing the risks involved in the foregoing.

Forward-looking statements by Charter One and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management as of the date made and are not guarantees of future performance. 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

Charter One reported net income of $120.4 million, or $.57 per diluted share, for the three months ended June 30, 2001, compared to net income of $103.3 million, or $.47 per diluted share, for the three months ended June 30, 2000. Both periods included merger-related charges. Excluding the after-tax impact of merger-related charges, our net income resulted in a return on average equity of 18.71% and a return on average assets of 1.42% for the three months ended June 30, 2001. The comparable returns for the second quarter of 2000 were 19.08% and 1.51%, respectively.

For the six months ended June 30, 2001, Charter One reported net income of $235.2 million, or $1.11 per diluted share, compared to net income of $215.0 million, or $.97 per diluted share, for the six months ended June 30, 2000. Both periods included merger-related charges. Excluding the after-tax impact of merger-related charges, our net income resulted in a return on average equity of 18.50% and a return on average assets of 1.40% for the six months ended June 30, 2001. The comparable returns for the 2000 period were 18.84% and 1.51%, respectively.

Figure 1 sets forth financial results and annualized performance ratios for the three and six months ended June 30, 2001 and 2000. The table reflects these financial results and ratios on both an actual and operating return basis. Operating earnings and returns are computed using net income excluding the after-tax impact of merger-related charges. Per share data has been restated to reflect the 5% stock dividend issued September 30, 2000.

Selected Financial Results and Ratios (Figure 1)

		Three Months Ended						Six Months Ended
		6/30/01			6/30/00			6/30/01			6/30/00
		(Dollars in thousands, except per share data)
Actual:
	Net income	$	120,412		$	103,287		$	235,202		$	214,996
	Diluted earnings per share		.57			.47			1.11			.97
	Return on average assets		1.42	%		1.33	%		1.40	%		1.40	%
	Return on average equity		18.70			16.78			18.49			17.51
	Average equity to average assets		7.60			7.91			7.56			8.00
	Net interest income to administrative expenses		1.51	x		1.39	x		1.53	x		1.50	x
	Administrative expenses to average assets		1.78	%		2.15	%		1.77	%		2.02	%
	Efficiency ratio		42.63			49.86			42.83			47.22
Operating:
	Operating earnings	$	120,490		$	117,462		$	235,280		$	231,289
	Operating earnings per share		.57			.53			1.11			1.04
	Return on average assets		1.42	%		1.51	%		1.40	%		1.51	%
	Return on average equity		18.71			19.08			18.50			18.84
	Net interest income to administrative expenses		1.51	x		1.58	x		1.53	x		1.63	x
	Administrative expenses to average assets		1.78	%		1.88	%		1.77	%		1.86
	Efficiency ratio		42.60			43.50			42.82			43.45

6

Net Interest Income

Net interest income is the difference between the interest and dividend income earned on our loans and investments and the interest expense on our deposits and borrowings. Net interest income is our principal source of earnings. Net interest income is affected by a number of factors including the level, pricing and maturity of interest-earning assets and interest-bearing liabilities, interest rate fluctuations and asset quality, as well as general economic conditions and regulatory policies.

The following table shows average balances, interest earned or paid, and average interest rates for the periods indicated. Average balances are calculated on a daily basis. Nonaccrual loans are included in the average balance of loans. The mark-to-market adjustments on securities available for sale are included in noninterest-earning assets. The cost of liabilities includes the annualized effect of interest rate risk management instruments.

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

				Three Months Ended
				6/30/01								6/30/00
									Avg.								Avg.
				Average					Yield/			Average					Yield/
				Balance			Interest		Cost			Balance			Interest		Cost
									(Dollars in thousands)
Interest-earning assets:
	Loans and leases			$	24,545,830		$	458,851		7.48	%	$	23,716,364		$	447,109		7.55	%
	Mortgage-backed securities:
		Available for sale			4,987,864			84,613		6.79			2,765,608			50,065		7.24
		Held to maturity			1,320,154			23,283		7.05			1,745,421			30,908		7.08
	Investment securities:
		Trading			—			—		—			—			—		—
		Available for sale			114,039			2,216		7.77			452,191			8,202		7.26
		Held to maturity			7,234			91		5.00			29,143			420		5.77
	Other interest-earning assets				636,982			10,888		6.76			489,180			8,894		7.19
			Total interest-earning assets		31,612,103			579,942		7.34			29,197,907			545,598		7.48
Allowance for loan and lease losses					(192,922	)							(183,514	)
Noninterest-earning assets					2,466,163								2,136,747
			Total assets	$	33,885,344							$	31,151,140
Interest-bearing liabilities:
	Deposits:
		Checking accounts		$	4,515,967			24,371		2.16	%	$	3,674,891			13,376		1.46	%
		Money market and savings accounts			6,293,361			58,149		3.71			5,487,480			41,978		3.08
		Certificates of deposit			9,708,127			133,807		5.53			9,607,596			126,314		5.29
			Total deposits		20,517,455			216,327		4.23			18,769,967			181,668		3.89
	FHLB advances				9,411,921			128,186		5.46			8,959,241			125,425		5.62
	Other borrowings				427,597			7,758		7.23			309,641			6,472		8.33
			Total borrowings		9,839,518			135,944		5.54			9,268,882			131,897		5.71
			Total interest-bearing liabilities		30,356,973			352,271		4.65			28,038,849			313,565		4.49
Noninterest-bearing liabilities					952,391								649,547
			Total liabilities		31,309,364								28,688,396
Shareholders’ equity					2,575,980								2,462,744
			Total liabilities and shareholders’ equity	$	33,885,344							$	31,151,140
Net interest income							$	227,671							$	232,033
Interest rate spread										2.69								2.99
Net yield on average interest-earning assets										2.88								3.18
Average interest-earning assets to average interest-bearing liabilities										104.13	%							104.13	%

7

				Six Months Ended
				6/30/01								6/30/00
									Avg.								Avg.
				Average					Yield/			Average					Yield/
				Balance			Interest		Cost			Balance			Interest		Cost
									(Dollars in thousands)
Interest-earning assets:
	Loans and leases			$	24,480,418		$	925,518		7.58	%	$	23,305,600		$	875,219		7.52	%
	Mortgage-backed securities:
		Available for sale			4,820,338			167,337		6.94			2,952,867			105,539		7.15
		Held to maturity			1,382,697			49,570		7.17			1,794,968			63,262		7.05
	Investment securities:
		Trading			—			—		—			368			38		20.56
		Available for sale			129,511			5,052		7.80			468,654			17,213		7.35
		Held to maturity			8,854			236		5.33			32,412			844		5.21
	Other interest-earning assets				615,850			21,505		6.95			495,250			17,553		7.01
			Total interest-earning assets		31,437,668			1,169,218		7.45			29,050,119			1,079,668		7.44
Allowance for loan and lease losses					(190,308	)							(184,330	)
Noninterest-earning assets					2,381,222								1,838,397
			Total assets	$	33,628,582							$	30,704,186
Interest-bearing liabilities:
	Deposits:
		Checking accounts		$	4,238,427			43,302		2.06	%	$	3,553,099			24,962		1.41	%
		Money market and savings accounts			6,078,657			110,196		3.66			5,382,067			77,798		2.91
		Certificates of deposit			9,835,645			277,286		5.69			9,942,252			259,163		5.24
			Total deposits		20,152,729			430,784		4.31			18,877,418			361,923		3.86
	FHLB advances				9,614,742			263,933		5.53			8,754,401			239,124		5.49
	Other borrowings				479,098			17,349		7.22			346,663			13,585		7.81
			Total borrowings		10,093,840			281,282		5.61			9,101,064			252,709		5.57
			Total interest-bearing liabilities		30,246,569			712,066		4.75			27,978,482			614,632		4.41
Noninterest-bearing liabilities					838,351								270,184
			Total liabilities		31,084,920								28,248,666
Shareholders’ equity					2,543,662								2,455,520
			Total liabilities and shareholders’ equity	$	33,628,582							$	30,704,186
Net interest income							$	457,152							$	465,036
Interest rate spread										2.70								3.03
Net yield on average interest-earning assets										2.91								3.20
Average interest-earning assets to average interest-bearing liabilities										103.94	%							103.83	%

8

Figure 3 sets forth the approximate relative contribution of changes in average interest rates and volume to changes in net interest income for the periods indicated. Changes not solely attributable to volume or rate have been allocated in proportion to the changes due to volume and rate.

Rate/Volume Analysis (Figure 3)

					Three Months Ended June 30,									Six Months Ended June 30,
					2001 v. 2000									2001 v. 2000
					Increase (decrease) due to									Increase (decrease) due to
					Rate			Volume			Total			Rate			Volume			Total
					(Dollars in thousands)
Interest income:
	Loans and leases				$	(5,464	)	$	17,206		$	11,742		$	2,800		$	47,499		$	50,299
	Mortgage-backed securities:
		Available for sale				(3,334	)		37,882			34,548			(3,114	)		64,912			61,798
		Held to maturity				(125	)		(7,500	)		(7,625	)		1,071			(14,763	)		(13,692	)
	Investment securities:
		Trading				—			—			—			(38	)		—			(38	)
		Available for sale				547			(6,533	)		(5,986	)		1,007			(13,168	)		(12,161	)
		Held to maturity				(47	)		(282	)		(329	)		20			(628	)		(608	)
	Other interest-earning assets					(559	)		2,553			1,994			(261	)		4,213			3,952
			Total			(8,982	)		43,326			34,344			1,485			88,065			89,550
Interest expense:
	Checking accounts					7,451			3,544			10,995			12,883			5,457			18,340
	Money market and savings accounts					4,970			11,201			16,171			10,735			21,663			32,398
	Certificates of deposit					6,156			1,337			7,493			20,921			(2,798	)		18,123
	FHLB advances					(3,539	)		6,300			2,761			1,224			23,585			24,809
	Other borrowings					(180	)		1,466			1,286			18			3,746			3,764
				Total		14,858			23,848			38,706			45,781			51,653			97,434
Change in net interest income					$	(23,840	)	$	19,478		$	(4,362	)	$	(44,296	)	$	36,412		$	(7,884	)

Our net interest income for the three months ended June 30, 2001 was $227.7 million, a decrease of $4.4 million from the three months ended June 30, 2000. The net yield on average interest-earning assets during the second quarter of 2001 declined to 2.88% from 3.18% for the comparable period of 2000, reflecting the increase in interest rates during 2000 and our liabilities repricing more quickly than our assets. However, as illustrated in Figure 4, the net yield on interest-earning assets at June 30, 2001 improved to 3.00% from 2.91% at December 31, 2000. This expansion in net yield on interest-earning assets at the end of the second quarter of 2001 was the result of the current declining interest rate environment combined with growth in higher-yielding, shorter-term consumer and commercial loans, as well as increases in our core deposits (checking, money market and savings accounts) which generally have lower interest expense than certificates of deposit and other borrowings. See Figure 6 for a summary of our loan and lease originations and Figure 11 for the composition of our deposits.

Our net interest income for the six months ended June 30, 2001 was $457.2 million, a decrease of $7.9 million from the six months ended June 30, 2000. The net yield on average interest-earning assets during the six months ended June 30, 2001 declined to 2.91% from 3.20% for the comparable period of 2000. See the above paragraph for further discussion on our net yield.

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

9

Yields and Costs at End of Period (Figure 4)

					6/30/01			12/31/00
	Weighted average yield:
		Real estate loans				7.33	%		7.49	%
		Retail consumer loans				7.18			7.86
		Automobile loans				8.45			8.67
		Consumer finance				8.41			8.91
		Leases(1)				6.22			6.33
		Corporate banking loans				7.47			8.89
			Total loans and leases			7.43			7.73
		Mortgage-backed securities				6.73			7.29
		Investment securities				7.90			7.40
		Other interest-earning assets				7.13			7.46
				Total interest-earning assets		7.27			7.64
	Weighted average cost(2):
		Checking accounts				2.15			1.73
		Money market and savings accounts				3.14			3.29
		Certificates of deposit				5.52			5.93
			Total deposits			3.99			4.35
	FHLB advances					5.39			5.86
	Other borrowings					6.84			7.21
				Total interest-bearing liabilities		4.46			4.89
Interest rate spread						2.81			2.75
Net yield on interest-earning assets						3.00			2.91

(1)	Excludes impact of related tax benefits.
(2)	Includes the annualized effect of interest rate risk management instruments.

Other Income

Other income for the three months ended June 30, 2001 was $116.7 million, an increase of $17.8 million, or 18.0%, over the $98.9 million for the three months ended June 30, 2000. The increase was primarily attributable to income from retail banking and net gains on sales. Retail banking income increased $10.4 million, or 16.8%, over the comparable period in 2000. Growth in income from retail banking was attributed to successful integration of past mergers together with ongoing franchise development initiatives. Net gains on sales totaled $25.6 million for the second quarter of 2001, an increase of $22.5 million over the second quarter of 2000. The mortgage-backed securities sold during the quarter were comprised primarily of seasoned one-to-four family mortgages originated by the Bank. These increases in retail banking income and net gains on sales were partially offset by decreases in income from leasing operations and mortgage banking. Income from leasing operations decreased $10.1 million for the second quarter of 2001, as the comparable period of 2000 included the benefit realized from residual values associated with certain lease terminations. The decrease in mortgage banking income of $5.4 million resulted primarily from a $4.0 million increase to the valuation allowance for loan servicing assets.

Other income for the six months ended June 30, 2001 was $220.7 million, an increase of $39.1 million, or 21.6%, over the $181.5 million for the six months ended June 30, 2000. Retail banking income increased $26.0 million, or 22.9%, over the comparable period in 2000. Net gains on sales totaled $41.7 million for the six months ended June 30, 2001, an increase of $35.1 million over the comparable 2000 period. These increases in retail banking income and net gains on sales (discussed in the above paragraph) were partially offset by a $10.5 million decrease in income from leasing operations (discussed in the above paragraph) and a $9.6 million decrease in mortgage banking income. The decline in mortgage banking income resulted from the $4.0 million increase to the valuation allowance for loan servicing assets (discussed in the above paragraph), as well as reduced servicing income following our fourth quarter 2000 sale of $3.0 billion in mortgage servicing and increased amortization of loan servicing assets in the present interest rate environment.

Administrative Expenses

Administrative expenses were $150.8 million for the three months ended June 30, 2001, a decrease of $16.7 million, or 10.0%, as compared to the second quarter of 2000. Each year included merger-related expenses. There were $115,000 of merger-related expenses recorded in the three months ended June 30, 2001, and $20.8 million for the three months ended June 30, 2000. Excluding these merger-related charges, our administrative expenses were $150.7 million for the three months ended June 30, 2001, an increase of $4.0 million over the $146.7 million for the

10

three months ended June 30, 2000. The increase in administrative expenses was primarily attributed to higher marketing costs as we implemented various programs geared to support sales efforts throughout the Bank. Additionally, our loan origination costs increased as a result of our record loan production. See Figure 6 below for a summary of our loan and lease activity. Despite the increase in administrative expenses, our efficiency ratio improved to 42.60% for the three months ended June 30, 2001, compared to 43.50% for the three months ended June 30, 2000. The efficiency ratio is the ratio of administrative expenses, excluding goodwill amortization and merger-related charges, to net interest income and other income. See the above discussion in “Other Income” regarding factors that contributed to the improvement in our efficiency ratio.

Administrative expenses were $298.4 million for the six months ended June 30, 2001, a decrease of $11.8 million, or 3.8%, as compared to the 2000 period. Each year included merger-related expenses. There were $115,000 of merger-related expenses recorded in the six months ended June 30, 2001, and $24.1 million for the comparable period in 2000. Excluding these merger-related charges, our administrative expenses were $298.3 million for the six months ended June 30, 2001, an increase of $12.1 million over the $286.2 million for the six months ended June 30, 2000. The reasons for the increase in administrative expenses were substantially the same as for the second quarter results discussed in the above paragraph. Despite the increase in administrative expenses, our efficiency ratio improved to 42.82% for the six months ended June 30, 2001, compared to 43.45% for the comparable period in 2000. See the above discussion in “Other Income” regarding factors that contributed to the improvement in our efficiency ratio.

Federal Income Tax

Federal income tax expense for the three months ended June 30, 2001 was $56.0 million, compared to $48.6 million for the same period in 2000. 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 the 2001 period and 32.0% for the comparable 2000 period.

Federal income tax expense for the six months ended June 30, 2001 was $109.4 million, compared to $101.2 million for the same period in 2000. 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 31.7% for the 2001 period and 32.0% for the comparable 2000 period.

FINANCIAL CONDITION

Overview

At June 30, 2001, total assets were $34.5 billion, compared to total assets of $33.0 billion at December 31, 2000. Contributing to the increase in total assets was the growth in our mortgage-backed securities available for sale portfolio since December 31, 2000. This portfolio increased primarily due to $3.2 billion in residential loan securitizations that occurred during the six months ended June 30, 2001.

11

Loans and Leases

Composition of Loans and Leases (Figure 5)

					6/30/01			12/31/00
					(Dollars in thousands)
	One-to-four family:
		Permanent:
			Fixed rate		$	5,408,985		$	4,543,712
			Adjustable rate			3,935,194			5,989,120
		Construction				380,735			345,930
						9,724,914			10,878,762
	Commercial real estate:
		Multifamily				1,035,595			1,115,360
		Other				1,038,628			855,266
						2,074,223			1,970,626
	Consumer:
		Retail				5,454,166			4,631,476
		Automobile				3,625,418			3,151,084
		Consumer finance				1,073,648			988,879
						10,153,232			8,771,439
	Business:
		Leasing				1,937,747			1,778,021
		Corporate banking				844,582			798,942
						2,782,329			2,576,963
	Loans and leases before allowance for loan and lease losses					24,734,698			24,197,790
	Allowance for loan and lease losses					(198,378	)		(189,616	)
				Loans and leases, net(1)	$	24,536,320		$	24,008,174
Portfolio of loans serviced for others					$	12,115,754		$	10,379,644

(1) Includes loans held for sale.

Our loan and lease portfolio remains well-diversified. At June 30, 2001, 97% of our loans and leases were collateralized, with 67% backed by one-to-four family and multifamily real estate.

12

Loan and Lease Activity (Figure 6)

				Three Months Ended				Six Months Ended
				6/30/01		6/30/00		6/30/01		6/30/00
						(Dollars in thousands)
Originations:
Real estate:
	Permanent:
		One-to-four family		$	2,512,966	$	1,394,433	$	3,966,889	$	2,414,702
		Multifamily			5,650		9,374		19,676		14,256
		Commercial			65,775		52,613		126,581		109,537
			Total permanent loans		2,584,391		1,456,420		4,113,146		2,538,495
	Construction:
		One-to-four family			203,528		169,119		325,457		268,517
		Multifamily			32,327		34,299		70,514		43,863
		Commercial			19,207		19,130		105,423		52,784
			Total construction loans		255,062		222,548		501,394		365,164
			Total real estate loans originated		2,839,453		1,678,968		4,614,540		2,903,659
Retail consumer					1,135,388		617,864		1,719,733		1,039,279
Automobile					688,682		464,193		1,179,307		744,195
Consumer finance					68,657		96,421		125,362		165,538
Leases					111,288		203,137		256,125		307,499
Corporate banking					254,980		210,271		468,965		358,232
			Total loans and leases originated		5,098,448		3,270,854		8,364,032		5,518,402
Loans purchased					3,827		4,142		11,723		7,906
Sales and principal reductions:
	Loans sold				466,831		113,061		759,925		201,523
	Loans exchanged for mortgage-backed securities				1,768,191		1,471,076		3,190,525		1,471,076
	Principal reductions				2,306,019		1,382,508		3,903,345		2,622,033
			Total sales and principal reductions		4,541,041		2,966,645		7,853,795		4,294,632
			Increase before net items	$	561,234	$	308,351	$	521,960	$	1,231,676

Investment and Mortgage-Backed Securities

Figures 7 and 8 summarize our investment and mortgage-backed securities portfolios at June 30, 2001 and December 31, 2000. The amounts reflected represent the fair value of securities available for sale and the amortized cost of securities held to maturity.

Investment Securities (Figure 7)

				6/30/01			12/31/00
				(Dollars in thousands)
Available for Sale
	U.S. Treasury and agency securities			$	21,199		$	333,900
	Corporate notes and commercial paper				71,156			65,532
	Other				16,943			27,269
		Total investment securities available for sale			109,298			426,701
Held to Maturity
	U.S. Treasury and agency securities				—			15,000
	Other				6,827			7,514
		Total investment securities held to maturity			6,827			22,514
			Total	$	116,125		$	449,215
	Weighted average rate				7.90	%		7.40	%

13

Mortgage-Backed Securities (Figure 8)

					6/30/01			12/31/00
					(Dollars in thousands)
Available for Sale
	Participation certificates:
		Government agency issues:
			FNMA		$	3,876,863		$	2,985,852
			FHLMC			710,636			59,511
			GNMA			1,794			2,209
	Collateralized mortgage obligations:
		Government agency issues:
			FNMA			226,086			225,747
			FHLMC			292,931			292,232
			GNMA			4,849			6,015
		Private issues				507,989			515,630
			Total mortgage-backed securities available for sale			5,621,148			4,087,196
Held to Maturity
	Participation certificates:
		Government agency issues:
			FNMA			374,661			433,533
			FHLMC			131,959			154,502
			GNMA			71,794			84,603
		Private issues				113,087			128,407
	Collateralized mortgage obligations:
		Government agency issues:
			FNMA			179,212			202,283
			FHLMC			52,606			66,292
		Private issues				345,674			436,555
			Total mortgage-backed securities held to maturity			1,268,993			1,506,175
				Total	$	6,890,141		$	5,593,371
		Weighted average rate				6.73	%		7.29	%

14

Asset Quality

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

				Three Months Ended						Six Months Ended
				6/30/01			6/30/00			6/30/01			6/30/00
				(Dollars in thousands)
Allowance for loan and lease losses:
	Balance, beginning of period			$	192,991		$	185,267		$	189,616		$	186,400
	Provision for loan and lease losses				17,076			11,509			34,804			20,107
	Loans and leases charged off:
		One-to-four family			(357	)		(1,399	)		(1,362	)		(3,106	)
		Commercial real estate			(448	)		—			(483	)		(179	)
		Retail consumer			(1,694	)		(3,674	)		(3,649	)		(5,879	)
		Automobile			(8,794	)		(6,786	)		(18,780	)		(13,881	)
		Consumer finance			(2,537	)		(990	)		(4,594	)		(1,508	)
		Leases			(262	)		—			(262	)		—
		Corporate banking			(284	)		(313	)		(1,553	)		(436	)
			Total charge-offs		(14,376	)		(13,162	)		(30,683	)		(24,989	)
	Recoveries:
		One-to-four family			21			258			45			505
		Commercial real estate			4			57			5			59
		Retail consumer			499			563			920			747
		Automobile			1,678			1,515			3,044			3,100
		Consumer finance			77			1			128			17
		Leases			220			—			220			—
		Corporate banking			188			186			279			248
			Total recoveries		2,687			2,580			4,641			4,676
			Net loan and lease charge-offs		(11,689	)		(10,582	)		(26,042	)		(20,313	)
	Balance, end of period			$	198,378		$	186,194		$	198,378		$	186,194
	Net charge-offs to average loans and leases (annualized)				.19	%		.18	%		.21	%		.17	%

15

Figure 10 sets forth information concerning nonperforming assets for the periods reported. Nonperforming assets consist of (1) nonaccrual loans and leases, (2) loans and leases past due 90 days or more as to principal or interest, (3) restructured real estate mortgage loans and (4) real estate acquired through foreclosure and other collateral owned.

Nonperforming Assets (Figure 10)

					6/30/01			12/31/00
					(Dollars in thousands)
Nonperforming loans and leases:
	Nonaccrual loans and leases:
		Real estate mortgage loans:
			One-to-four family(1)		$	71,761		$	71,269
			Multifamily and commercial			5,566			8,132
			Construction and land			6,482			8,806
				Total real estate mortgage loans		83,809			88,207
		Retail consumer				14,565			11,120
		Automobile				47			130
		Consumer finance				58,255			48,673
		Leases				6,441			—
		Corporate banking				15,041			18,707
				Total nonaccrual loans and leases		178,158			166,837
	Accruing loans and leases delinquent more than 90 days:
		Real estate mortgage loans:
			One-to-four family			—			—
			Multifamily and commercial			—			—
			Construction and land			—			—
				Total real estate mortgage loans		—			—
		Retail consumer(1)				2,692			2,586
		Automobile				6,709			6,911
		Consumer finance				—			—
		Leases				412			2,956
		Corporate banking				2,076			2,086
				Total accruing loans and leases delinquent more than 90 days		11,889			14,539
	Restructured real estate mortgage loans					659			666
				Total nonperforming loans and leases		190,706			182,042
Real estate acquired through foreclosure and other collateral owned						36,500			27,523
				Total nonperforming assets		227,206			209,565
				Total government guaranteed loans		19,527			19,225
				Nonperforming assets net of government guaranteed loans	$	207,679		$	190,340
Ratio of:
	Nonperforming loans and leases to total loans and leases					.78	%		.76	%
	Nonperforming assets to total assets					.66			.64
	Allowance for loan and lease losses to:
		Nonperforming loans and leases				104.02			104.16
		Total loans and leases before allowance				.80			.78
Ratio of (excluding government guaranteed nonperforming loans):
	Nonperforming loans and leases to total loans and leases					.70			.68
	Nonperforming assets to total assets					.60			.58
	Allowance for loan and lease losses to:
		Nonperforming loans and leases				115.89			116.46
		Total loans and leases before allowance				.80			.78

(1) Includes government guaranteed loans.

Loans and leases not reflected in the table above, where known information about possible credit problems of borrowers caused management to have doubts as to the ability of the borrower to comply with present repayment terms and that may result in disclosure of such loans and leases in the future, totaled $91.6 million and $96.8 million at June 30, 2001 and December 31, 2000, respectively. The vast majority of these loans, as well as our nonperforming assets, are collateralized by real estate. As such, we would anticipate that any losses resulting from possible future charge-offs would be substantially less than the respective loan balances.

16

SOURCES OF FUNDS

General

Our principal sources of funds are deposits, advances from the Federal Home Loan Bank (“FHLB”) of Cincinnati, federal funds purchased and reverse repurchase agreements, repayments and maturities of loans and securities, proceeds from the sale of loans and securities, and funds provided by operations. Management also considers our interest-sensitivity profile when deciding on sources of funds. At June 30, 2001, our one-year gap was a negative 2.36% of total assets. See Part I, Item 3 “Quantitative and Qualitative Disclosure About Market Risk,” of this Form 10-Q regarding further information on our interest rate risk profile.

Deposits

Deposit flows are greatly influenced by economic conditions, the general level of interest rates and competition. We utilize particular sources of funds based on comparative costs and availability. We generally manage the pricing of deposits to maintain a steady deposit balance, but from time to time may decide not to pay rates on deposits as high as our competition and, when necessary, to supplement deposits with longer term and/or lower cost alternative sources of funds such as FHLB advances and federal funds purchased and reverse repurchase agreements. Scheduled repricings over the next six months include $6.1 billion in certificates of deposit at an average interest rate of 6%.

Composition of Deposits (Figure 11)

			6/30/01					12/31/00
					Weighted					Weighted
					Average					Average
			Amount		Rate			Amount		Rate
			(Dollars in thousands)
Checking accounts:
	Interest-bearing		$	3,545,157		3.10	%	$	2,547,726		2.68	%
	Noninterest-bearing			1,556,619		—			1,394,186		—
Money market and savings accounts				6,375,715		3.14			5,486,158		3.30
Certificates of deposit				9,642,507		5.72			10,177,601		5.99
		Total deposits, net	$	21,119,998		4.08		$	19,605,671		4.38
Including the effect of interest rate swaps						3.99	%				4.35	%

Investment securities and mortgage-backed securities with a par value of $544.8 million at June 30, 2001 and $594.6 million at December 31, 2000, were pledged to secure public deposits and for other purposes required or permitted by law.

Borrowings

At June 30, 2001, borrowings primarily consisted of FHLB advances. These positions were secured by our investment in the stock of the FHLB, as well as $13.2 billion in certain real estate loans and $1.4 billion in mortgage-backed securities.

Federal Home Loan Bank Advances (Figure 12)

			6/30/01					12/31/00
					Weighted					Weighted
					Average					Average
			Amount		Rate			Amount		Rate
			(Dollars in thousands)
Short-term			$	2,660,000		5.09	%	$	3,410,248		6.09	%
Long-term:
	Fixed-rate advances			6,300,232		5.63			5,801,551		5.68
	Variable-rate advances			424,478		3.81			424,478		6.61
		Total advances, net	$	9,384,710		5.39	%	$	9,636,277		5.86	%

17

Interest Rate Risk Management

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

Interest Rate Swaps (Figure 13)

			6/30/01								12/31/00
			Notional		Receiving			Paying			Notional		Receiving			Paying
			Principal		Interest			Interest			Principal		Interest			Interest
			Amount		Rate			Rate			Amount		Rate			Rate
								(Dollars in thousands)
Fixed Payment and Variable Receipt
	2002		$	25,000		5.45	%(1)		6.44	%	$	25,000		6.94	%(1)		6.44	%
Variable Payment and Fixed Receipt
	2001		$	—		—	%		—	%	$	420,000		6.38	%		6.73	%
	2002			50,000		6.36			4.81			155,000		7.03			6.73
	2003			338,000		5.30			4.19			120,000		6.14			6.68
	2004			120,000		6.25			4.51			478,000		6.84			6.75
	2005			50,000		7.57			4.23			445,000		7.89			6.68
	2006			540,000		6.11			4.14			70,000		7.07			6.59
	2007			10,000		7.25			4.72			10,000		7.25			6.71
	2009			15,000		7.15			3.94			65,000		7.32			6.53
	2010			10,000		7.40			3.97			10,000		7.50			6.65
	2011			45,000		6.33			4.03			—		—			—
		Total	$	1,178,000		6.01	%		4.22	%(1)	$	1,773,000		7.00	%		6.71	%(1)

(1) Rates are based upon LIBOR.

Interest rate risk management reduced interest expense on deposits by $4.8 million and $2.7 million for the three months ended June 30, 2001 and 2000, respectively, and by $8.0 million and $5.7 million for the six months ended June 30, 2001 and 2000, respectively.

Liquidity

We anticipate that we will have sufficient funds available to meet our commitments. At June 30, 2001, we had outstanding commitments to originate loans and leases of $2.2 billion, unfunded consumer lines of credit totaling $3.3 billion and unfunded corporate banking lines of credit totaling $255.2 million. We do not expect all of these lines to be used by the borrowers. Outstanding letters of credit totaled $110.0 million as of June 30, 2001. Certificates of deposit scheduled to mature in one year or less at June 30, 2001 totaled $8.4 billion. We believe that a significant portion of the amounts maturing will remain with us because they are retail deposits. We believe we have significant borrowing capacity with the FHLB and investment banking firms to meet any need for additional borrowings and sources of funds.

Capital and Dividends

On July 18, 2000, the Board of Directors of Charter One authorized management to repurchase up to 10% of the Company’s outstanding common stock in a program of open market purchases or privately negotiated transactions. As of June 30, 2001, we had purchased 8.6 million shares authorized under this program for a total cost of $213.0 million. The repurchased shares will be reserved in treasury for later reissue in connection with employee benefit plans or subsequent acquisitions.

As a financial holding company, Charter One is subject to regulation by the Federal Reserve Board (“FRB”) under the Bank Holding Company Act of 1956 as amended, and the regulations of the FRB, including various capital requirements. Charter One Commercial and Charter One Bank, F.S.B. are subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation and the Office of Thrift Supervision, respectively. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by each regulator that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific

18

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 Charter One Commercial to individually maintain minimum amounts and ratios (set forth in the table below) of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets. Charter One Bank, F.S.B. is required to maintain minimum amounts and ratios (also set forth in the table below) of total and tier 1 capital to risk-weighted assets, of core capital to adjusted tangible assets, and of tangible capital to tangible assets. The actual regulatory capital ratios calculated for Charter One, Charter One Commercial and Charter One Bank, F.S.B., along with the capital amounts and ratios for capital adequacy purposes and the amounts required to be categorized as well capitalized under the regulatory framework for prompt corrective action are as follows:

Regulatory Capital (Figure 14)

		6/30/01
												To Be “Well Capitalized”
							For Capital					Under Prompt Corrective
		Actual					Adequacy Purposes					Action Provisions
		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(Dollars in thousands)
Charter One:
	Total capital to risk-weighted assets	$	2,562,563		10.27	%	$	1,995,727		>8.00	%	$	2,494,659		>10.00	%
	Tier 1 capital to risk-weighted assets		2,363,553		9.47			997,864		>4.00			1,496,795		>6.00
	Tier 1 capital to average assets		2,363,553		6.99			1,351,866		>4.00			1,689,832		>5.00
Charter One Commercial:
	Total capital to risk-weighted assets		37,806		43.13			7,013		>8.00			8,766		>10.00
	Tier 1 capital to risk-weighted assets		37,806		43.13			3,507		>4.00			5,260		>6.00
	Tier 1 capital to average assets		37,806		10.43			14,496		>4.00			18,119		>5.00
Charter One Bank, F.S.B.:
	Total capital to risk-weighted assets		2,536,853		10.43			1,945,968		>8.00			2,432,460		>10.00
	Tier 1 capital to risk-weighted assets		1,838,590		7.56			N/A		N/A			1,459,476		>6.00
	Core capital to adjusted tangible assets		1,858,494		5.44			1,367,000		>4.00			1,708,750		>5.00
	Tangible capital to tangible assets		1,858,494		5.44			512,625		>1.50			N/A		N/A
		12/31/00
												To Be “Well Capitalized”
							For Capital					Under Prompt Corrective
		Actual					Adequacy Purposes					Action Provisions
		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(Dollars in thousands)
Charter One:
	Total capital to risk-weighted assets	$	2,448,962		10.29	%	$	1,904,468		>8.00	%	$	2,380,585		>10.00	%
	Tier 1 capital to risk-weighted assets		2,259,030		9.49			952,234		>4.00			1,428,351		>6.00
	Tier 1 capital to average assets		2,259,030		6.89			1,310,915		>4.00			1,638,643		>5.00
Charter One Commercial:
	Total capital to risk-weighted assets		30,213		30.56			7,910		>8.00			9,887		>10.00
	Tier 1 capital to risk-weighted assets		30,213		30.56			3,955		>4.00			5,932		>6.00
	Tier 1 capital to average assets		30,213		8.67			13,941		>4.00			17,427		>5.00
Charter One Bank, F.S.B.:
	Total capital to risk-weighted assets		2,376,443		10.23			1,858,583		>8.00			2,323,229		>10.00
	Tier 1 capital to risk-weighted assets		1,673,360		7.20			N/A		N/A			1,393,938		>6.00
	Core capital to adjusted tangible assets		1,687,568		5.15			1,310,207		>4.00			1,637,759		>5.00
	Tangible capital to tangible assets		1,687,300		5.15			491,324		>1.50			N/A		N/A

Management believes that, as of June 30, 2001, Charter One, Charter One Commercial and Charter One Bank, F.S.B. 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.

19

Quarterly Stock Prices and Dividends (Figure 15)

		Three Months Ended
		6/30/01		3/31/01		12/31/00		9/30/00		6/30/00
Market price of common stock(1):
	High	$	31.90	$	29.99	$	30.00	$	25.13	$	25.71
	Low		26.49		25.40		19.88		21.06		17.27
	Close		31.90		28.30		28.88		24.38		21.90
Dividends declared and paid(1)			.20		.18		.18		.17		.17

(1) Restated to reflect the 5% stock dividend issued September 30, 2000.

ITEM 3. Quantitative and Qualitative Disclosure About Market Risk

A comprehensive qualitative and quantitative analysis regarding market risk was disclosed in our December 31, 2000 Form 10-K. The assumptions used in our model have been updated as of June 30, 2001. The table below indicates the estimated impact on net income under the various interest rate scenarios as a percentage of base case earnings projections.

Changes in	Estimated Percentage Change
Interest Rates	in Future Net Income
(basis points)	12 Months			24 Months
+200 over one year		(5.81	)%		(6.35	)%
+100 over one year		(2.72	)		(2.56	)
–100 over one year		.52			(2.09	)
–200 over one year		.96			(4.22	)

Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies.

PART II – OTHER INFORMATION

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

(a) The Company held its annual meeting of shareholders on April 18, 2001.

(b) Not applicable.

(c) A brief description of each matter voted on and the results of the shareholder voting is as follows:

		For		Withheld
1.	The election of six directors set forth below:
	Patrick J. Agnew (term ending 2004)		182,424,094		1,807,628
	Denise Marie Fugo (term ending 2004)		182,329,845		1,901,877
	Charles John Koch (term ending 2004)		182,432,742		1,798,980
	Ronald F. Poe (term ending 2004)		182,469,814		1,761,908
	Jerome L. Schostak (term ending 2004)		182,379,652		1,852,070
	Mark Shaevsky (term ending 2004)		182,338,619		1,893,103
								Broker
		For		Against		Abstain		Non-Votes
2.	Ratification of the appointment of Deloitte & Touche LLP as the Company’s
	Independent Auditors.		173,860,201		9,587,548		783,973		0

20

ITEM 5. Other Information

Cash Dividend – On July 18, 2001, the Company’s Board of Directors declared a regular quarterly cash dividend of $.20 per share. The cash dividend is payable August 20, 2001 to shareholders of record on August 6, 2001.

Additionally, on July 18, 2001, the Company’s Board of Directors declared a 5% stock dividend to be distributed on September 28, 2001 to shareholders of record on September 14, 2001.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibit 11 – Computation of Per Share Earnings

(b) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended June 30, 2001.

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 8, 2001	/s/ Richard W. Neu
		Richard W. Neu Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

21 EX-11 3 l89548aex11.htm EXHIBIT 11 - COMPUTATION OF PER SHARE DATA

Exhibit 11

CHARTER ONE FINANCIAL, INC.
COMPUTATION OF PER SHARE EARNINGS

		Three Months Ended				Six Months Ended
		6/30/01		6/30/00		6/30/01		6/30/00
		(Dollars in thousands, except per share data)
Basic earnings per share(1):
	Weighted average number of common shares outstanding		207,439,620		217,603,358		207,933,717		218,749,861
	Net income	$	120,412	$	103,287	$	235,202	$	214,996
	Basic earnings per share	$	.58	$	.47	$	1.13	$	.98
Diluted earnings per share(1):
	Weighted average number of common shares outstanding		207,439,620		217,603,358		207,933,717		218,749,861
	Add common stock equivalents for shares issuable under stock option plans		5,304,641		4,040,619		5,221,284		3,416,106
	Weighted average number of common and common equivalent shares outstanding		212,744,261		221,643,977		213,155,001		222,165,967
	Net income	$	120,412	$	103,287	$	235,202	$	214,996
	Diluted earnings per share	$	.57	$	.47	$	1.11	$	.97

(1) Restated to reflect the 5% stock dividend issued September 30, 2000.

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M"CP\#0HO0W)E871I;VY$871E("A$.C$Y,3`Q,#@P.#`X-3`S.2D-"B]0 -----END PRIVACY-ENHANCED MESSAGE-----

EX-11

EXHIBIT 11 - Computation of Per Share Data