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CHARTER ONE FINANCIAL INC
10-Q, 2000-11-14
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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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
PART II — OTHER INFORMATION
	ITEM 5.  Other Information
	ITEM 6.  Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 11
Exhibit 27

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UNITED STATES

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FORM 10-Q

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

For the quarterly period ended September 30, 2000

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

Commission file number 0-16311

CHARTER ONE FINANCIAL, INC.

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

NOT APPLICABLE

     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 November 3, 2000 was 207,875,519.

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Table of Contents

TABLE OF CONTENTS

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

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PART I — FINANCIAL INFORMATION

CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES

				9/30/00				12/31/99
				(Dollars in thousands, except
				per share data)
ASSETS
Cash and deposits with banks				$	518,425			$	689,082
Federal funds sold and other					428				4,450
		Total cash and cash equivalents			518,853				693,532
Investments securities:
	Trading				—				13,380
	Available for sale				437,842				482,695
	Held to maturity (fair value of $23,433 and $52,858)				23,484				46,006
Mortgage-backed securities:
	Available for sale				3,930,862				4,193,134
	Held to maturity (fair value of $1,612,124 and $1,909,313)				1,601,627				1,907,246
Loans and leases, net					23,900,935				22,276,862
Loans held for sale					36,386				35,988
Bank owned life insurance					734,158				709,173
Federal Home Loan Bank stock					559,802				471,191
Premises and equipment					324,932				317,205
Accrued interest receivable					165,649				156,244
Real estate and other collateral owned					26,685				36,358
Loan servicing assets					147,473				118,792
Goodwill					176,510				188,826
Other assets					193,275				172,431
		Total assets		$	32,778,473			$	31,819,063
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
	Checking accounts			$	3,806,721			$	3,329,743
	Money market accounts				3,963,608				3,170,435
	Savings accounts				1,450,104				2,065,127
	Certificates of deposit				9,501,825				10,508,670
		Total deposits			18,722,258				19,073,975
Federal Home Loan Bank advances					9,765,956				9,226,150
Reverse repurchase agreements					58,588				283,297
Other borrowings					1,192,450				232,277
Advance payments by borrowers for taxes and insurance					55,005				80,309
Accrued interest payable					80,638				95,323
Accrued expenses and other liabilities					569,461				430,032
		Total liabilities			30,444,356				29,421,363
Shareholders’ equity:
	Preferred stock — $.01 par value per share; 20,000,000 shares authorized and unissued				—				—
	Common stock — $.01 par value per share; 360,000,000 shares authorized; 212,681,105 and 212,397,685 shares issued				2,127				2,124
	Additional paid-in capital				1,742,188				1,736,726
	Retained earnings				720,738				734,510
	Less 4,964,365 and 3,140,000 shares of common stock held in treasury at cost				(110,768	)			(65,502	)
	Borrowings of employee investment and stock ownership plan				(1,569	)			(3,138	)
	Accumulated other comprehensive income				(18,599	)			(7,020	)
		Total shareholders’ equity			2,334,117				2,397,700
		Total liabilities and shareholders’ equity		$	32,778,473			$	31,819,063

See Notes to Consolidated Financial Statements

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CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES

				Three Months Ended								Nine Months Ended
				9/30/00				9/30/99				9/30/00				9/30/99
				(Dollars in thousands, except per share data)
Interest income:
	Loans and leases			$	462,766			$	420,295			$	1,337,985			$	1,257,160
	Mortgage-backed securities:
		Available for sale			66,222				58,909				171,761				151,903
		Held to maturity			29,442				35,629				92,704				121,459
	Investment securities:
		Trading			—				147				38				205
		Available for sale			8,142				14,177				25,355				27,100
		Held to maturity			417				510				1,261				1,883
	Other interest-earning assets				10,529				9,171				28,082				27,346
		Total interest income			577,518				538,838				1,657,186				1,587,056
Interest expense:
	Deposits				192,399				178,278				554,322				538,087
	FHLB advances				151,549				114,539				390,673				311,535
	Other borrowings				10,401				12,912				23,986				35,603
		Total interest expense			354,349				305,729				968,981				885,225
		Net interest income			223,169				233,109				688,205				701,831
Provision for loan and lease losses					13,178				7,366				33,285				21,979
		Net interest income after provision for loan and lease losses			209,991				225,743				654,920				679,852
Other income:
	Retail banking				64,401				49,271				177,899				143,687
	Mortgage banking				13,994				11,810				41,947				34,662
	Leasing operations				2,022				4,093				14,014				7,797
	Net gains (losses)				5,522				(1,856	)			12,133				11,950
	Other				13,850				8,768				35,311				20,443
		Total other income			99,789				72,086				281,304				218,539
Administrative expenses:
	Compensation and employee benefits				67,507				67,814				208,986				204,195
	Net occupancy and equipment				26,076				23,567				75,991				70,581
	Federal deposit insurance premiums				1,066				1,998				3,072				6,147
	Merger expenses				1,961				1,921				26,064				7,640
	Amortization of goodwill				4,045				3,326				12,135				10,040
	Other administrative expenses				47,962				45,345				132,626				133,733
		Total administrative expenses			148,617				143,971				458,874				432,336
Income before income taxes					161,163				153,858				477,350				466,055
Income taxes					51,571				49,356				152,762				150,231
		Net income		$	109,592			$	104,502			$	324,588			$	315,824
Basic earnings per share(1)				$	.52			$	.47			$	1.50			$	1.41
Diluted earnings per share(1)				$	.51			$	.46			$	1.48			$	1.38
Average common shares outstanding(1)					209,379,604				223,149,954				215,626,442				224,314,019
Average common and common equivalent shares outstanding(1)					213,766,432				227,952,229				219,366,122				229,699,256
Cash dividends declared per share(1)				$	.17			$	.15			$	.49			$	.42

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

See Notes to Consolidated Financial Statements

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CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES

					Nine Months Ended
					9/30/00				9/30/99
					(Dollars in thousands)
Cash flows from operating activities:
	Net income				$	324,588			$	315,824
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan and lease losses				33,285				21,979
		Net gains				(10,551	)			(8,003	)
		Accretion of discounts, amortization of premiums, amortization of goodwill and depreciation, net				70,421				87,553
		Origination of real estate loans held for sale				(327,375	)			(852,520	)
		Proceeds from sale of loans held for sale				325,884				848,890
		Proceeds from (purchases of) investment securities held for trading				13,418				(18,748	)
		Other				68,313				(16,259	)
			Net cash provided by operating activities			497,983				378,716
Cash flows from investing activities:
	Net principal disbursed on loans and leases					(4,434,899	)			(2,313,236	)
	Proceeds from principal repayments and maturities of:
		Mortgage-backed securities held to maturity				305,291				917,687
		Investment securities held to maturity				8,286				21,503
		Mortgage-backed securities available for sale				207,147				514,227
		Investment securities available for sale				57,091				203,132
	Proceeds from sale of:
		Mortgage-backed securities available for sale				2,978,762				937,063
		Investment securities available for sale				13,301				175,355
		Federal Home Loan Bank stock				18,346				1,809
	Purchase of:
		Investment securities held to maturity				(869	)			(2,515	)
		Mortgage-backed securities available for sale				(149,429	)			(210,390	)
		Investment securities available for sale				(10,696	)			(668,626	)
		Loans				(16,890	)			(376,770	)
		Federal Home Loan Bank stock				(80,838	)			(74,632	)
		Loan servicing assets, including those originated				(30,495	)			(24,193	)
		Bank owned life insurance				—				(497,296	)
		Other				(57,989	)			(58,349	)
			Net cash used in investing activities			(1,193,881	)			(1,455,231	)
Cash flows from financing activities:
	Net increase (decrease) in short-term borrowings					(209,739	)			1,394,793
	Proceeds from long-term borrowings					2,497,567				780,662
	Repayments of long-term borrowings					(1,011,046	)			(675,520	)
	Net decrease in deposits					(352,099	)			(387,198	)
	Increase (decrease) in advance payments by borrowers for taxes and insurance					(25,304	)			13
	Payment of dividends on common stock					(107,242	)			(100,404	)
	Proceeds from issuance of common stock					18,083				19,350
	Purchase of treasury stock					(289,001	)			(94,925	)
		Net cash provided by financing activities				521,219				936,771
Net decrease in cash and cash equivalents						(174,679	)			(139,744	)
Cash and cash equivalents, beginning of the period						693,532				722,260
Cash and cash equivalents, end of the period					$	518,853			$	582,516
Supplemental disclosure of cash flow information:
	Cash paid for interest on deposits and borrowings				$	984,047			$	874,556
	Cash paid for income taxes					28,296				60,445
Supplemental schedule of noncash activities:
	Loans exchanged for mortgage-backed securities					2,781,889				2,513,605

See Notes to Consolidated Financial Statements

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CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES

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, 1999. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.
2.	On October 1, 1999, Charter One completed its acquisition of St. Paul Bancorp, Inc. (“St. Paul”), which was accounted for as a pooling of interests. Headquartered in Chicago, Illinois, St. Paul was the holding company of St. Paul Federal Bank for Savings, a $6.2 billion savings bank that operated 58 branch offices in the metropolitan Chicago area. The merger was effected through the issuance of .99225 shares of Charter One common stock for each share of St. Paul’s common stock, resulting in the issuance of 39,892,023 shares (as adjusted for the 5% stock dividend issued September 30, 1999).
3.	On November 5, 1999, the Company completed its acquisition of 14 Vermont National Bank offices from Chittenden Corporation (“Chittenden”), which was accounted for as a purchase. The acquisition was related to the branch divestiture required by federal regulators relative to Chittenden’s pending merger with Vermont Financial Services Corp., the parent company of Vermont National Bank and United Bank in Massachusetts. Charter One acquired $84.7 million in commercial real estate and business loans and assumed $357.5 million in deposits at fair value. The purchase resulted in $43.6 million in tax-deductible goodwill, which will be amortized over 15 years.
4.	The Company has identified one reportable segment: consumer banking. Consumer banking includes retail banking, mortgage banking, and other related financial services that provide a full range of deposit products, consumer loans, business lending, and commercial real estate lending.
5.	In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The FASB delayed the effective date of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The delay, published as SFAS No. 137, applies to quarterly and annual financial statements. In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. It also amends SFAS No. 133 for decisions made by the FASB relating to the Derivatives Implementation Group process. Early application is still permitted. Management has not completed the process of evaluating SFAS No. 133 and SFAS No. 138 and therefore has not determined the impact that adopting these statements will have on the Company’s financial position and results of operations.
6.	In September 2000, the 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. It is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for

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	fiscal years ending after December 15, 2000. Disclosures about securitization and collateral accepted need not be reported for periods ending on or before December 15, 2000, for which financial statements are presented for comparative purposes. SFAS No. 140 is to be applied prospectively with certain exceptions. Other than those exceptions, earlier or retroactive application of its accounting provisions is not permitted. Management has not completed the process of evaluating SFAS No. 140 and therefore has not determined the impact that adopting this statement will have on the Company’s financial position and results of operations.
7.	Certain items in the consolidated financial statements for 1999 have been reclassified to conform to the 2000 presentation.

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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 September 30, 2000, the Bank and its subsidiaries were doing business through 421 full-service branches and 35 loan production offices.

Forward-Looking Statements

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

RESULTS OF OPERATIONS

Performance Overview

Charter One reported net income of $109.6 million, or $.51 per diluted share, for the three months ended September 30, 2000. This was a $5.1 million, or 4.9%, increase over the results of the third quarter of 1999 when net income was $104.5 million, or $.46 per diluted share. Both periods included merger-related charges. Excluding the after-tax impact of merger-related charges, our net income resulted in a return on average equity of 18.96% and a return on average assets of 1.37% for the three months ended September 30, 2000. The comparable returns for the third quarter of 1999 were 17.03% and 1.34%, respectively. The increase in our operating returns was primarily attributable to increases in income from retail banking. See “Other Income” for further discussion regarding income from retail banking.

For the nine months ended September 30, 2000, Charter One reported net income of $324.6 million, or $1.48 per diluted share. This was an $8.8 million, or 2.8%, increase over the results for the same period in 1999. Both periods included merger-related charges. Our net income, excluding the after-tax impact of merger-related charges, resulted in a return on average equity of 18.88% and a return on average assets of 1.46% for the nine months ended September 30, 2000. The comparable returns for the 1999 period were 17.32% and 1.39%, respectively. The increase in our operating returns, just as with the third quarter results, was primarily attributable to increases in income from retail banking. Additionally, the year-over-year comparison was affected by an increase in income from leasing operations as well as income from our Bank Owned Life Insurance (“BOLI”) program. See “Other

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Income” for further discussion regarding income from retail banking, leasing operations and the BOLI program.

Figure 1 sets forth selected financial results and annualized performance ratios for the three and nine months ended September 30, 2000 and 1999, respectively. 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 for each of the periods presented. We believe that presentation of operating earnings and returns will provide comparability and insight into the operations of Charter One.

Selected Financial Results and Ratios (Figure 1)

			Three Months Ended								Nine Months Ended
			9/30/00				9/30/99				9/30/00				9/30/99
			(Dollars in thousands, except per share data)
Actual:
	Net income		$	109,592			$	104,502			$	324,588			$	315,824
	Diluted earnings per share			.51				.46				1.48				1.38
	Return on average assets			1.35	%			1.33	%			1.38	%			1.37	%
	Return on average equity			18.73				16.83				17.91				17.05
	Average equity to average assets			7.21				7.89				7.71				8.01
	Net interest income to administrative expenses			1.50	x			1.62	x			1.50	x			1.62	x
	Administrative expenses to average assets			1.83	%			1.83	%			1.95	%			1.87	%
	Efficiency ratio			45.54				45.81				46.66				46.49
Operating:
	Operating earnings		$	110,925			$	105,751			$	342,214			$	320,866
	Operating earnings per share			.52				.46				1.56				1.40
	Return on average assets			1.37	%			1.34	%			1.46	%			1.39	%
	Return on average equity			18.96				17.03				18.88				17.32
	Net interest income to administrative expenses			1.52	x			1.64	x			1.59	x			1.65	x
	Administrative expenses to average assets			1.81	%			1.81	%			1.84	%			1.84	%
	Efficiency ratio			44.93				45.18				43.94				45.65

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.

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

					Three Months Ended
					9/30/00												9/30/99
													Avg.												Avg.
					Average								Yield/				Average								Yield/
					Balance				Interest				Cost				Balance				Interest				Cost
					(Dollars in thousands)
Interest-earning assets:
	Loans and leases				$	24,185,872			$	462,766				7.64	%		$	22,656,483			$	420,295				7.41	%
	Mortgage-backed securities:
		Available for sale				3,631,734				66,222				7.29				3,491,780				58,909				6.75
		Held to maturity				1,634,755				29,442				7.20				2,083,367				35,629				6.84
	Investment securities:
		Trading				—				—				—				14,040				147				4.19
		Available for sale				441,466				8,142				7.38				888,428				14,177				6.38
		Held to maturity				28,090				417				5.94				33,525				510				6.09
	Other interest-earning assets					554,356				10,529				7.43				533,142				9,171				6.73
			Total interest-earning assets			30,476,273				577,518				7.57				29,700,765				538,838				7.24
Allowance for loan and lease losses						(186,036	)											(181,580	)
Noninterest-earning assets						2,184,945												1,955,911
			Total assets		$	32,475,182											$	31,475,096
Interest-bearing liabilities:
	Deposits:
		Checking accounts			$	3,708,654				15,516				1.66	%		$	2,950,726				7,934				1.07	%
		Savings accounts				1,521,419				5,877				1.54				2,252,240				10,845				1.91
		Money market accounts				3,959,127				39,554				3.97				3,278,637				26,474				3.20
		Certificates of deposit				9,321,115				131,452				5.61				10,268,028				133,025				5.14
			Total deposits			18,510,315				192,399				4.14				18,749,631				178,278				3.77
	FHLB advances					10,336,097				151,549				5.83				8,887,304				114,539				5.11
	Other borrowings					550,075				10,401				7.53				826,138				12,912				6.17
			Total borrowings			10,886,172				161,950				5.91				9,713,442				127,451				5.20
			Total interest-bearing liabilities			29,396,487				354,349				4.79				28,463,073				305,729				4.26
Noninterest-bearing liabilities						738,021												528,320
			Total liabilities			30,134,508												28,991,393
Shareholders’ equity						2,340,674												2,483,703
			Total liabilities and shareholders’ equity		$	32,475,182											$	31,475,096
Net interest income									$	223,169											$	233,109
Interest rate spread														2.78												2.98
Net yield on average interest-earning assets														2.93												3.14
Average interest-earning assets to average interest-bearing liabilities														103.67	%											104.35	%

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					Nine Months Ended
					9/30/00												9/30/99
													Avg.												Avg.
					Average								Yield/				Average								Yield/
					Balance				Interest				Cost				Balance				Interest				Cost
					(Dollars in thousands)
Interest-earning assets:
	Loans and leases				$	23,605,514			$	1,337,985				7.56	%		$	22,556,299			$	1,257,160				7.44	%
	Mortgage-backed securities:
		Available for sale				3,180,808				171,761				7.20				3,036,018				151,903				6.67
		Held to maturity				1,741,174				92,704				7.10				2,352,585				121,459				6.88
	Investment securities:
		Trading				244				38				20.63				7,240				205				3.77
		Available for sale				461,581				25,355				7.32				601,009				27,100				6.01
		Held to maturity				30,961				1,261				5.43				40,612				1,883				6.18
	Other interest-earning assets					520,611				28,082				7.09				569,330				27,346				6.33
			Total interest-earning assets			29,540,893				1,657,186				7.48				29,163,093				1,587,056				7.26
Allowance for loan and lease losses						(184,903	)											(182,181	)
Noninterest-earning assets						1,987,550												1,866,285
			Total assets		$	31,343,540											$	30,847,197
Interest-bearing liabilities:
	Deposits:
		Checking accounts			$	3,600,759				40,479				1.50	%		$	2,933,106				20,255				.92	%
		Savings accounts				1,753,507				20,205				1.54				2,420,372				36,077				1.99
		Money market accounts				3,661,626				103,023				3.76				3,031,878				74,509				3.29
		Certificates of deposit				9,733,695				390,615				5.36				10,470,567				407,246				5.20
			Total deposits			18,749,587				554,322				3.95				18,855,923				538,087				3.82
	FHLB advances					9,285,482				390,673				5.61				8,239,890				311,535				5.05
	Other borrowings					414,585				23,986				7.68				742,448				35,603				6.35
			Total borrowings			9,700,067				414,659				5.70				8,982,338				347,138				5.16
			Total interest-bearing liabilities			28,449,654				968,981				4.55				27,838,261				885,225				4.25
Noninterest-bearing liabilities						476,946												538,742
			Total liabilities			28,926,600												28,377,003
Shareholders’ equity						2,416,940												2,470,194
			Total liabilities and shareholders’ equity		$	31,343,540											$	30,847,197
Net interest income									$	688,205											$	701,831
Interest rate spread														2.93												3.01
Net yield on average interest-earning assets														3.11												3.21
Average interest-earning assets to average interest-bearing liabilities														103.84	%											104.76	%

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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 September 30,												Nine Months Ended September 30,
					2000 v. 1999												2000 v. 1999
					Increase (decrease) due to												Increase (decrease) due to
					Rate				Volume				Total				Rate				Volume				Total
					(Dollars in thousands)
Interest income:
	Loans and leases				$	12,131			$	30,340			$	42,471			$	17,900			$	62,925			$	80,825
	Mortgage-backed securities:
		Available for sale				4,889				2,424				7,313				12,397				7,461				19,858
		Held to maturity				1,812				(7,999	)			(6,187	)			3,692				(32,447	)			(28,755	)
	Investment securities:
		Trading				(89	)			(58	)			(147	)			915				(1,082	)			(167	)
		Available for sale				1,945				(7,980	)			(6,035	)			5,249				(6,994	)			(1,745	)
		Held to maturity				(12	)			(81	)			(93	)			(211	)			(411	)			(622	)
	Other interest-earning assets					982				376				1,358				3,200				(2,464	)			736
			Total			21,658				17,022				38,680				43,142				26,988				70,130
Interest expense:
	Checking accounts					5,190				2,392				7,582				14,840				5,384				20,224
	Savings accounts					(1,885	)			(3,083	)			(4,968	)			(7,165	)			(8,707	)			(15,872	)
	Money market accounts					6,987				6,093				13,080				11,711				16,803				28,514
	Certificates of deposit					11,232				(12,805	)			(1,573	)			12,665				(29,296	)			(16,631	)
	FHLB advances					16,913				20,097				37,010				36,630				42,508				79,138
	Other borrowings					(558	)			(1,953	)			(2,511	)			(173	)			(11,444	)			(11,617	)
			Total			37,879				10,741				48,620				68,508				15,248				83,756
Change in net interest income					$	(16,221	)		$	6,281			$	(9,940	)		$	(25,366	)		$	11,740			$	(13,626	)

Our net interest income for the three months ended September 30, 2000 was $223.2 million, a decrease of $9.9 million from the three months ended September 30, 1999. The net yield on interest-earning assets during the third quarter of 2000 declined to 2.93% from 3.14% for the comparable period of 1999, reflecting in part, our stock buyback program. Additionally, as reflected in Figure 4, the net yield on interest-earning assets at September 30, 2000 declined to 2.85% from 3.19% at December 31, 1999. The compression in the net yield on interest-earning assets is primarily attributed to the fact that our liabilities have repriced more quickly than our assets. Interest rates have risen considerably over the past year. This increase has been accompanied by a flattening of the yield curve. Given this interest rate environment, management has decided to slow balance sheet growth, with particular emphasis on accelerating the shift away from residential loans and securities by selling more of those portfolios. Instead, balance sheet capacity will be preserved for a more favorable interest rate environment, and existing capital will be allocated to our stock buyback program. Based on the current interest rate environment and repricing trends, management anticipates the net interest margin will stabilize by the end of the fourth quarter of 2000. Our production level of higher yielding and shorter term consumer and commercial loans has reached the level where it can provide for future balance sheet growth and improvement in net interest income. See Figure 6 for a summary of our loan and lease originations.

Our net interest income for the nine months ended September 30, 2000 was $688.2 million, a decrease of $13.6 million from the nine months ended September 30, 1999. The net yield on average interest-earning assets decreased by ten basis points during the nine months ended September 30, 2000 to 3.11% from 3.21% in the comparable period of 1999. The reasons for the decrease in the net yield on average interest-earning assets are substantially the same as for the third quarter results discussed in the above paragraph.

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.

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Yields and Costs at End of Period (Figure 4)

					9/30/00				12/31/99
Weighted average yield:
	Real estate loans					7.41	%			7.28	%
	Automobile loans					8.62				8.52
	Retail consumer loans					7.99				7.93
	Leases					6.28				6.08
	Corporate banking loans					8.91				8.58
		Total loans and leases				7.66				7.53
	Mortgage-backed securities					7.24				7.04
	Investment securities					7.39				7.26
	Other interest-earning assets					7.44				6.97
		Total interest-earning assets				7.58				7.41
Weighted average cost:
	Checking					1.66				1.27
	Money market					4.26				3.41
	Savings					1.54				1.61
	Certificates of deposit					5.73				5.13
		Total deposits				4.27				3.79
	FHLB advances					5.77				5.32
	Other borrowings					7.06				6.99
			Total interest-bearing liabilities			4.88				4.34
Interest rate spread						2.70				3.07
Net yield on interest-earning assets						2.85	%			3.19	%

Other Income

Other income for the three months ended September 30, 2000 was $99.8 million, an increase of $27.7 million, or 38.4%, over the $72.1 million for the three months ended September 30, 1999. The increase was primarily attributable to income from retail banking. Retail banking income increased $15.1 million, or 30.7%, over the comparable period in 1999. Growth in income from retail banking continues to be driven by recent mergers, account acquisition in mature markets and continual product development.

Other income for the nine months ended September 30, 2000 was $281.3 million, an increase of $62.8 million, or 28.7%, over the $218.5 million for the nine months ended September 30, 1999. The increase was primarily attributable to income from retail banking, leasing operations, and the BOLI program. The reasons for the increase in income from retail banking are substantially the same as for the third quarter results discussed in the above paragraph. Income from leasing operations increased $6.2 million, primarily driven by residual values on underlying equipment realized upon termination of leases. The increase in the line item “other” was primarily attributable to the BOLI program. During the year ended December 31, 1999, we increased our BOLI portfolio by $630.0 million. The related income on the BOLI asset increased $12.3 million over the comparable period in 1999 and is the primary reason for the increase in the line item “other.”

Administrative Expenses

Administrative expenses were $148.6 million for the three months ended September 30, 2000, an increase of $4.6 million, or 3.2%, as compared to the third quarter of 1999. Each year included merger-related expenses. There were $2.0 million of merger-related expenses recorded in the three months ended September 30, 2000, and $1.9 million for the three months ended September 30, 1999. Excluding these merger-related charges, our administrative expenses were $146.7 million for the three months ended September 30, 2000 and $142.1 million for the three months ended September 30, 1999. This resulted in a comparable ratio of administrative expenses to average assets (excluding the merger-related charges) of 1.81% for both the three months ended September 30, 2000 and 1999, respectively. Our efficiency ratio (excluding the merger-related charges) was 44.93% for the three months ended September 30, 2000, an improvement when compared to 45.18% for the three months ended September 30, 1999. See the above discussion in “Other Income” regarding additional factors that contributed to the improvement in our efficiency ratio.

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Administrative expenses were $458.9 million for the nine months ended September 30, 2000, an increase of $26.5 million, or 6.1%, as compared to the nine months ended September 30, 1999. Each year included merger-related expenses. There were $26.1 million of merger-related expenses recorded in the nine months ended September 30, 2000, and $7.6 million for the nine months ended September 30, 1999. Excluding these merger-related charges, our administrative expenses were $432.8 million for the nine months ended September 30, 2000 and $424.7 million for the nine months ended September 30, 1999. This resulted in a comparable ratio of administrative expenses to average assets (excluding the merger-related charges) of 1.84% for both the nine months ended September 30, 2000 and 1999, respectively. Our efficiency ratio (excluding the merger-related charges) was 43.94% for the nine months ended September 30, 2000, an improvement when compared to 45.65% for the nine months ended September 30, 1999. See the above discussion in “Other Income” regarding additional factors that contributed to the improvement in our efficiency ratio.

Federal Income Taxes

Federal income tax expense for the three months ended September 30, 2000 was $51.6 million, as compared to $49.4 million for the same period in 1999. The primary reason for this 4.5% increase in the provision for federal income taxes was a 4.7% increase in pre-tax book income. The effective tax rate was 32.0% for the 2000 period and 32.1% for the comparable 1999 period.

Federal income tax expense for the nine months ended September 30, 2000 was $152.8 million, as compared to $150.2 million for the same period in 1999. The effective tax rates were 32.0% and 32.2% for the 2000 and 1999 periods, respectively.

FINANCIAL CONDITION

Overview

At September 30, 2000, total assets were $32.8 billion, as compared to total assets of $31.8 billion at December 31, 1999. Contributing to the increase in total assets was the growth in our loan portfolio since December 31, 1999. Figure 5 illustrates our continued emphasis in originating consumer and commercial loans due to the higher yields and shorter terms provided by these types of loans.

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Loans and Leases

Composition of Loans and Leases (Figure 5)

					9/30/00				12/31/99
					(Dollars in thousands)
Loan and lease portfolio, net
	One-to-four family:
		Permanent:
			Fixed rate		$	4,666,771			$	5,755,393
			Adjustable rate			6,373,274				5,703,042
		Construction				325,385				276,172
						11,365,430				11,734,607
	Commercial real estate:
		Multifamily				1,181,941				1,276,004
		Other				849,999				673,972
						2,031,940				1,949,976
	Consumer:
		Retail				5,411,900				4,502,023
		Automobile				3,002,714				2,497,956
						8,414,614				6,999,979
	Business:
		Leasing				1,583,840				1,137,895
		Corporate banking				731,080				676,793
						2,314,920				1,814,688
	Loans and leases before allowance for loan and lease losses					24,126,904				22,499,250
	Allowance for loan and lease losses					(189,583	)			(186,400	)
			Loans and leases, net		$	23,937,321			$	22,312,850
Portfolio of loans serviced for others					$	12,568,760			$	10,798,563

Loan and Lease Activity (Figure 6)

						Three Months Ended								Nine Months Ended
						9/30/00				9/30/99				9/30/00				9/30/99
										(Dollars in thousands)
Originations:
Real estate:
	Permanent:
		One-to-four family				$	1,381,679			$	1,305,158			$	3,796,381			$	3,997,780
		Multifamily					15,380				48,265				29,636				192,464
		Commercial					61,687				51,946				171,224				186,988
			Total permanent loans				1,458,746				1,405,369				3,997,241				4,377,232
	Construction:
		One-to-four family					173,190				149,410				441,707				412,045
		Multifamily					23,494				10,742				67,357				52,692
		Commercial					31,036				23,002				83,820				74,360
			Total construction loans				227,720				183,154				592,884				539,097
				Total real estate loans originated			1,686,466				1,588,523				4,590,125				4,916,329
Retail consumer							690,608				605,607				1,895,425				1,887,073
Automobile							597,303				346,391				1,341,498				1,087,495
Leases							258,647				190,814				566,146				323,334
Corporate banking							211,515				171,127				569,747				468,345
			Total loans and leases originated				3,444,539				2,902,462				8,962,941				8,682,576
Loans purchased							8,984				4,767				16,890				376,770
Sales and principal reductions:
	Loans sold						125,852				212,486				327,375				852,520
	Loans exchanged for mortgage-backed securities						1,310,813				647,560				2,781,889				2,513,605
	Principal reductions						1,532,501				1,794,709				4,154,534				5,442,896
			Total sales and principal reductions				2,969,166				2,654,755				7,263,798				8,809,021
				Increase before net items		$	484,357			$	252,474			$	1,716,033			$	250,325

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Investment and Mortgage-Backed Securities

Figures 7 and 8 summarize our investment and mortgage-backed securities portfolios at September 30, 2000 and December 31, 1999. The amounts reflected represent the fair values of securities held for trading and available for sale and the amortized cost of securities held to maturity.

Investment Securities (Figure 7)

					9/30/00				12/31/99
					(Dollars in thousands)
Trading
	Other				$	—			$	13,380
			Total investment securities held for trading			—				13,380
Available for Sale
	U.S. Treasury and agency securities					334,935				339,687
	Corporate notes and commercial paper					67,125				88,368
	Other					35,782				54,640
			Total investment securities available for sale			437,842				482,695
Held to Maturity
	U.S. Treasury and agency securities					15,234				17,058
	Corporate notes and commercial paper					—				15,659
	Other					8,250				13,289
			Total investment securities held to maturity			23,484				46,006
			Total		$	461,326			$	542,081
	Weighted average rate					7.39	%			7.26	%

Mortgage-Backed Securities (Figure 8)

						9/30/00				12/31/99
						(Dollars in thousands)
Available for Sale
	Participation certificates:
		Government agency issues:
			FNMA			$	2,675,901			$	3,023,228
			FHLMC				205,190				95,034
			GNMA				2,314				2,608
	Collateralized mortgage obligations:
		Government agency issues:
			FHLMC				295,842				232,906
			FNMA				228,496				304,018
			GNMA				6,311				7,349
		Private issues					516,808				527,991
		Total mortgage-backed securities available for sale					3,930,862				4,193,134
Held to Maturity
	Participation certificates:
		Government agency issues:
			FNMA				461,648				549,866
			FHLMC				165,051				196,704
			GNMA				88,999				101,468
		Private issues					135,301				162,485
	Collateralized mortgage obligations:
		Government agency issues:
			FNMA				208,766				221,934
			FHLMC				71,480				82,838
		Private issues					470,382				591,951
			Total mortgage-backed securities held to maturity				1,601,627				1,907,246
				Total		$	5,532,489			$	6,100,380
		Weighted average rate					7.24	%			7.04	%

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Asset Quality

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

						Three Months Ended								Nine Months Ended
						9/30/00				9/30/99				9/30/00				9/30/99
										(Dollars in thousands)
Allowance for loan and lease losses
	Balance, beginning of period					$	186,194			$	182,349			$	186,400			$	184,989
	Provision for loan and lease losses						13,178				7,366				33,285				21,979
	Loans and leases charged off:
		Mortgage					(1,117	)			(1,815	)			(4,402	)			(5,539	)
		Automobile					(6,414	)			(6,482	)			(20,295	)			(20,791	)
		Retail consumer					(3,946	)			(577	)			(11,333	)			(2,559	)
		Leases					—				—				—				(900	)
		Corporate banking					(153	)			(1,472	)			(589	)			(2,006	)
				Total charge-offs			(11,630	)			(10,346	)			(36,619	)			(31,795	)
	Recoveries:
		Mortgage					179				65				743				827
		Automobile					1,402				1,673				4,502				4,727
		Retail consumer					229				255				993				521
		Leases					—				—				—				—
		Corporate banking					31				79				279				193
				Total recoveries			1,841				2,072				6,517				6,268
				Net loan and lease charge-offs			(9,789	)			(8,274	)			(30,102	)			(25,527	)
	Balance, end of period					$	189,583			$	181,441			$	189,583			$	181,441
	Net charge-offs to average loans and leases (annualized)						.16	%			.15	%			.17	%			.19	%

Figure 10 sets forth information concerning nonperforming assets and additional information on the allowance for loan and lease losses.

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Nonperforming Assets (Figure 10)

						9/30/00				12/31/99
						(Dollars in thousands)
Nonperforming loans and leases:
	Nonaccrual loans and leases:
		Real estate mortgage loans:
			One-to-four family(1)			$	70,692			$	75,682
			Multifamily and commercial				6,869				3,369
			Construction and land				5,606				1,095
				Total real estate mortgage loans			83,167				80,146
		Retail consumer					55,903				39,638
		Automobile					229				482
		Corporate banking					17,973				6,037
		Leases					—				—
				Total nonaccrual loans and leases			157,272				126,303
	Accruing loans and leases delinquent more than 90 days:
		Real estate mortgage loans					—				—
		Retail consumer(1)					2,055				2,562
		Automobile					5,842				4,973
		Corporate banking					3,808				2,463
		Leases					3,044				—
				Total accruing loans and leases delinquent more than 90 days			14,749				9,998
	Restructured real estate mortgage loans						669				1,009
				Total nonperforming loans and leases			172,690				137,310
Real estate acquired through foreclosure and other							23,495				24,453
				Total nonperforming assets			196,185				161,763
				Less government guaranteed loans			20,105				18,841
				Nonperforming assets net of government guaranteed loans		$	176,080			$	142,922
Ratio of:
	Nonperforming loans and leases to total loans and leases						.72	%			.62	%
	Nonperforming assets to total assets						.60				.51
	Allowance for loan and lease losses to:
		Nonperforming loans and leases					109.78				135.75
		Total loans and leases before allowance					.79				.83
Ratio of (excluding government guaranteed nonperforming loans):
	Nonperforming loans and leases to total loans and leases						.64				.53
	Nonperforming assets to total assets						.54				.45
	Allowance for loan and lease losses to:
		Nonperforming loans and leases					124.25				157.34
		Total loans and leases before allowances					.79	%			.83	%

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(1)	Includes government guaranteed loans.

At September 30, 2000, there were $53.7 million of loans and leases not reflected in the table above, where known information about possible credit problems of borrowers caused management to have doubts as to the ability of the borrower to comply with present repayment terms and that may result in disclosure of such loans and leases in the future.

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SOURCES OF FUNDS

General

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

Deposits

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

Composition of Deposits (Figure 11)

				9/30/00								12/31/99
								Weighted								Weighted
								Average								Average
				Amount				Rate				Amount				Rate
								(Dollars in thousands)
Checking accounts:
	Interest-bearing			$	2,416,001				2.62	%		$	2,066,453				2.05	%
	Noninterest-bearing				1,390,720				—				1,263,290				—
Savings accounts					1,450,104				1.54				2,065,127				1.61
Money market accounts					3,963,608				4.26				3,170,435				3.41
Certificates of deposit					9,501,825				5.84				10,508,670				5.31
		Total deposits, net		$	18,722,258				4.32			$	19,073,975				3.89
Including the annualized effect of applicable interest rate risk management instruments									4.27	%							3.79	%

Investment securities and mortgage-backed securities with a book value of $515.3 million at September 30, 2000 and $544.4 million at December 31, 1999, were pledged to secure public deposits and for other purposes required or permitted by law.

Borrowings

At September 30, 2000, borrowings primarily consisted of FHLB advances. These positions were secured by our investment in the stock of the FHLB, as well as $13.5 billion in certain real estate loans and $2.3 billion in mortgage-backed securities.

Federal Home Loan Bank Advances (Figure 12)

				9/30/00								12/31/99
								Weighted								Weighted
								Average								Average
				Amount				Rate				Amount				Rate
								(Dollars in thousands)
Short-term				$	4,685,247				6.01	%		$	4,115,000				5.43	%
Long-term:
	Fixed-rate advances				4,656,231				5.47				4,512,941				5.10
	Variable-rate advances				424,478				6.53				598,209				6.21
		Total advances, net		$	9,765,956				5.77	%		$	9,226,150				5.32	%

Interest Rate Risk Management

We utilize various types of interest rate contracts in managing our interest rate risk profile. We utilize fixed receipt

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Interest Rate Swaps (Figure 13)

				9/30/00												12/31/99
				Notional				Receiving				Paying				Notional				Receiving				Paying
				Principal				Interest				Interest				Principal				Interest				Interest
				Amount				Rate				Rate				Amount				Rate				Rate
												(Dollars in thousands)
Fixed Payment and Variable Receipt Maturing in:
	2002			$	25,000				6.94	%(1)			6.44	%		$	25,000				5.58	%(1)			6.44	%
Variable Payment and Fixed Receipt Maturing in:
	2000			$	20,000				5.46	%			6.70	%			40,000				5.55	%			6.16	%
	2001				420,000				6.38				6.70				420,000				6.38				6.14
	2002				325,000				7.53				6.69				—				—				—
	2003				120,000				6.14				6.69				120,000				6.14				6.14
	2004				580,000				7.01				6.70				580,000				7.01				6.15
	2005				425,000				7.91				6.68				25,000				7.00				5.87
	2006				60,000				7.08				6.53				40,000				7.00				6.37
	2009				65,000				7.32				6.53				65,000				7.32				6.16
	2010				10,000				7.40				6.59				—				—				—
		Total		$	2,025,000				7.10	%			6.58	%(1)		$	1,290,000				6.69	%			6.15	%(1)

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(1)	Rates are based upon LIBOR.

Interest rate risk management instruments reduced interest expense as follows:

Net Benefit of Interest Rate Risk Management (Figure 14)

				Three Months Ended								Nine Months Ended
				9/30/00				9/30/99				9/30/00				9/30/99
								(Dollars in
								thousands)
Interest expense (income):
	Deposits			$	(1,548	)		$	(2,534	)		$	(7,220	)		$	(6,841	)
	FHLB advances				—				—				—				86
	Reverse repurchase agreements				—				—				—				(236	)
	Other borrowings				—				58				—				227
		Total net benefit		$	(1,548	)		$	(2,476	)		$	(7,220	)		$	(6,764	)

Liquidity

Our principal sources of funds are deposits, advances from the FHLB of Cincinnati, reverse repurchase agreements, repayments and maturities of loans and securities, proceeds from the sale of loans and securities, and funds provided by operations. While scheduled loan, security and interest-bearing deposit amortization and maturity are relatively predictable sources of funds, deposit flows and loan and mortgage-backed securities repayments are greatly influenced by economic conditions, the general level of interest rates and competition. We utilize particular sources of funds based on comparative costs and availability. We generally manage the pricing of deposits to maintain a steady deposit balance, but from time to time may decide not to pay rates on deposits as high as our competition and, when necessary, to supplement deposits with longer term and/or lower cost alternative sources of funds such as FHLB advances and reverse repurchase agreements. Management also considers our interest-sensitivity profile when deciding on alternative sources of funds. At September 30, 2000, our one-year gap was a negative 11.14% of total assets. See Item 3 “Quantitative and Qualitative Disclosure About Market Risk” regarding further information on our interest rate risk profile.

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We are required by regulation to maintain specific minimum levels of liquid investments. Regulations currently in effect require us to maintain average liquid assets at least equal to 4.0% of the sum of the average daily balance of net withdrawable accounts and borrowed funds due in one year or less. This regulatory requirement may be changed from time to time to reflect current economic conditions. Charter One Bank’s average regulatory liquidity ratio for the third quarter of 2000 was 4.23%.

We anticipate that we will have sufficient funds available to meet our commitments. At September 30, 2000, we had outstanding commitments to originate loans and leases of $1.6 billion, unfunded consumer lines of credit totaling $2.8 billion and unfunded corporate banking lines of credit totaling $173.8 million. We do not expect all of these lines to be used by the borrowers. Outstanding letters of credit totaled $78.3 million as of September 30, 2000. Certificates of deposit scheduled to mature in one year or less at September 30, 2000 totaled $7.7 billion. We believe that a significant portion of the amounts maturing will remain with us because they are retail deposits. We believe we have significant borrowing capacity with the FHLB and investment banking firms to meet any need for additional borrowings and sources of funds.

Capital and Dividends

On October 20, 1999, our Board of Directors authorized a buyback to repurchase up to 3.3 million shares of Charter One common stock in a program of open market or privately negotiated transactions. As of March 31, 2000, we had purchased all of the shares authorized under this buyback for a total cost of $68.6 million. The repurchased shares were later reissued in connection with the 5% stock dividend distributed September 30, 2000, as well as employee benefit plans.

On April 26, 2000, our Board of Directors authorized a new buyback to repurchase up to 7.5 million shares of Charter One common stock in a program of open market purchases or privately negotiated transactions. As of June 30, 2000, we had purchased all of the shares authorized under this buyback for a total cost of $170.7 million. The repurchased shares were later reissued in connection with the 5% stock dividend distributed September 30, 2000, as well as employee benefit plans.

On July 18, 2000, the Board of Directors of Charter One authorized management to repurchase up to 10% of the Company’s outstanding common stock in a buyback program of open market purchases or privately negotiated transactions. As of September 30, 2000, we had purchased 5.1 million shares authorized under this buyback for a total cost of $115.2 million. Of the 5.1 million shares purchased, 152,335 shares were later reissued in connection with the 5% stock dividend distributed September 30, 2000. The remaining repurchased shares will be reserved in treasury for later reissue in connection with employee benefit plans.

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

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The actual regulatory capital ratios calculated for Charter One, Charter One Commercial and Charter One Bank, F.S.B., along with the capital amounts and ratios for capital adequacy purposes and the amounts required to be categorized as well capitalized under the regulatory framework for prompt corrective action are as follows:

Regulatory Capital (Figure 15)

			9/30/00
																			To Be “Well
																			Capitalized”
																			Under Prompt
											For Capital								Corrective
			Actual								Adequacy Purposes								Action Provisions
			Amount				Ratio				Amount				Ratio				Amount				Ratio
											(Dollars in thousands)
Charter One:
	Total capital to risk-weighted assets		$	2,369,019				9.99	%		$	1,896,624			*	8.00	%		$	2,370,780			*	10.00	%
	Tier 1 capital to risk-weighted assets			2,174,964				9.17				948,312			*	4.00				1,422,468			*	6.00
	Tier 1 capital to average assets			2,174,964				6.72				1,294,239			*	4.00				1,617,799			*	5.00
Charter One Commercial:
	Total capital to risk-weighted assets			39,977				47.37				6,752			*	8.00				8,440			*	10.00
	Tier 1 capital to risk-weighted assets			39,977				47.37				3,376			*	4.00				5,064			*	6.00
	Tier 1 capital to average assets			39,977				16.59				9,638			*	4.00				12,048			*	5.00
Charter One Bank, F.S.B.:
	Total capital to risk-weighted assets			2,360,964				10.11				1,867,986			*	8.00				2,334,983			*	10.00
	Tier 1 capital to risk-weighted assets			1,857,023				7.95				N/A				N/A				1,400,990			*	6.00
	Core capital to adjusted tangible assets			1,879,417				5.77				1,302,467			*	4.00				1,628,083			*	5.00
	Tangible capital to tangible assets			1,878,948				5.77				488,418			*	1.50				N/A				N/A

			12/31/99
																			To Be “Well
																			Capitalized”
																			Under Prompt
											For Capital								Corrective
			Actual								Adequacy Purposes								Action Provisions
			Amount				Ratio				Amount				Ratio				Amount				Ratio
											(Dollars in thousands)
Charter One:
	Total capital to risk-weighted assets		$	2,404,336				11.16	%		$	1,722,825			*	8.00	%		$	2,153,532			*	10.00	%
	Tier 1 capital to risk-weighted assets			2,213,534				10.28				861,413			*	4.00				1,292,119			*	6.00
	Tier 1 capital to average assets			2,213,534				7.05				1,255,645			*	4.00				1,569,567			*	5.00
Charter One Commercial:
	Total capital to risk-weighted assets			41,337				40.92				8,081			*	8.00				10,101			*	10.00
	Tier 1 capital to risk-weighted assets			41,337				40.92				4,040			*	4.00				6,061			*	6.00
	Tier 1 capital to average assets			41,337				13.66				12,104			*	4.00				15,129			*	5.00
Charter One Bank, F.S.B.:
	Total capital to risk-weighted assets			2,115,164				10.00				1,691,462			*	8.00				2,114,327			*	10.00
	Tier 1 capital to risk-weighted assets			1,605,506				7.59				N/A				N/A				1,268,596			*	6.00
	Core capital to adjusted tangible assets			1,619,927				5.10				1,270,858			*	4.00				1,588,572			*	5.00
	Tangible capital to tangible assets			1,618,856				5.10				476,566			*	1.50				N/A				N/A
* Greater than or equal to

As of December 31, 1999, the most recent notification from the OTS categorized Charter One Bank, F.S.B. as “well capitalized” under the regulatory framework for Prompt Corrective Action. As of December 31, 1999, the most recent notification from the FRB categorized Charter One as “well capitalized” under the regulatory framework for Prompt Corrective Action. To be categorized as well capitalized, Charter One and Charter One Bank, F.S.B. must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table above. Charter One Commercial’s capital ratios exceed the minimum required to be well capitalized. Management does not know of any reasons why Charter One Commercial would not be considered well capitalized; however, as of September 30, 2000, Charter One Commercial had not received a classification from its regulator. As of September 30, 2000, Charter One's total capital to risk-weighted assets ratio was 9.99%, which was slightly below the well-capitalized ratio requirement of 10.00%. Charter One anticipates being in excess of this well-capitalized ratio requirement at December 31, 2000.

Management believes that, as of September 30, 2000, 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.

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Quarterly Stock Prices and Dividends (Figure 16)

			Three Months Ended
			9/30/00				6/30/00				3/31/00				12/31/99				9/30/99
Market price of common stock(1):
	High		$	25.13			$	25.71			$	20.00			$	25.18			$	25.63
	Low			21.06				17.27				14.52				16.67				20.08
	Close			24.38				21.90				20.00				18.22				22.03
Dividends declared and paid				.17				.17				.15				.15				.15

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(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, 1999 Form 10-K. The assumptions used in our model were updated as of June 30, 2000 and the results disclosed in our Form 10-Q for the quarterly period ended June 30, 2000. No material changes in the assumptions used or results obtained from the model have occurred since June 30, 2000.

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

PART II — OTHER INFORMATION

ITEM 5.  Other Information

Cash Dividend

On October 19, 2000, the Board of Directors of Charter One declared a regular quarterly cash dividend of 18 cents per common share. The dividend is payable November 20, 2000 to shareholders of record as of November 3, 2000.

ITEM 6.  Exhibits and Reports on Form 8-K

(a)	Exhibit 11 — Computation of Per Share Earnings
	Exhibit 27 — Financial Data Schedule

(b)  Reports on Form 8-K — None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CHARTER ONE FINANCIAL, INC.

Date: November 14, 2000	/s/ Richard W. Neu

	Richard W. Neu
	Executive Vice President and Chief Financial Officer
	(Duly Authorized Officer and Principal
	Financial Officer)

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