##### Table of Contents



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 March 31, 2004 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
    
    (I.R.S. Employeror organization)
    
    Identification No.)
 1215 Superior Avenue, Cleveland, Ohio
    
    44114(Address of principal executive offices)
    
    (Zip Code)
 (216) 566-5300
(Registrants telephone number, including area code) NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since report) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X       No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X       No The number of shares outstanding of the registrants sole class of common stock
as of April 30, 2004 was 223,797,287.




---



TABLE OF CONTENTS ItemNumber
    
    
    
    PagePART I  FINANCIAL STATEMENTS1.
    
    Financial StatementsConsolidated Statements of Financial Condition March 31, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Income Three months ended March 31, 2004 and 2003
    
    
    2Consolidated Statements of Cash Flows Three months ended March 31, 2004 and 2003
    
    
    3Notes to Consolidated Financial Statements
    
    
    42.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    63.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    194.
    
    Controls and Procedures
    
    
    19PART II  OTHER INFORMATION2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    205.
    
    Other Information
    
    
    206.
    
    Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    
    
    21Index to Exhibits
    
    
    
    
    22EX-11  Computation of Per Share EarningsEX-31.1  CEO 302 CertEX-31.2  CFO 302 CertEX-32  906 Certifications




---



##### Table of Contents



PART I  FINANCIAL INFORMATION 
 ITEM 1. Financial Statements 
 CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited) 3/31/04
    
    12/31/03(Dollars in thousands,except per share data)ASSETSCash accounts
    
    $
    535,273
    
    
    $
    518,976Interest-bearing deposits with banks
    
    
    8,689
    
    
    
    8,673Federal funds sold and other
    
    
    518
    
    
    
    517Total cash and cash equivalents
    
    
    544,480
    
    
    
    528,166Investment securities:Available for sale (amortized cost of $221,330 and $260,501)
    
    
    231,967
    
    
    
    273,260Held to maturity (fair value of $3,921 and $3,741)
    
    
    3,696
    
    
    
    3,505Mortgage-backed securities:Available for sale (amortized cost of $7,383,733 and $10,159,102)
    
    
    7,475,140
    
    
    
    10,193,798Held to maturity (fair value of $221,562 and $262,155)
    
    
    212,124
    
    
    
    251,449Loans and leases, net
    
    
    29,652,925
    
    
    
    28,130,017Loans held for sale
    
    
    132,507
    
    
    
    120,431Bank owned life insurance
    
    
    837,140
    
    
    
    828,678Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    706,358
    
    
    
    705,244Premises and equipment, net
    
    
    417,908
    
    
    
    404,086Accrued interest receivable
    
    
    132,215
    
    
    
    140,857Real estate and other collateral owned
    
    
    30,127
    
    
    
    36,643Mortgage servicing rights, net
    
    
    142,340
    
    
    
    177,244Goodwill
    
    
    415,696
    
    
    
    415,696Other assets
    
    
    344,306
    
    
    
    418,992Total assets
    
    $
    41,278,929
    
    
    $
    42,628,066LIABILITIES AND SHAREHOLDERS EQUITYDeposits
    
    $
    26,939,001
    
    
    $
    27,203,319Federal Home Loan Bank advances
    
    
    8,661,607
    
    
    
    9,847,293Federal funds purchased and repurchase agreements
    
    
    428,158
    
    
    
    269,319Other borrowings
    
    
    596,571
    
    
    
    697,753Advance payments by borrowers for taxes and insurance
    
    
    58,631
    
    
    
    61,054Accrued interest payable
    
    
    53,631
    
    
    
    35,944Accrued expenses and other liabilities
    
    
    1,284,298
    
    
    
    1,237,515Total liabilities
    
    
    38,021,897
    
    
    
    39,352,197Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Preferred stock  $.01 par value per share; 20,000,000
shares authorized and unissued
    
    
    
    
    
    
    Common stock  $.01 par value per share; 360,000,000
shares authorized; 229,924,425 and 229,940,729 shares issued
    
    
    2,299
    
    
    
    2,299Additional paid-in capital
    
    
    2,292,137
    
    
    
    2,280,335Retained earnings
    
    
    1,142,547
    
    
    
    1,178,803Less 6,272,992 and 6,767,285 shares of common stock held in treasury at cost
    
    
    (202,056
    )
    
    
    (209,653
    )Accumulated other comprehensive income
    
    
    22,105
    
    
    
    24,085Total shareholders equity
    
    
    3,257,032
    
    
    
    3,275,869Total liabilities and shareholders equity
    
    $
    41,278,929
    
    
    $
    42,628,066
 See Notes to Consolidated Financial Statements. 1




---



##### Table of Contents



CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended3/31/04
    
    3/31/03(Dollars in thousands,except per share data)Interest income:Loans and leases
    
    $
    367,344
    
    
    $
    377,724Mortgage-backed securities:Available for sale
    
    
    107,667
    
    
    
    149,311Held to maturity
    
    
    3,371
    
    
    
    8,269Investment securities:Available for sale
    
    
    3,604
    
    
    
    3,043Held to maturity
    
    
    48
    
    
    
    54Other interest-earning assets
    
    
    7,793
    
    
    
    7,385Total interest income
    
    
    489,827
    
    
    
    545,786Interest expense:Deposits
    
    
    95,886
    
    
    
    133,743Federal Home Loan Bank advances
    
    
    76,247
    
    
    
    99,799Other borrowings
    
    
    13,140
    
    
    
    13,203Total interest expense
    
    
    185,273
    
    
    
    246,745Net interest income
    
    
    304,554
    
    
    
    299,041Provision for loan and lease losses
    
    
    18,616
    
    
    
    61,471Net interest income after provision for loan
and lease losses
    
    
    285,938
    
    
    
    237,570Other income:Retail banking
    
    
    99,613
    
    
    
    84,100Mortgage banking
    
    
    (16,682
    )
    
    
    (27
    )Leasing operations
    
    
    2,125
    
    
    
    (6,856
    )Net gains (losses)
    
    
    (91,027
    )
    
    
    76,653Bank owned life insurance and other
    
    
    11,168
    
    
    
    7,956Total other income
    
    
    5,197
    
    
    
    161,826Administrative expenses:Compensation and employee benefits
    
    
    101,968
    
    
    
    87,056Net occupancy and equipment
    
    
    34,349
    
    
    
    31,186Marketing expenses
    
    
    28,809
    
    
    
    13,647Federal deposit insurance premiums
    
    
    1,083
    
    
    
    1,142Other administrative expenses
    
    
    51,826
    
    
    
    50,261Total administrative expenses
    
    
    218,035
    
    
    
    183,292Income before income taxes
    
    
    73,100
    
    
    
    216,104Income taxes
    
    
    22,844
    
    
    
    68,613Net income
    
    $
    50,256
    
    
    $
    147,491Basic earnings per share
    
    $
    .22
    
    
    $
    .66Diluted earnings per share
    
    $
    .22
    
    
    $
    .64Average common shares outstandingBasic
    
    
    223,533,656
    
    
    
    224,997,398Diluted
    
    
    230,219,061
    
    
    
    230,460,847Cash dividends declared per share
    
    $
    .26
    
    
    $
    .22
 See Notes to Consolidated Financial Statements. 2




---



##### Table of Contents



CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Three Months Ended3/31/04
    
    3/31/03(Dollars in thousands)Cash flows from operating activities:Net income
    
    $
    50,256
    
    
    $
    147,491Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan and lease losses
    
    
    18,616
    
    
    
    61,471Net losses
(gains)
    
    
    91,027
    
    
    
    (76,653
    )Accretion of discounts and amortization of premiums, intangibles
and depreciation, net
    
    
    63,408
    
    
    
    55,602Origination of loans held for sale
    
    
    (314,460
    )
    
    
    (763,051
    )Proceeds from sale of loans held for sale
    
    
    310,158
    
    
    
    721,738Increase in accrued interest payable
    
    
    17,687
    
    
    
    33,645Other
    
    
    (118,416
    )
    
    
    107,712Net cash provided by operating activities
    
    
    118,276
    
    
    
    287,955Cash flows from investing activities:Net principal disbursed on loans and leases
    
    
    (1,138,486
    )
    
    
    (2,252,822
    )Proceeds from principal repayments and maturities of:Mortgage-backed securities held to maturity
    
    
    39,442
    
    
    
    96,981Mortgage-backed securities available for sale
    
    
    429,226
    
    
    
    974,423Investment securities held to maturity
    
    
    70
    
    
    
    75Investment securities available for sale
    
    
    7,754
    
    
    
    23,533Proceeds from sale of:Mortgage-backed securities available for sale
    
    
    3,293,899
    
    
    
    2,545,803Investment securities available for sale
    
    
    45,769
    
    
    
    1,029Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    5,745
    
    
    
    14,629Purchase of:Mortgage-backed securities available for sale
    
    
    (815,549
    )
    
    
    (1,209,871
    )Investment securities available for sale
    
    
    (7,414
    )
    
    
    (42,437
    )Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    (162
    )
    
    
    (5,051
    )Loans
    
    
    (470,472
    )
    
    
    (3,765
    )Other
    
    
    (31,979
    )
    
    
    (25,650
    )Net cash provided by investing activities
    
    
    1,357,843
    
    
    
    116,877Cash flows from financing activities:Net increase in short-term borrowings
    
    
    1,129,734
    
    
    
    178,584Proceeds from long-term borrowings
    
    
    3,780
    
    
    
    1,004,160Repayments of long-term borrowings
    
    
    (2,259,968
    )
    
    
    (4,755
    )Increase (decrease) in deposits
    
    
    (263,815
    )
    
    
    23,111Decrease in advance payments by borrowers for taxes and insurance.
    
    
    (2,423
    )
    
    
    (143,816
    )Payment of dividends on common stock
    
    
    (58,303
    )
    
    
    (49,508
    )Proceeds from issuance of common stock
    
    
    53,256
    
    
    
    15,208Purchase of treasury stock
    
    
    (62,066
    )
    
    
    (16,790
    )Net cash provided by (used in) financing activities
    
    
    (1,459,805
    )
    
    
    1,006,194Net increase in cash and cash equivalents
    
    
    16,314
    
    
    
    1,411,026Cash and cash equivalents, beginning of the period
    
    
    528,166
    
    
    
    447,213Cash and cash equivalents, end of period
    
    $
    544,480
    
    
    $
    1,858,239Supplemental disclosure of cash flow information:Cash paid for interest on deposits and borrowings
    
    $
    167,083
    
    
    $
    212,689Cash paid for income taxes
    
    
    
    
    
    
    Supplemental schedule of noncash activities:Loans exchanged for mortgage-backed securities
    
    
    72,749
    
    
    
    3,419,116
   See Notes to Consolidated Financial Statements. 3




---



##### Table of Contents



CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  1.
    
    These interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Charter One Financial, Inc. (the Company or Charter
One) Annual Report on Form 10-K for the year ended December 31, 2003.
The interim financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results
for the periods presented. Such adjustments are of a normal recurring
nature. The results of operations for the interim periods disclosed
herein are not necessarily indicative of the results that may be expected
for a full year.2.
    
    Charter One has one operating segment, consumer banking, which offers an
array of products and services to its customers. Pursuant to its consumer
banking strategy, emphasis is placed on building relationships and
identifying cross-sell opportunities with its customers, as opposed to
building specific lines of business. As a result, Charter One works as an
integrated unit to customize solutions for its customers, with business
line emphasis and product offerings changing over time as needs and
demands change.3.
    
    On December 31, 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 148,
Accounting for Stock-Based Compensation -Transition and Disclosure, an
amendment of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS
No. 148 provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the
effects on reported net income of an entitys accounting policy decisions
with respect to stock-based employee compensation. Finally, SFAS No. 148
amends Accounting Principles Board (APB) Opinion No. 28, Interim
Financial Reporting, to require disclosure about those effects in interim
financial information. The Company has elected to continue application of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its stock-based employee
compensation plans. Accordingly, no stock-based employee compensation
cost is, or is expected to be, reflected in net income, as all options
granted under the Companys stock-based employee compensation plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant. Had stock-based employee compensation costs of the
Companys stock option plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of
SFAS No. 123, as amended by SFAS No. 148, the Companys net income and
earnings per share would have been reduced to the pro forma amounts
indicated below: Three Months Ended3/31/04
    
    3/31/03(Dollars in thousands,except per share data)Net income:As reported
    
    $
    50,256
    
    
    $
    147,491Less: Total stock-based employee compensation expense
determined under the fair value method for all awards, net of tax
    
    
    7,896
    
    
    
    7,570Pro forma
    
    $
    42,360
    
    
    $
    139,921Basic earnings per share:As reported
    
    $
    .22
    
    
    $
    .66Pro forma
    
    
    .19
    
    
    
    .62Diluted earnings per share:As reported
    
    
    .22
    
    
    
    .64Pro forma
    
    
    .18
    
    
    
    .61
 The fair value of each stock option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in the three months ended March 31, 2004 and 2003: Three Months Ended3/31/04
    
    3/31/03Dividend yield
    
    
    3.00
    %
    
    
    3.00
    %Volatility
    
    
    45.48-45.59
    %
    
    
    47.24-47.26
    %Risk-free interest rate
    
    
    3.03-3.37
    %
    
    
    3.35-3.36
    %Life of grant
    
    6 years
    
    6 years
 4




---



##### Table of Contents



The estimated weighted-average date of grant fair value (based on the above
option-pricing model and assumptions) for stock options granted in the three
months ended March 31, 2004 and 2003 was $12.44 and $10.99, respectively.4.
    
    In January 2003, the FASB issued Interpretation No. (FIN) 46, which
provides guidance on how to identify a variable interest entity (VIE)
and determine when the assets, liabilities, noncontrolling interests, and
results of operations of a VIE are to be included in a companys
consolidated financial statements. A VIE exists when either the total
equity investment at risk is not sufficient to permit the entity to
finance its activities by itself, or the equity investors lack one of
three characteristics associated with owning a controlling financial
interest. Those characteristics include the direct or indirect ability to
make decisions about an entitys activities through voting rights or
similar rights, the obligation to absorb the expected losses of an entity
if they occur, or the right to receive the expected residual returns of
the entity if they occur. In December 2003, the FASB reissued FIN 46 with
certain modifications and clarifications. Application of this guidance
was effective for interests in certain VIEs commonly referred to as
special-purpose entities as of December 31, 2003. Application for all
other types of entities was required for periods ending after March 15,
2004, unless previously applied. The adoption of FIN 46 did not have a
material impact on the Companys consolidated financial condition or
results of operations.5.
    
    On May 4, 2004, Citizens Financial Group, Inc.
(Citizens), a subsidiary of The Royal Bank of Scotland
Group plc, announced it reached an agreement to acquire Charter One
in a cash transaction. The cash purchase price is $44.50 per share or
approximately $10.5 billion. The transaction is expected to
close in the fourth quarter of 2004, subject to regulatory approval
and approval by Charter One shareholders. As part of this
transaction, Charter Ones national bank charter will remain.Citizens is a $78 billion commercial bank holding
company. It is headquartered in Providence, Rhode Island, and has
more than 880 offices, approximately 1,650 ATMs and more than 15,500
employees in seven states. It operates as Citizens Bank in
Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey,
Pennsylvania and Rhode Island. Citizens is one of the 20 largest
commercial bank holding companies in the United States. Citizens is
owned by The Royal Bank of Scotland Group plc. 5




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations HOLDING COMPANY BUSINESS The following financial review presents an analysis of the asset and liability
structure of Charter One Financial, Inc. and a discussion of the results of
operations for each of the periods presented. General Headquartered in Cleveland, Ohio, Charter One Financial, Inc., hereafter
referred to as Charter One or the Company, is a financial holding company.
Charter One is a Delaware corporation and owns all of the outstanding capital
stock of Charter One Bank, N.A., which we sometimes refer to in this document
as the Bank. The Banks primary business is providing consumer banking
services to certain major markets in Ohio, Michigan, Illinois, New York,
Vermont and in some markets of Massachusetts, Indiana, Connecticut and
Pennsylvania. As of March 31, 2004, the Bank and its subsidiaries were doing
business through 456 traditional banking centers, 160 in-store banking centers,
30 loan production offices and 988 ATMs. Acquisition On May 4, 2004, Citizens
Financial Group, Inc. (Citizens), a subsidiary of The
Royal Bank of Scotland Group plc, announced it reached an agreement
to acquire Charter One in a cash transaction. The cash purchase price
is $44.50 per share or approximately $10.5 billion. The
transaction is expected to close in the fourth quarter of 2004,
subject to regulatory approval and approval by Charter One
shareholders. As part of this transaction, Charter Ones
national bank charter will remain. Citizens is a
$78 billion commercial bank holding company. It is headquartered
in Providence, Rhode Island, and has more than 880 offices,
approximately 1,650 ATMs and more than 15,500 employees in seven
states. It operates as Citizens Bank in Connecticut, Delaware,
Massachusetts, New Hampshire, New Jersey, Pennsylvania and Rhode
Island. Citizens is one of the 20 largest commercial bank holding
companies in the United States. Citizens is owned by The Royal Bank
of Scotland Group plc. Discussion of Forward-Looking Statements This document, including information incorporated by reference, contains, and
future filings by Charter One on Form 10-K, Form 10-Q and Form 8-K and future
oral and written statements and press releases by Charter One and its
management may contain, forward-looking statements about Charter One which we
believe are within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, without limitation,
statements with respect to anticipated future operating and financial
performance, including revenue creation, lending origination, operating
efficiencies, loan sales, charge-offs and loan loss provisions, deposits and
refinancing of liabilities, growth opportunities, interest rates, acquisition
and divestiture opportunities, and synergies, efficiencies, cost savings and
funding advantages expected to be realized from prior acquisitions. These
forward-looking statements are based on currently available competitive,
financial and economic data and managements views and assumptions regarding
future events. These forward-looking statements are inherently uncertain, and
investors must recognize that actual results may differ from those expressed or
implied in the forward-looking statements. Accordingly, Charter One cautions
readers not to place undue reliance on any forward-looking statements. Many of these forward-looking statements appear throughout this document.
Words such as may, could, should, would, believe, anticipate, estimate, expect,
intend, plan and similar expressions are intended to identify these
forward-looking statements. The important factors discussed below, as well as
other factors discussed elsewhere in this document and factors identified in
our filings with the Securities and Exchange Commission and those presented
elsewhere by our management from time to time, could cause actual results to
differ materially from those indicated by the forward-looking statements made
in this document. Among the factors that could cause our actual results to
differ from these forward-looking statements are:  
    
    the strength of the United States economy in general and the strength
of the local economies in which we conduct our operations; general
economic conditions, either nationally or regionally, may be less
favorable than expected, resulting in, among other things, a
deterioration in the credit quality of our loans and leases and other
assets;
    
    the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve
Board;
    
    financial markets, monetary and interest rate fluctuations,
particularly the relative relationship of short-term interest rates to
long-term interest rates;
    
    the timely development of and acceptance of new products and services
of Charter One and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors products and services;
    
    the impact of changes in financial services laws and regulations
(including laws and regulations concerning taxes, accounting
standards, banking, securities and insurance); legislative or
regulatory changes may adversely affect the business in which we are
engaged;   6




---



##### Table of Contents




    
    the impact of technological changes;
    
    our ability to successfully integrate acquisitions into our existing
operations, and the availability of new acquisitions, joint ventures
and alliance opportunities that build shareholder value;
    
    changes in consumer spending and saving habits; and
    
    our success at managing the risks involved in the foregoing. Charter One disclaims any obligation to update or revise any forward-looking
statements based on the occurrence of future events, the receipt of new
information, or otherwise. RESULTS OF OPERATIONS Performance Overview Figure 1 sets forth financial results and annualized performance ratios for the
three months ended March 31, 2004 and 2003, respectively. On January 27, 2004,
we prepaid $2.3 billion in fixed rate Federal Home Loan Bank (FHLB) advances
and incurred a prepayment penalty of $164.5 million before tax ($113.1 million
after tax). Because of the unusual nature of the debt prepayment penalty, we
believe it is important for comparability purposes to present selected
financial results and ratios excluding the debt prepayment penalty. Selected Financial Results and Ratios(Figure 1) Three Months Ended3/31/04
    
    3/31/03PrepaymentActual
    
    Penalty
    
    Adjusted(Dollars in thousands, except per share data)Results and ratios:Net income
    
    $
    50,256
    
    
    $
    113,068
    
    
    $
    163,324
    
    
    $
    147,491Diluted earnings per share
    
    
    .22
    
    
    
    .49
    
    
    
    .71
    
    
    
    .64Return on average assets
    
    
    .47
    %
    
    
    1.06
    %
    
    
    1.53
    %
    
    
    1.38
    %Return on average equity
    
    
    6.18
    
    
    
    13.91
    
    
    
    20.09
    
    
    
    18.48Return on average tangible equity(1)
    
    
    7.21
    
    
    
    16.14
    
    
    
    23.35
    
    
    
    21.29Average equity to average assets
    
    
    7.61
    
    
    
    
    
    
    
    7.61
    
    
    
    7.46Net interest income to administrative expenses
    
    
    1.40x
    
    
    
    
    
    
    
    1.40x
    
    
    
    1.63xAdministrative expenses to average assets
    
    
    2.04
    %
    
    
    
    
    
    
    2.04
    %
    
    
    1.71
    %Efficiency ratio(2)
    
    
    70.39
    
    
    
    24.41
    
    
    
    45.98
    
    
    
    39.77
   (1)
    
    Computed as the ratio of net income, excluding the amortization of other
intangible assets, to average tangible equity.(2)
    
    Computed as the ratio of total administrative expenses to net interest
income and total other income. Net Interest Income Net interest income is the difference between the interest and dividend income
earned on our loans and investments and the interest expense on our deposits
and borrowings. Net interest income is our principal source of earnings. Net
interest income is affected by a number of factors including the level, pricing
and maturity of interest-earning assets and interest-bearing liabilities,
interest rate fluctuations and asset quality, as well as general economic
conditions and regulatory policies. The following table shows average balances, interest earned or paid, and
average interest rates for the periods indicated. Nonaccrual loans are
included in the average balance of loans. The mark-to-market adjustments on
securities available for sale are included in noninterest-earning assets.
Noninterest-bearing demand deposit accounts are included in noninterest-bearing
liabilities. The cost of liabilities includes the annualized effect of
interest rate risk management instruments. 7




---



##### Table of Contents



Average Balances, Interest Rates and Yields/Costs(Figure 2) Three Months Ended3/31/04
    
    3/31/03Avg.
    
    
    
    
    
    
    
    
    
    Avg.Average
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Cost
    
    Balance
    
    Interest
    
    Cost(Dollars in thousands)Interest-earning assets:Loans and leases
    
    $
    29,220,076
    
    
    $
    367,344
    
    
    
    5.03
    %
    
    $
    25,851,471
    
    
    $
    377,724
    
    
    
    5.86
    %Mortgage-backed securities:Available for sale
    
    
    9,532,380
    
    
    
    107,667
    
    
    
    4.52
    
    
    
    12,656,663
    
    
    
    149,311
    
    
    
    4.72Held to maturity
    
    
    229,507
    
    
    
    3,371
    
    
    
    5.88
    
    
    
    480,882
    
    
    
    8,269
    
    
    
    6.88Investment securities:Available for sale
    
    
    255,432
    
    
    
    3,604
    
    
    
    5.64
    
    
    
    206,860
    
    
    
    3,043
    
    
    
    5.88Held to maturity
    
    
    3,602
    
    
    
    48
    
    
    
    5.32
    
    
    
    4,060
    
    
    
    54
    
    
    
    5.29Other interest-earning assets
    
    
    823,199
    
    
    
    7,793
    
    
    
    3.75
    
    
    
    762,760
    
    
    
    7,385
    
    
    
    3.87Total interest-earning assets
    
    
    40,064,196
    
    
    
    489,827
    
    
    
    4.89
    
    
    
    39,962,696
    
    
    
    545,786
    
    
    
    5.48Allowance for loan and lease losses
    
    
    (387,712
    )
    
    
    
    
    
    
    
    
    
    
    (327,090
    )Noninterest-earning assets
    
    
    3,053,124
    
    
    
    
    
    
    
    
    
    
    
    3,150,359Total assets
    
    $
    42,729,608
    
    
    
    
    
    
    
    
    
    
    $
    42,785,965Interest-bearing liabilities:Deposits:Checking accounts
    
    $
    5,538,583
    
    
    
    10,436
    
    
    
    .76
    
    
    $
    7,541,679
    
    
    
    30,618
    
    
    
    1.65Money market and savings
accounts
    
    
    8,553,416
    
    
    
    19,754
    
    
    
    .93
    
    
    
    7,929,274
    
    
    
    30,327
    
    
    
    1.55Certificates of deposit
    
    
    10,172,127
    
    
    
    65,696
    
    
    
    2.60
    
    
    
    9,562,013
    
    
    
    72,798
    
    
    
    3.09Total deposits
    
    
    24,264,126
    
    
    
    95,886
    
    
    
    1.59
    
    
    
    25,032,966
    
    
    
    133,743
    
    
    
    2.17Federal Home Loan Bank advances
    
    
    10,189,502
    
    
    
    76,247
    
    
    
    3.00
    
    
    
    10,410,188
    
    
    
    99,799
    
    
    
    3.88Other borrowings
    
    
    1,102,005
    
    
    
    13,140
    
    
    
    4.76
    
    
    
    866,495
    
    
    
    13,203
    
    
    
    6.10Total borrowings
    
    
    11,291,507
    
    
    
    89,387
    
    
    
    3.18
    
    
    
    11,276,683
    
    
    
    113,002
    
    
    
    4.05Total interest-bearing liabilities
    
    
    35,555,633
    
    
    
    185,273
    
    
    
    2.09
    
    
    
    36,309,649
    
    
    
    246,745
    
    
    
    2.75Noninterest-bearing liabilities:Demand deposit accounts
    
    
    2,604,755
    
    
    
    
    
    
    
    
    
    
    
    2,017,036Other noninterest-bearing
liabilities
    
    
    1,317,979
    
    
    
    
    
    
    
    
    
    
    
    1,266,385Total noninterest-bearing
liabilities
    
    
    3,922,734
    
    
    
    
    
    
    
    
    
    
    
    3,283,421Total liabilities
    
    
    39,478,367
    
    
    
    
    
    
    
    
    
    
    
    39,593,070Shareholders equity
    
    
    3,251,241
    
    
    
    
    
    
    
    
    
    
    
    3,192,895Total liabilities and
shareholders equity
    
    $
    42,729,608
    
    
    
    
    
    
    
    
    
    
    $
    42,785,965Net interest income
    
    
    
    
    
    $
    304,554
    
    
    
    
    
    
    
    
    
    
    $
    299,041Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.80
    
    
    
    
    
    
    
    
    
    
    
    2.73Net yield on average interest-
earning assets
    
    
    
    
    
    
    
    
    
    
    3.04
    
    
    
    
    
    
    
    
    
    
    
    2.99Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.68
    %
    
    
    
    
    
    
    
    
    
    
    110.06
    %
 8




---



##### Table of Contents



Figure 3 shows the approximate relative contribution of changes in average
interest rates and volume to changes in net interest income for the periods
indicated. Changes not solely attributable to volume or rate have been
allocated in proportion to the changes due to volume and rate. Amortization of
net deferred loan costs and automobile dealer reserves included as a reduction
in interest income was $32.3 million and $27.5 million for the three months
ended March 31, 2004 and 2003, respectively. Rate/Volume Analysis(Figure 3) Three Months Ended March 31,2004 v. 2003Increase (decrease) due toRate
    
    Volume
    
    Total(Dollars in thousands)Interest income:Loans and leases
    
    $
    (57,437
    )
    
    $
    47,057
    
    
    $
    (10,380
    )Mortgage-backed securities:Available for sale
    
    
    (6,125
    )
    
    
    (35,519
    )
    
    
    (41,644
    )Held to maturity
    
    
    (1,069
    )
    
    
    (3,829
    )
    
    
    (4,898
    )Investment securities:Available for sale
    
    
    (128
    )
    
    
    689
    
    
    
    561Held to maturity
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Other interest-earning assets
    
    
    (167
    )
    
    
    575
    
    
    
    408Total
    
    
    (64,926
    )
    
    
    8,967
    
    
    
    (55,959
    )Interest expense:Checking accounts
    
    
    (13,494
    )
    
    
    (6,688
    )
    
    
    (20,182
    )Money market and savings accounts
    
    
    (13,025
    )
    
    
    2,452
    
    
    
    (10,573
    )Certificates of deposit
    
    
    (11,538
    )
    
    
    4,436
    
    
    
    (7,102
    )Federal Home Loan Bank advances
    
    
    (14,871
    )
    
    
    (8,681
    )
    
    
    (23,552
    )Other borrowings
    
    
    333
    
    
    
    (396
    )
    
    
    (63
    )Total
    
    
    (52,595
    )
    
    
    (8,877
    )
    
    
    (61,472
    )Change in net interest income
    
    $
    (12,331
    )
    
    $
    17,844
    
    
    $
    5,513
 Net interest income was $304.6 million for the three months ended March 31,
2004, up $5.5 million, or 1.8%, from the first quarter of 2003. Net yield on
average interest-earning assets during the first quarter of 2004 was 3.04%, up
five basis points from the first quarter of 2003. The improvement was
attributable to the increase in average noninterest-bearing deposits, as well
as two months benefit from the prepayment of $2.3 billion in fixed rate FHLB
advances on January 27, 2004. These FHLB advances carried a weighted average
cost of 6.27% and were due to mature between June 2005 and January 2006. Provision for Loan and Lease Losses The provision for loan and lease losses for the three months ended March 31,
2004 was $18.6 million, a decrease of $42.9 million from the three months ended
March 31, 2003. Net charge-offs totaled $17.5 million for the three months
ended March 31, 2004, compared to $33.6 million for the three months ended
March 31, 2003. The ratio of net charge-offs as a percent of average loans and
leases decreased 28 basis points to .24% (annualized) for the first quarter of
2004. See Financial Condition  Asset Quality for further information regarding
our allowance for loan and lease losses. Other Income Other income for the three months ended March 31, 2004 was $5.2 million, a
decrease of $156.6 million, or 96.8%, from $161.8 million for the three months
ended March 31, 2003. This decrease was primarily attributable to net losses
and a decrease in mortgage banking income, partially offset by an increase in
retail banking income and leasing operations income. Net losses totaled $91.0 million for the first quarter of 2004, compared to net
gains of $76.7 million for the first quarter of 2003. Net losses for the first
quarter of 2004 included the $164.5 million debt prepayment penalty, offset by
$73.5 million in net gains primarily from the sale of mortgage-backed
securities. As discussed in Performance 9




---



##### Table of Contents



Overview above, we prepaid $2.3 billion in fixed rate FHLB advances with a
weighted average cost of 6.27%, and incurred a debt prepayment penalty of
$164.5 million before tax in the first quarter of 2004. These FHLB advances
were due to mature between June 2005 and January 2006. We did not utilize any
special-purpose entities for the sale of any of our mortgage-backed securities.
Sales of mortgage-backed securities totaled $3.2 billion for the first quarter
of 2004. Transactions resulting in net gains and losses, such as asset sales,
are primarily undertaken in an effort to mitigate interest rate risk while
still achieving targeted net interest yields by managing the size and mix of
the Banks interest sensitive asset and liability portfolios. Mortgage banking income was a loss of $16.7 million for the three months ended
March 31, 2004, compared to a loss of $27,000 for the three months ended March
31, 2003. During the first quarter of 2004, we recorded a permanent impairment
charge of $13.1 million and increased the valuation allowance on mortgage
servicing rights by $16.7 million to an ending balance of $99.3 million. Total
mortgage banking income, excluding the $13.1 million impairment charge and
$16.7 million increase to the valuation allowance, was $13.0 million in the
first quarter of 2004. In the year ago quarter, mortgage banking income
totaled $20.6 million, excluding a $20.7 million increase in the valuation
allowance. This reduction in mortgage banking income was due primarily to
lower mortgage production during the first quarter of 2004. The portfolio of
loans serviced for others decreased to $16.1 billion, down 4.5% since December
31, 2003. The related mortgage servicing asset was reduced to $142.3 million
at March 31, 2004. With an average servicing spread of 35.6 basis points, that
translates into a servicing asset valuation of 2.5 times the servicing spread. Retail banking income was $99.6 million for the three months ended March 31,
2004, an increase of $15.5 million, or 18.4%, over the three months ended March
31, 2003. The biggest driver of the increase was deposit-related revenue,
which totaled $87.0 million for the three months ended March 31, 2004, up 20.6%
over the year-ago quarter. Deposit-related revenue reflected the benefits of
our strategy to emphasize noninterest-bearing checking account growth.
Excluding custodial accounts, noninterest-bearing checking accounts totaled
$3.0 billion at March 31, 2004, up $852.9 million, or 39.2%, since December 31,
2003. The other components of retail banking revenue included fees from retail
brokerage activities ($8.4 million, up 1.0% from the year-ago quarter) and
other revenue related to retail operations ($4.2 million, up 16.0% from the
year-ago quarter). Leasing operations reflected income of $2.1 million in the first quarter of
2004, compared to a loss of $6.9 million in the first quarter of 2003. The
loss in the year-ago quarter was attributable to $8.7 million in residual value
adjustments. Administrative Expenses Administrative expenses were $218.0 million for the three months ended March
31, 2004, an increase of $34.7 million, or 19.0%, from the first quarter of
2003. The increase in administrative expenses was primarily attributable to
increased marketing costs, compensation expense and net occupancy and equipment
expenses. Marketing expenses increased by $15.2 million from the year-ago
quarter as we provided ongoing support for our retail bank expansion strategy
and other franchise enhancing initiatives. Compensation expense, which
increased $14.9 million, and net occupancy and equipment expense increased
primarily due to expenses relating to operating more banking centers than a
year ago. During 2003, we initiated an aggressive de novo branch expansion
plan. These efforts led to the net addition of 139 new banking centers since
March 31, 2003, including 24 net new banking centers opened in the first
quarter of 2004. Our plan is to continue the expansion in 2004 for a total of
125 additional banking centers. Due to the penalty associated with the debt
prepayment discussed in Performance Overview above, the efficiency ratio was
an artificially high 70.39% for the first quarter of 2004. Excluding the
$164.5 million debt prepayment penalty, the efficiency ratio was 45.98% for the
three months ended March 31, 2004, compared to 39.77% for the three months
ended March 31, 2003. Federal Income Tax Federal income tax expense for the three months ended March 31, 2004 was $22.8
million, compared to $68.6 million for the same period in 2003. The primary
reason for this decrease in the provision for federal income taxes was a
decrease in pre-tax income. This decrease in pre-tax income was primarily
attributable to our prepayment penalty of $164.5 million on the early
termination of the FHLB advances as previously noted. The effective tax rate
was 31.3% for the 2004 period and 31.7% for the 2003 period. 10




---



##### Table of Contents



FINANCIAL CONDITION Overview At March 31, 2004, total assets were $41.3 billion, compared to total assets of
$42.6 billion at December 31, 2003. Loans and Leases Composition of Loans and Leases(Figure 4) 3/31/04
    
    12/31/03(Dollars in thousands)One-to-four family:Permanent:Fixed rate
    
    $
    6,825,379
    
    
    $
    6,001,695Adjustable rate
    
    
    2,867,295
    
    
    
    2,830,677Construction
    
    
    483,275
    
    
    
    485,35410,175,949
    
    
    
    9,317,726Commercial real estate:Multifamily
    
    
    800,524
    
    
    
    776,528Commercial
    
    
    1,242,304
    
    
    
    1,193,377Construction
    
    
    541,600
    
    
    
    521,6802,584,428
    
    
    
    2,491,585Consumer:Retail
    
    
    6,018,261
    
    
    
    5,491,923Automobile
    
    
    6,272,710
    
    
    
    6,364,703Consumer finance
    
    
    1,130,226
    
    
    
    1,092,53313,421,197
    
    
    
    12,949,159Business:Leasing
    
    
    2,208,350
    
    
    
    2,195,418Corporate banking
    
    
    1,780,350
    
    
    
    1,680,2933,988,700
    
    
    
    3,875,711Loans and leases before allowance for loan and lease losses
    
    
    30,170,274
    
    
    
    28,634,181Allowance for loan and lease losses
    
    
    (384,842
    )
    
    
    (383,733
    )Loans and leases, net(1)
    
    $
    29,785,432
    
    
    $
    28,250,448Portfolio of loans serviced for others
    
    $
    16,124,233
    
    
    $
    16,877,169
   (1)
    
    Includes loans held for sale. 11




---



##### Table of Contents



Loan and Lease Activity(Figure 5) Three Months Ended3/31/04
    
    3/31/03(Dollars in thousands)Originations:Real estate:Permanent:One-to-four family
    
    $
    1,161,546
    
    
    $
    3,095,718Multifamily
    
    
    75,992
    
    
    
    51,440Commercial
    
    
    128,270
    
    
    
    90,213Total permanent loans
    
    
    1,365,808
    
    
    
    3,237,371Construction:One-to-four family
    
    
    88,851
    
    
    
    35,556Multifamily
    
    
    30,741
    
    
    
    19,283Commercial
    
    
    117,233
    
    
    
    10,830Total construction loans
    
    
    236,825
    
    
    
    65,669Total real estate loans originated
    
    
    1,602,633
    
    
    
    3,303,040Retail consumer
    
    
    1,054,029
    
    
    
    1,079,290Automobile
    
    
    664,636
    
    
    
    981,114Consumer finance
    
    
    105,633
    
    
    
    101,927Leases
    
    
    155,279
    
    
    
    101,571Corporate banking
    
    
    515,264
    
    
    
    448,326Total loans and leases originated
    
    
    4,097,474
    
    
    
    6,015,268Acquired through purchases
    
    
    470,472
    
    
    
    3,765Sales and principal reductions:Loans sold
    
    
    314,460
    
    
    
    763,051Loans exchanged for mortgage backed securities
    
    
    72,749
    
    
    
    3,419,116Principal reductions
    
    
    2,606,192
    
    
    
    3,025,830Total sales and principal reductions
    
    
    2,993,401
    
    
    
    7,207,997Increase (decrease) before net items
    
    $
    1,574,545
    
    
    $
    (1,188,964
    )
 Investment and Mortgage-Backed Securities Figures 6 and 7 summarize our investment and mortgage-backed securities
portfolios at March 31, 2004 and December 31, 2003. The amounts reflected
represent the fair value of securities available for sale and the amortized
cost of securities held to maturity. Investment Securities(Figure 6) 3/31/04
    
    12/31/03(Dollars in thousands)Available for SaleU.S. Treasury and agency securities
    
    $
    92,862
    
    
    $
    101,406Securities of U.S. states and political subdivisions
    
    
    39,719
    
    
    
    40,180Corporate capital trust
    
    
    85,061
    
    
    
    115,908Other securities
    
    
    14,325
    
    
    
    15,766Total investment securities available for sale
    
    
    231,967
    
    
    
    273,260Held to MaturityU.S. Treasury and agency securities
    
    
    262
    
    
    
    Securities of U.S. states and political subdivisions
    
    
    3,409
    
    
    
    3,480Corporate capital trust and other securities
    
    
    25
    
    
    
    25Total investment securities held to maturity
    
    
    3,696
    
    
    
    3,505Total
    
    $
    235,663
    
    
    $
    276,765Weighted average rate
    
    
    5.02
    %
    
    
    5.48
    %
 12




---



##### Table of Contents



Mortgage-Backed Securities(Figure 7) 3/31/04
    
    12/31/03(Dollars in thousands)Available for SaleParticipation certificates:U.S. government and agency issues
    
    $
    7,036,737
    
    
    $
    9,670,524Collateralized mortgage obligations:U.S. government and agency issues
    
    
    429,867
    
    
    
    511,601Private issues
    
    
    8,536
    
    
    
    11,673Total mortgage-backed securities available for sale
    
    
    7,475,140
    
    
    
    10,193,798Held to MaturityParticipation certificates:U.S. government and agency issues
    
    
    157,265
    
    
    
    186,740Private issues
    
    
    17,353
    
    
    
    20,454Collateralized mortgage obligations:U.S. government and agency issues
    
    
    23,116
    
    
    
    25,994Private issues
    
    
    14,390
    
    
    
    18,261Total mortgage-backed securities held to maturity
    
    
    212,124
    
    
    
    251,449Total
    
    $
    7,687,264
    
    
    $
    10,445,247Weighted average rate
    
    
    4.44
    %
    
    
    4.57
    %
 Asset Quality The allowance for loan and lease losses totaled $384.8 million at March 31,
2004, which was 1.28% of total loans and leases at March 31, 2004, and
represented 5.5 years coverage of annualized first quarter 2004 net
charge-offs. Analysis of the Allowance for Loan and Lease Losses(Figure 8) Three Months Ended3/31/04
    
    3/31/03(Dollars in thousands)Allowance for loan and lease losses:Balance, beginning of period
    
    $
    383,733
    
    
    $
    328,017Provision for loan and lease losses
    
    
    18,616
    
    
    
    61,471Loans and leases charged off:One-to-four family
    
    
    (827
    )
    
    
    (670
    )Commercial real estate
    
    
    (872
    )
    
    
    (500
    )Retail consumer
    
    
    (2,534
    )
    
    
    (3,478
    )Automobile
    
    
    (13,679
    )
    
    
    (16,450
    )Consumer finance
    
    
    (3,479
    )
    
    
    (4,537
    )Leases
    
    
    
    
    
    
    (6,061
    )Corporate banking
    
    
    (2,516
    )
    
    
    (7,245
    )Total charge-offs
    
    
    (23,907
    )
    
    
    (38,941
    )Recoveries:One-to-four family
    
    
    11
    
    
    
    17Commercial real estate
    
    
    64
    
    
    
    148Retail consumer
    
    
    634
    
    
    
    433Automobile
    
    
    4,421
    
    
    
    4,115Consumer finance
    
    
    228
    
    
    
    105Leases
    
    
    433
    
    
    
    393Corporate banking
    
    
    609
    
    
    
    168Total recoveries
    
    
    6,400
    
    
    
    5,379Net loan and lease charge-offs
    
    
    (17,507
    )
    
    
    (33,562
    )Balance, end of period
    
    $
    384,842
    
    
    $
    355,926Net charge-offs to average loans and leases (annualized)
    
    
    .24
    %
    
    
    .52
    %
 In determining the adequacy of the allowance for loan and lease losses,
management reviews and evaluates the potential credit risk inherent in the loan
and lease portfolio. All outstanding loans and leases are considered in this
evaluation process. The evaluation process includes such factors as historical
loss experience, credit scores, delinquencies, loss migration analysis,
concentration of credit and the current economic environment. If this
evaluation process indicates a need for either a higher or lower allowance for
loan and lease losses, that increase or reduction is made via the provision for
loan and lease losses. This evaluation process is performed no less
than 13




---



##### Table of Contents



quarterly and it is applied on a consistent basis. Based upon this analysis,
management believes that the allowance for loan and lease losses at March 31,
2004 was adequate to absorb losses inherent in the loan and lease portfolio. Figure 9 sets forth information concerning nonperforming and underperforming
assets for the periods reported. Underperforming assets consist of (1)
nonperforming assets (nonaccrual loans and leases, restructured real estate
mortgage loans, and real estate acquired through foreclosure and other
collateral owned) and (2) accruing loans and leases delinquent more than 90
days. Nonperforming and Underperforming Assets(Figure 9) 3/31/04
    
    12/31/03(Dollars in thousands)Nonperforming assets:Nonaccrual loans and leases:Real estate mortgage loans:One-to-four family
    
    $
    24,143
    
    
    $
    23,301Multifamily and commercial
    
    
    34,296
    
    
    
    33,692Construction and land
    
    
    25,114
    
    
    
    25,161Total real estate mortgage loans
    
    
    83,553
    
    
    
    82,154Retail consumer
    
    
    10,163
    
    
    
    9,818Automobile
    
    
    
    
    
    
    Consumer finance
    
    
    43,733
    
    
    
    42,843Leases
    
    
    6,201
    
    
    
    6,360Corporate banking
    
    
    25,073
    
    
    
    28,408Total nonaccrual loans and leases
    
    
    168,723
    
    
    
    169,583Restructured loans
    
    
    
    
    
    
    474Total nonperforming loans and leases
    
    
    168,723
    
    
    
    170,057Real estate and other collateral owned
    
    
    29,793
    
    
    
    35,654Total nonperforming assets
    
    $
    198,516
    
    
    $
    205,711Ratio of:Nonperforming loans and leases to total loans and leases
    
    
    .57
    %
    
    
    .60
    %Nonperforming assets to total assets
    
    
    .48
    
    
    
    .48Nonperforming assets to total loans, leases and real estate and other collateral owned
    
    
    .67
    
    
    
    .73Allowance for loan and lease losses to:Nonperforming loans and leases
    
    
    228.09
    
    
    
    225.65Total loans and leases before allowance
    
    
    1.28
    
    
    
    1.34Accruing loans and leases delinquent more than 90 days:Real estate mortgage loans:One-to-four family
    
    $
    21,576
    
    
    $
    21,549Multifamily and commercial
    
    
    
    
    
    
    Construction and land
    
    
    
    
    
    
    Total real estate mortgage loans
    
    
    21,576
    
    
    
    21,549Retail consumer
    
    
    2,144
    
    
    
    2,722Automobile
    
    
    2,035
    
    
    
    2,771Consumer finance
    
    
    15,340
    
    
    
    17,839Leases
    
    
    
    
    
    
    52Corporate banking
    
    
    412
    
    
    
    522Total accruing loans and leases delinquent more than 90 days
    
    $
    41,507
    
    
    $
    45,455Total underperforming assets
    
    $
    240,023
    
    
    $
    251,166Ratio of:Underperforming assets to total assets
    
    
    .58
    %
    
    
    .59
    %Underperforming assets to total loans, leases and real estate and other collateral owned
    
    
    .81
    
    
    
    .89
 Loans and leases not reflected in the table above, but where known information
about possible credit problems of borrowers causes management to have serious
doubts as to the ability of the borrower to comply with present repayment terms
and that may result in disclosure of such loans and leases as underperforming
assets in the future, are commonly referred to as potential problem loans and
leases. The amount included in potential problem loans and leases results from
an evaluation, on a loan-by-loan basis, of loans and leases classified as
substandard. The amount of potential problem loans and leases was $38.4
million and $32.7 million at March 31, 2004 and 14




---



##### Table of Contents



December 31, 2003, respectively. The vast majority of our potential problem
loans and leases, as well as our underperforming assets, are collateralized. SOURCES OF FUNDS Deposits Composition of Deposits(Figure 10) 3/31/04
    
    12/31/03Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageAmount
    
    Rate
    
    Amount
    
    Rate(Dollars in thousands)Checking accounts:Interest-bearing
    
    $
    4,944,405
    
    
    
    .82
    %
    
    $
    5,666,346
    
    
    
    .85
    %Noninterest-bearing
    
    
    3,454,577
    
    
    
    
    
    
    
    2,532,616
    
    
    
    Total checking accounts
    
    
    8,398,982
    
    
    
    .48
    
    
    
    8,198,962
    
    
    
    .59Money market and savings accounts
    
    
    8,406,630
    
    
    
    .92
    
    
    
    8,686,356
    
    
    
    .97Total transactions accounts
    
    
    16,805,612
    
    
    
    .70
    
    
    
    16,885,318
    
    
    
    .78Certificates of deposit
    
    
    10,133,389
    
    
    
    2.95
    
    
    
    10,318,001
    
    
    
    2.97Total deposits, net
    
    $
    26,939,001
    
    
    
    1.55
    
    
    $
    27,203,319
    
    
    
    1.61Including the effect of interest rate swaps
    
    
    
    
    
    
    1.41
    %
    
    
    
    
    
    
    1.49
    %
 Investment securities and mortgage-backed securities with a par value of $611.6
million at March 31, 2004 and $637.9 million at December 31, 2003, were pledged
to secure public deposits and for other purposes required or permitted by law. Borrowings At March 31, 2004, borrowings consisted primarily of FHLB advances. These
positions were secured by our investment in the stock of the FHLB, as well as
$12.7 billion in certain real estate loans and $2.1 billion in mortgage-backed
securities. FHLB Advances(Figure 11) 3/31/04
    
    12/31/03Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageAmount
    
    Rate
    
    Amount
    
    Rate(Dollars in thousands)Short-term
    
    $
    2,985,800
    
    
    
    1.30
    %
    
    $
    1,719,800
    
    
    
    1.43
    %Long-term:Fixed rate advances
    
    
    3,255,760
    
    
    
    5.41
    
    
    
    5,706,614
    
    
    
    5.70Variable rate advances
    
    
    2,409,605
    
    
    
    1.15
    
    
    
    2,409,604
    
    
    
    1.19Total advances
    
    
    8,651,165
    
    
    
    2.80
    
    
    
    9,836,018
    
    
    
    3.85Plus unamortized premium on advances
    
    
    10,442
    
    
    
    
    
    
    
    11,275
    
    
    
    Total advances, net
    
    $
    8,661,607
    
    
    
    2.77
    
    
    $
    9,847,293
    
    
    
    3.81Including the effect of interest rate swaps
    
    
    
    
    
    
    2.91
    %
    
    
    
    
    
    
    3.89
    %
 On January 27, 2004, we prepaid $2.3 billion in fixed rate FHLB advances with a
weighted average cost of 6.27%, and incurred a prepayment penalty of $164.5
million before tax. These FHLB advances were due to mature between June 2005
and January 2006. Interest Rate Swaps We use interest rate swaps as one of the tools to manage our interest rate risk
profile (defined as the sensitivity of our earnings and economic value to
changes in interest rates). We utilize fixed receipt callable interest rate
swaps to convert certain longer-term callable certificates of deposit into
short-term and medium-term variable instruments. Under certain of these
agreements totaling $260.0 million in notional principal amount, we have agreed
to receive interest from the counterparty on a notional amount at a fixed rate
defined in the agreement and to pay interest at a floating rate indexed to
LIBOR during the entire term of the interest rate swap. In other agreements
totaling $2.2 billion in notional principal amount, we have agreed to receive
interest from the counterparty on a notional amount at a fixed rate defined in
the agreement, and to pay interest at a fixed rate, converting to floating rate
indexed to LIBOR after the first two years of the interest rate swap term.
Such interest rate swaps are designated and qualify as fair value hedges under
SFAS No. 133. We have assumed no ineffectiveness in the respective hedging 15




---



##### Table of Contents



relationships. Any gain or loss on the interest rate swap was offset by a gain
or loss on the certificates of deposit during the period of change in fair
values. We utilize fixed payment interest rate swaps to convert certain floating rate
FHLB advances into fixed rate instruments. Under these agreements totaling
$409.6 million in notional principal amount, we have agreed to pay interest to
the counterparty on a notional principal amount at a fixed rate defined in the
agreement and receive interest at a floating rate indexed to LIBOR. The
amounts of interest exchanged are calculated on the basis of notional principal
amounts. Such interest rate swaps are designated and qualify as cash flow
hedges under SFAS No. 133. We have assumed no ineffectiveness in the
respective hedging relationships. Any gain or loss on the interest rate swaps
was offset by the expected future cash flows on the FHLB advances during the
period of change in fair values. We utilized a fixed receipt interest rate swap to convert our $400.0 million of
subordinated notes into a variable instrument. Under this agreement, we have
agreed to receive interest from the counterparty on a notional amount at a
fixed rate defined in the agreement and to pay interest at a floating rate
indexed to LIBOR. Such interest rate swap is designated and qualifies as a
fair value hedge under SFAS No. 133. We have assumed no ineffectiveness in the
hedging relationship. Any gain or loss on the interest rate swap was offset by
a gain or loss on the subordinated notes during the period of change in fair
values. Additionally, we entered into $575.0 million of fixed payment and variable
receipt interest rate swaps related to the issuance of the subordinated notes
discussed above. However, these interest rate swaps did not qualify for hedge
accounting under SFAS No. 133. For the three months ended March 31, 2004, the
net unrealized loss attributed to these interest rate swaps decreased $1.5
million to an ending balance of $12.6 million. The corresponding interest rate
swap liabilities were recognized in our Consolidated Statement of Financial
Condition at March 31, 2004 under the caption Accrued expenses and other
liabilities. Information on the interest rate swaps, by maturity date, is as follows: Interest Rate Swaps(Figure 12) 3/31/04
    
    
    
    
    
    
    
    
    
    12/31/03Notional
    
    Receiving
    
    Paying
    
    Notional
    
    Receiving
    
    PayingPrincipal
    
    Interest
    
    Interest
    
    Principal
    
    Interest
    
    InterestAmount
    
    Rate
    
    Rate
    
    Amount
    
    Rate
    
    Rate(Dollars in thousands)Fixed Payment and Fixed
Receipt(1)2007
    
    $
    1,005,000
    
    
    
    4.31
    %
    
    
    2.75
    %
    
    $
    1,005,000
    
    
    
    4.31
    %
    
    
    2.75
    %2008
    
    
    940,000
    
    
    
    3.65
    
    
    
    1.99
    
    
    
    940,000
    
    
    
    3.65
    
    
    
    1.992009
    
    
    260,000
    
    
    
    3.58
    
    
    
    1.96
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,205,000
    
    
    
    3.94
    %
    
    
    2.33
    %
    
    $
    1,945,000
    
    
    
    3.99
    %
    
    
    2.38
    %Fixed Payment and Variable
Receipt2004
    
    $
    375,000
    
    
    
    1.12
    %
    
    
    3.66
    %
    
    $
    375,000
    
    
    
    1.18
    %
    
    
    3.66
    %2006
    
    
    609,605
    
    
    
    1.10
    
    
    
    3.57
    
    
    
    609,605
    
    
    
    1.16
    
    
    
    3.57Total
    
    $
    984,605
    
    
    
    1.11
    %(2)
    
    
    3.60
    %
    
    $
    984,605
    
    
    
    1.17
    %(2)
    
    
    3.60
    %Variable Payment and Fixed
Receipt2005
    
    $
    140,000
    
    
    
    2.30
    %
    
    
    1.13
    %
    
    $
    230,000
    
    
    
    2.29
    %
    
    
    1.17
    %2006
    
    
    120,000
    
    
    
    2.20
    
    
    
    1.12
    
    
    
    
    
    
    
    
    
    
    
    2012
    
    
    400,000
    
    
    
    5.76
    
    
    
    1.12
    
    
    
    400,000
    
    
    
    5.76
    
    
    
    1.18Total
    
    $
    660,000
    
    
    
    4.38
    %
    
    
    1.12
    %(2)
    
    $
    630,000
    
    
    
    4.49
    %
    
    
    1.18
    %(2)
   (1)
    
    Converts to variable payment indexed to LIBOR after the first two years
of the interest rate swap agreement.(2)
    
    Rates are based upon LIBOR. Additionally, as of March 31, 2004, we have entered into forward fixed payment
and variable receipt interest rate swaps totaling $3.5 billion in notional
principal amount that are not reflected in the table above. Under these
agreements, we have agreed to pay interest to the counterparty on a notional
principal amount at a fixed rate defined in the agreement and receive interest
at a floating rate indexed to LIBOR. Settlements under these forward interest
rate swaps begin between April 2004 and January 2005. The forward interest
rate swaps mature between April 2006 and January 2007. The weighted average
fixed payment rate on these forward interest rate swaps is 3.03%. The forward
interest rate swaps will convert certain floating rate FHLB advances into fixed
rate instruments. Such interest rate swaps are designated and qualify as cash
flow hedges under SFAS No. 133. 16




---



##### Table of Contents



Information on these forward interest rate swaps, by effective date, is as
follows: Forward Interest Rate Swaps(Figure 13) PayingNotional
    
    InterestAmount
    
    Rate(Dollars in thousands)Fixed Payment and Variable Receipt Forward
Interest Rate Swaps Effective Date:Second quarter 2004
    
    $
    1,500,000
    
    
    
    2.84
    %Third quarter 2004
    
    
    1,000,000
    
    
    
    2.79First quarter 2005
    
    
    1,000,000
    
    
    
    3.57Total
    
    $
    3,500,000
    
    
    
    3.03
    %
 In January 2004, we terminated $1.0 billion of our forward interest rate swaps.
A deferred after-tax loss of $8.4 million was included in other comprehensive
income and will be amortized over the next 24 months as the related interest
expense on FHLB advances is recognized. The fair value of our interest rate swap contracts is estimated as the
difference in the present value of future cash flows between our existing
agreements and current market rate agreements of the same duration.
Information on the fair values of the interest rate swaps is as follows: Fair Value of Interest Rate Swaps(Figure 14) 3/31/04
    
    12/31/03(Dollars in thousands)Unrealized gain (loss):Fair value hedges
    
    $
    68,429
    
    
    $
    44,750Cash flow hedges
    
    
    (56,778
    )
    
    
    (10,495
    )Unhedged interest rate swaps
    
    
    (12,629
    )
    
    
    (14,151
    )Total fair value
    
    $
    (978
    )
    
    $
    20,104
 The net benefit of interest rate swaps included in interest expense is as
follows: Net Benefit of Interest Risk Management(Figure 15) Three Months Ended3/31/04
    
    3/31/03(Dollars in thousands)Interest expense (income):Deposits
    
    $
    (8,948
    )
    
    $
    (9,782
    )FHLB advances
    
    
    3,034
    
    
    
    2,244Subordinated notes
    
    
    (4,599
    )
    
    
    (4,391
    )Unhedged interest rate swaps
    
    
    4,098
    
    
    
    3,798Total net benefit
    
    $
    (6,415
    )
    
    $
    (8,131
    )
 Liquidity Our principal sources of funds are deposits, advances from the FHLB of
Cincinnati, federal funds purchased and repurchase agreements, repayments and
maturities of loans and securities, proceeds from the sale of loans and
securities and funds provided by operations. While scheduled loan, security
and interest-bearing deposit amortization and maturity are relatively
predictable sources of funds, deposit flows and loan and mortgage-backed
securities repayments are greatly influenced by economic conditions, the
general level of interest rates and competition. We utilize particular sources
of funds based on comparative costs and availability. We generally manage the
pricing of deposits to maintain a steady deposit balance, but from time to time
may decide to supplement deposits with longer term and/or lower cost
alternative sources of funds such as FHLB advances and federal funds purchased
and repurchase agreements. We may, from time to time, decide to price deposits
aggressively for strategic reasons which may result in significant deposit
inflows. 17




---



##### Table of Contents



Contractual Obligations A comprehensive table of significant fixed and determinable contractual
obligations to third parties by payment date was disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2003. There have been no material
changes to that disclosure, except for our prepayment of $2.3 billion in fixed
rate FHLB advances on January 27, 2004. See Borrowings above for further
discussion. Off-Balance Sheet Arrangements In the ordinary course of business, we enter into off-balance-sheet financial
instruments consisting of commitments to extend credit, commercial letters of
credit, standby letters of credit and commitments to purchase or sell assets.
Such financial instruments are recorded in the financial statements when they
are funded or the related fees are incurred or received. We anticipate that we
will have sufficient funds available to meet our commitments. As of March 31,
2004, there were outstanding commitments to originate $2.4 billion of mortgage
loans and other loans and leases, all at market rates. Terms of the
commitments extend up to nine months, but are generally less than two months.
Additionally, there were outstanding unfunded consumer lines of credit of $5.4
billion and corporate banking lines of credit of $396.5 million as of March 31,
2004. Substantially all of the consumer loans, including consumer lines of
credit, are secured by equity in the borrowers residences. We do not expect
all of these lines to be used by the borrowers. Outstanding letters of credit
totaled $138.1 million as of March 31, 2004. Capital and Dividends Charter One, a financial holding company, is subject to regulation by the
Federal Reserve Board (FRB) under the Bank Holding Company Act of 1956 as
amended, and the regulations of the FRB, including various capital
requirements. The Bank is subject to various regulatory capital requirements
administered by the Office of the Comptroller of the Currency. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
discretionary, actions by each regulator that, if undertaken, could have a
direct material effect on our financial statements. Under capital adequacy
guidelines, specific capital guidelines must be met that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The institutions capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy
require Charter One and the Bank to individually maintain minimum amounts and
ratios (set forth in the table below) of total and tier 1 capital to
risk-weighted assets, and of tier 1 capital to average assets. The actual
regulatory capital ratios calculated for Charter One and the Bank, along with
the capital amounts and ratios for capital adequacy purposes and the amounts
required to be categorized as well capitalized, are as follows: Regulatory Capital(Figure 16) 3/31/04To Be "Well Capitalized"For Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Charter One:Total capital to risk-weighted assets
    
    $
    3,574,657
    
    
    
    11.49
    %
    
    $
    2,488,922
    
    
    
    >
    
    
    
    8.00
    %
    
    $
    3,111,152
    
    
    
    >
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    2,789,894
    
    
    
    8.97
    
    
    
    1,244,461
    
    
    
    >
    
    
    
    4.00
    
    
    
    1,866,691
    
    
    
    >
    
    
    
    6.00Tier 1 capital to average assets
    
    
    2,789,894
    
    
    
    6.60
    
    
    
    1,690,645
    
    
    
    >
    
    
    
    4.00
    
    
    
    2,113,306
    
    
    
    >
    
    
    
    N/ACharter One Bank:Total capital to risk-weighted assets
    
    
    3,460,350
    
    
    
    11.13
    
    
    
    2,488,136
    
    
    
    >
    
    
    
    8.00
    
    
    
    3,110,170
    
    
    
    >
    
    
    
    10.00Tier 1 capital to risk-weighted assets
    
    
    2,483,439
    
    
    
    7.98
    
    
    
    1,244,068
    
    
    
    >
    
    
    
    4.00
    
    
    
    1,866,102
    
    
    
    >
    
    
    
    6.00Tier 1 capital to average assets
    
    
    2,483,439
    
    
    
    5.88
    
    
    
    1,689,565
    
    
    
    >
    
    
    
    4.00
    
    
    
    2,111,957
    
    
    
    >
    
    
    
    5.00
 18




---



##### Table of Contents



12/31/03To Be "Well Capitalized"For Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioCharter One:
    
    
    
    
    
    
    
    
    
    (Dollars in thousands)Total capital to risk-weighted assets
    
    $
    3,573,655
    
    
    
    11.68
    %
    
    $
    2,448,394
    
    
    
    >
    
    
    
    8.00
    %
    
    $
    3,060,493
    
    
    
    >
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    2,790,462
    
    
    
    9.12
    
    
    
    1,224,197
    
    
    
    >
    
    
    
    4.00
    
    
    
    1,836,296
    
    
    
    >
    
    
    
    6.00Tier 1 capital to average assets
    
    
    2,790,462
    
    
    
    6.50
    
    
    
    1,716,047
    
    
    
    >
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    
    
    
    
    N/ACharter One Bank:Total capital to risk-weighted assets.
    
    
    3,525,567
    
    
    
    11.52
    
    
    
    2,447,262
    
    
    
    >
    
    
    
    8.00
    
    
    
    3,059,077
    
    
    
    >
    
    
    
    10.00Tier 1 capital to risk-weighted assets
    
    
    2,409,716
    
    
    
    7.88
    
    
    
    1,223,631
    
    
    
    >
    
    
    
    4.00
    
    
    
    1,835,446
    
    
    
    >
    
    
    
    6.00Tier 1 capital to average assets
    
    
    2,409,716
    
    
    
    5.65
    
    
    
    1,706,068
    
    
    
    >
    
    
    
    4.00
    
    
    
    2,132,585
    
    
    
    >
    
    
    
    5.00
 Management believes that, as of March 31, 2004, Charter One and the Bank
individually met the capital adequacy requirements to which they were subject.
Events beyond managements control, such as fluctuations in interest rates or a
downturn in the economy in areas in which the institutions loans and
securities are concentrated could adversely affect future earnings and,
consequently, the institutions ability to meet its future capital
requirements. Quarterly Stock Prices and Dividends(Figure 17) Three Months Ended3/31/04
    
    12/31/03
    
    9/30/03
    
    6/30/03
    
    3/31/03Market price of common stock (NYSE: CF)High
    
    $
    37.96
    
    
    $
    34.87
    
    
    $
    33.20
    
    
    $
    32.59
    
    
    $
    30.74Low
    
    
    32.91
    
    
    
    30.31
    
    
    
    30.10
    
    
    
    27.24
    
    
    
    27.05Close
    
    
    35.36
    
    
    
    34.55
    
    
    
    30.60
    
    
    
    31.18
    
    
    
    27.66Dividends declared and paid
    
    
    .26
    
    
    
    .26
    
    
    
    .26
    
    
    
    .24
    
    
    
    .22
 
 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk Management considers our interest-sensitivity profile when deciding on sources
of funds. At March 31, 2004, our one-year gap was -2.02% of total
interest-earning assets. A comprehensive qualitative and quantitative analysis regarding market risk was
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2003. The assumptions used in our model have been updated as of March 31,
2004. The table below indicates the estimated impact on net interest income
under the various interest rate scenarios as a percentage of base case net
interest income projections. Changes in
    
    Estimated Percentage ChangeInterest Rates
    
    in Future Net Interest Income(basis points) (1)
    
    12 Months+200 over one year
    
    
    (7.25
    )%+100 over one year
    
    
    (3.60
    )- 100 over one year
    
    
    2.40
   (1)
    
    In general, short and long-term
rates are assumed to increase or decrease, in parallel
fashion, across all four quarters and then remain
unchanged. However, the rates paid on core deposits are
assumed to reprice at only half the increment. Actual results will differ from simulated results due to timing, magnitude, and
frequency of interest rate changes, as well as changes in market conditions and
management strategies. 
 ITEM 4. Controls and Procedures An evaluation of the Companys disclosure controls and procedures (as defined
in Section 13a-15(e) of the Securities Exchange Act of 1934 (the Act)) as of
March 31, 2004 was carried out under the supervision and with the participation
of the Companys Chief Executive Officer, Chief Financial Officer and several
other members of the Companys senior management. The Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures as currently in effect are effective in
ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the Act is (i) accumulated and communicated
to the Companys management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods 19




---



##### Table of Contents



specified in the SECs rules and forms. There have been no changes in our
internal control over financial reporting (as defined in Rule 13a-15(f) of the
Act) that occurred during the quarter ended March 31, 2004, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting. The Company intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has
timely access to all material financial and non-financial information
concerning the Companys business. While the Company believes the present
design of its disclosure controls and procedures is effective to achieve its
goal, future events affecting its business may cause the Company to modify its
disclosure controls and procedures. 
 PART II  OTHER INFORMATION 
 ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities On April 23, 2002, the Companys Board of Directors authorized management to
repurchase up to 10% of the Companys outstanding common stock, or
approximately 22 million shares, under a program of open market purchases or
privately negotiated transactions. The plan does not have an expiration date.
Information on the shares purchased during the first quarter of 2004 is as
follows. Quarterly Stock Repurchase Activity(Figure 18) Total Number of
    
    Maximum Number ofShares Purchased
    
    Shares that May YetTotal Number of
    
    Average Price
    
    As Part of Publicly
    
    Be PurchasedShares Purchased
    
    Per Share
    
    Announced Plan
    
    Under the PlanJanuary 1, 2004  January 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,424,163
    (1)February 1, 2004  February 29, 2004
    
    
    1,715,900
    
    
    $
    35.72
    
    
    
    1,715,900
    
    
    
    4,708,263March 1, 2004  March 31, 2004
    
    
    21,200
    
    
    $
    36.41
    
    
    
    21,200
    
    
    
    4,687,063Total
    
    
    1,737,100
    
    
    $
    35.73
    
    
    
    1,737,100
   (1)
    
    Amount represents the number of shares available to be repurchased under
the plan as of December 31, 2003. 
 ITEM 5. Other Information Cash Dividend On April 21, 2004, the Companys Board of Directors declared a
regular quarterly cash dividend of $.29 per share, up 11.5% from $.26 per share
for the last quarter. The cash dividend is payable May 20, 2004 to
shareholders of record on May 6, 2004. 
 ITEM 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits: See Index to Exhibits.(b)
    
    Reports on Form 8-K:On January 20, 2004, the Company filed a report on Form 8-K containing a
news release regarding its intention to prepay certain FHLB advances, as
well its outlook on 2004 earnings per share.On January 21, 2004, the Company filed a report on Form 8-K containing a
news release clarifying its 2004 earnings guidance.On January 28, 2004, the Company filed a report on Form 8-K containing its
presentation materials for the Citigroup Smith Barney Financial Services
Conference held in New York, New York on January 28, 2004. 20




---



##### Table of Contents



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: May 10, 2004
    
    /s/ Charles John KochCharles John KochChairman of the Board, President and ChiefExecutive Officer(Duly Authorized Officer and PrincipalExecutive Officer)Date: May 10, 2004
    
    /s/ Richard W. NeuRichard W. NeuExecutive Vice President and Chief Financial Officer(Duly Authorized Officer and PrincipalFinancial and Accounting Officer)
 21




---



##### Table of Contents



INDEX TO EXHIBITS EXHIBIT
NUMBER
    
    DESCRIPTION3.1
    
    Registrants Second Restated Certificate of Incorporation, as amended and
currently in effect, filed as Exhibit 3.1 to Registrants Report on Form
10-K for the fiscal year ended December 31, 2000 (File No. 001-15495), is
incorporated herein by reference.3.2
    
    Registrants Bylaws, as amended and restated and currently in effect, filed
as Exhibit 3.2 to Registrants Report on Form 10-K for the fiscal year ended
December 31, 1999 (File No. 001-15495), is incorporated herein by reference.4.1
    
    Form of Certificate of Common Stock, as currently in effect, filed as
Exhibit 4.1 to Registrants Report on Form 10-K for the fiscal year ended
December 31, 2000 (File No. 001-15495), is incorporated herein by reference.4.2
    
    Amended and Restated Stockholder Protection Rights Agreement, dated October
20, 1999, between the Company and Fleet National Bank (f/k/a BankBoston,
N.A.), as rights agent, filed as Exhibit 2 to the Companys Registration
Statement on Form 8-A/A filed on October 30, 1999 (File No. 001-15495), is
incorporated herein by reference.4.3
    
    The Registrant hereby agrees to furnish to the Securities and Exchange
Commission, upon request, with copies of all instruments defining rights of
holders of long-term debt of Charter One and its consolidated subsidiaries.10.1
    
    Registrants Long-Term Stock Incentive Plan, filed on January 22, 1988 as
Exhibit 10.1 to Registrants Registration Statement on Form S-1 (File No.
33-16207), is incorporated herein by reference.10.2
    
    Registrants Directors Stock Option Plan, filed on January 22, 1988 as
Exhibit 10.2 to Registrants Registration Statement on Form S-1 (File No.
33-16207), is incorporated herein by reference.10.3
    
    Charter One Bank, F.S.B. Executive Incentive Goal Achievement Plan, filed as
Exhibit 10.8 to Registrants Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 000-16311) is incorporated herein by reference.10.4
    
    First American Savings Bank, F.S.B. Nonqualified Retirement Plan and First
Amendment thereto, filed as Exhibit 10.17 to Registrants Report on Form
10-K for the fiscal year ended December 31, 1993 (File No. 000-16311), are
incorporated herein by reference.10.5
    
    Amendment 1, dated May 3, 1996, to Forms of Supplemental Retirement
Agreements, dated October 31, 1995, between Charter One and Charles John
Koch, Richard W. Neu, John David Koch, Mark D. Grossi, and Robert J. Vana
filed as Exhibit 10.7 to the Registrants Report on Form 10-K for the fiscal
year ended December 31, 1998 (File No. 000-16311), is incorporated herein by
reference. The Agreements, originally filed on July 25, 1995 as Exhibits
10.4 and 10.5 to Registrants Registration Statement on Form S-4 (File No.
33-61273), are incorporated herein by reference.10.6
    
    Amended and Restated Employment Agreements, effective August 1, 1999,
between Charter One Financial, Inc. and Charles John Koch, Richard W. Neu,
John D. Koch, Mark D. Grossi, and Robert J. Vana filed as Exhibit 10.8 to
Registrants Report on Form 10-K for the fiscal year ended December 31, 1999
(File No. 000-16311), is incorporated herein by reference.10.7
    
    Alliance Bancorp 1997 Long-Term Incentive Stock Benefit Plan, filed as an
attachment to the proxy statement for the annual meeting of stockholders of
Alliance held on May 28, 1997 (File No. 000-20082), is incorporated herein
by reference.10.8
    
    Hinsdale Financial Corporation 1994 Incentive Stock Option Plan, filed as an
attachment to the proxy statement for the annual meeting of stockholders of
Alliance held on February 8, 1995 (File No. 000-20082), is incorporated
herein by reference.10.9
    
    Hinsdale Financial Corporation 1992 Stock Option Plan for Outside Directors
and the Hinsdale Financial Corporation 1992 Incentive Stock Option Plan,
filed as attachments to the proxy statement
 22




---



##### Table of Contents



for the annual meeting of
stockholders of Alliance held on February 10, 1993 (File No. 000-20082) is
incorporated herein by reference.10.10
    
    Charter One Financial, Inc. 1997 Stock Option and Incentive Plan, as amended
and restated, filed as Exhibit 10.13 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 (File No. 001-15495), is
incorporated herein by reference.10.11
    
    1992 Stock-Based Compensation Plan of RCSB Financial, Inc., filed on October
8, 1997, as an exhibit to Post-Effective Amendment Number One on Form S-8 to
Form S-4 (File No. 333-33259), is incorporated herein by reference.10.12
    
    Home Federal Savings Bank Stock Compensation Program, filed on September 29,
1997 as an exhibit to Post-Effective Amendment Number One on Form S-8 to
Form S-4 (File No. 333-33169), is incorporated herein by reference.10.13
    
    The RCSB Financial, Inc. Non-Employee Director Deferred Compensation Plan,
as amended and restated on December 1, 1998, filed as Exhibit 10.16 to
Registrants Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (File No. 000-16311), is incorporated herein by reference.10.14
    
    ALBANK Financial Corporation 1992 Stock Incentive Plan for Key Employees, as
amended and restated as of December 18, 1995, filed as Exhibit 10.11 to
ALBANKs Annual Report on Form 10-K for the year ended December 31, 1995
(File No. 000-19843), is incorporated herein by reference.10.15
    
    ALBANK Financial Corporation 1995 Stock Incentive Plan for Outside
Directors, filed as Exhibit 10.12.1 to ALBANKs Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 000-19843), is incorporated
herein by reference.10.16
    
    ALBANK Financial Corporation 1992 Stock Incentive Plan for Outside
Directors, filed as an appendix to the Proxy Statement for the 1992 Annual
Meeting of the Stockholders of ALBANK held on October 26, 1992 (File No.
001-19843), is incorporated herein by reference.10.17
    
    Employment Agreement, dated November 30, 1998, between Charter One
Financial, Inc. and Herbert G. Chorbajian, filed as Exhibit 10.20 to
Registrants Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (File No. 000-16311), is incorporated herein by reference.10.18
    
    Charter One Financial, Inc. Top Executive Incentive Goal Achievement Plan,
filed as Appendix A to the Registrants Proxy Statement for the 2003 Annual
Meeting of Shareholders held on April 22, 2003 (File No. 001-15495), is
incorporated herein by reference.10.19
    
    Charter One Bank, N.A.s Director Non-Stock Deferred Compensation Plan,
filed as Exhibit 10.20 to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 (File No. 001-15495), is
incorporated herein by reference.10.20
    
    Charter One Bank, N.A.s Non-Stock Deferred Compensation Plan, filed as
Exhibit 10.21 to the Registrants Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 (File No. 001-15495), is incorporated herein by
reference.10.21
    
    Charter One Bank, N.A.s Stock Deferred Compensation Plan, filed as Exhibit
10.22 to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 (File No. 001-15495), is incorporated herein by
reference.10.22
    
    Master Trust Agreement for Charter One Financial, Inc. Deferred Compensation
Plans, filed as Exhibit 10.23 to the Registrants Annual Report on Form 10-K
for the fiscal year ended December 31, 2002 (File No. 001-15495), is
incorporated herein by reference.10.23
    
    Amendment No. 1 to the amended and restated Charter One Financial, Inc. 1997
Stock Option and Incentive Plan, filed as Exhibit 10.24 to the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File
No. 001-15495), is incorporated herein by reference.10.24
    
    Charter One Financial, Inc. 2004 Senior Executive Stock Unit Deferred
Compensation Plan and Charter One Financial, Inc. 2004 Senior Executive Cash
Deferred Compensation Plan, effective February 1, 2004, filed as Exhibit
10.24 to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 (File No. 001-15495), is incorporated herein by
reference.
 23




---



##### Table of Contents



10.25
    
    Charter One Financial, Inc. 2004 Senior Executive Stock Unit Deferred
Compensation Plan Agreements, effective February 1, 2004, between Charter
One Financial, Inc. and Charles John Koch, Richard W. Neu, John D. Koch,
Mark D. Grossi, and Robert J. Vana, filed as Exhibit 10.25 to the
Registrants Annual Report on Form 10-K for the fiscal year ended December
31, 2003 (File No. 001-15495), is incorporated herein by reference.10.26
    
    Amendment 2, dated July 31, 2002 (but effective March 20, 2001), to Forms of
Supplemental Retirement Agreements between Charter One Financial, Inc. and
Charles John Koch, Richard W. Neu, John D. Koch, Mark D. Grossi, and Robert
J. Vana, filed as Exhibit 10.26 to the Registrants Annual Report on Form
10-K for the fiscal year ended December 31, 2003 (File No. 001-15495), is
incorporated herein by reference.10.27
    
    Amendment 3, dated February 1, 2004, to Forms of Supplemental Retirement
Agreements between Charter One Financial, Inc. and Charles John Koch,
Richard W. Neu, John D. Koch, Mark D. Grossi, and Robert J. Vana, filed as
Exhibit 10.27 to the Registrants Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 (File No. 001-15495), is incorporated herein by
reference.11
    
    Statement Regarding Computation of Per Share Earnings31.1
    
    Certification Required by Securities Exchange Act of 1934 Rule 13a-14(a)
(Chief Executive Officer)31.2
    
    Certification Required by Securities Exchange Act of 1934 Rule 13a-14(a)
(Chief Financial Officer)32
    
    Certifications Required by Section 1350 of Title 18 of the United States Code
 24