Charter One Financial, Inc.

FORM 10-K

This Annual Report includes the information required in our Form 10-K filed with the SEC. The integration of the two documents gives our shareholders and other interested parties timely, efficient and comprehensive information on our financial condition and results of operations for the year ended December 31, 2001. Portions of this Annual Report are not required by the Form 10-K report and are not filed as part of the Company’s Form 10-K filed with the SEC. Only those portions of this Annual Report referenced in the cross reference index are incorporated in the Form 10-K filed with the SEC. The report has not been approved or disapproved by the SEC, nor has the SEC passed upon its accuracy or adequacy.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2001.

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number 001-15495

CHARTER ONE FINANCIAL, INC.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		34-1567092 (I.R.S. Employer Identification No.)
1215 Superior Avenue, Cleveland, Ohio (Address of principal executive offices)		44114 (Zip Code)

(Registrant’s telephone number, including area code): (216) 566-5300

Securities Registered Pursuant to Section 12(b) of the Act:


Common Stock ($0.01 par value), including related preferred stock purchase rights (Title of Each Class)		New York Stock Exchange (Name of Each Exchange on which Registered)

Securities Registered Pursuant to Section 12(g) of the Act:

None

____________________________________

(Title of Class)

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 ü NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

The aggregate market value of the common stock held by non-affiliates of the Registrant as of February 22, 2002 was $6,212,900,000. For this purpose, directors and executive officers of Charter One Financial, Inc. are considered affiliates. The number of shares outstanding of the Registrant’s sole class of common stock as of February 22, 2002 was 219,306,710.

Portions of the Registrant’s proxy statement for the April 23, 2002 Annual Meeting of Shareholders are incorporated by reference in Part III.

Form 10-K Cross Reference Index


Item
Number			Pages


PART I
	1.	Business		53–54
	2.	Properties		54–55
	3.	Legal Proceedings		55
	4.	Submission of Matters to a Vote of Security Holders — Not Applicable

PART II
	5.	Market for Registrant’s Common Equity and Related Shareholder Matters		30
	6.	Selected Financial Data		18–19
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20–31
	7A.	Quantitative and Qualitative Disclosure About Market Risk		28–29
	8.	Financial Statements and Supplementary Data		32–51
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures — Not Applicable

PART III
	10.	Directors and Executive Officers of the Registrant — Note (1)
	11.	Executive Compensation — Note (1)
	12.	Security Ownership of Certain Beneficial Owners and Management — Note (1)
	13.	Certain Relationships and Related Transactions — Note (1)

PART IV
	14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		32–53
Signatures				56

Exhibits — The index of exhibits has been filed as separate pages of the 2001 Form 10-K and is available to shareholders on request from the Registrant’s Investor Relations Department. Copies of the exhibits may be obtained at a cost of 30 cents per page.

Financial Statement Schedules — All financial statement schedules are omitted because the required information is not applicable or is included in the Consolidated Financial Statements or related notes.

Reports on Form 8-K — On October 12, 2001, the Registrant filed a report on Form 8-K containing a press release announcing that it was holding an Investor Day on November 2, 2001 at the Federal Reserve Bank of Cleveland in Cleveland, Ohio.

Note (1): Incorporated by reference from the Registrant’s Proxy Statement for the April 23, 2002 Annual Meeting of Shareholders. None of the foregoing incorporation by reference shall include the information referred to in Item 306 or Item 402(a)(8) of Regulation S-K.

Item 1. Business

Headquartered in Cleveland, Ohio, Charter One Financial, Inc., hereafter referred to as “Charter One” or the “Registrant,” is a financial holding company. Charter One’s principal line of business is consumer banking which is primarily conducted through the operations of Charter One Bank, F.S.B. and its subsidiaries. The executive offices of Charter One are located at 1215 Superior Avenue, Cleveland, Ohio 44114, and the telephone number is (216) 566-5300. See “Selected Financial Data” under Part II, Item 6, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 and Note 1 to the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for additional information relating to Charter One’s business.

Charter One has a long history of completing mergers and acquisitions, which have had a significant effect on its business. See Note 2 and 18 to the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for a discussion of the impact of recent business combinations and branch acquisitions.

Market Area and Competition

As of December 31, 2001, Charter One was ranked among the 25 largest bank holding companies in the country and operated through numerous banking offices: 113 in Ohio, 95 in Michigan, 126 in New York, 87 in Illinois, 26 in Vermont and 9 in Massachusetts. The branch locations operate under the Charter One Bank name in all areas except in Michigan, where the Bank is currently known as First Federal of Michigan. On January 11, 2002, the Registrant announced an agreement to acquire Charter National Bancorp, Inc. At the same time, the Registrant announced its plans to adopt the Charter One name for its Michigan operations as soon as the merger is complete, sometime in the second or third quarter of 2002. See Note 18 to the Notes to Consolidated Financial Statements for further information on this proposed acquisition.

Based on 2001 data from SNL Datasource, the counties served by the Bank include approximately 36% of the population of Ohio, 55% of Michigan, 52% of New York (excluding New York City), 65% of Illinois, 80% of Vermont and 10% of Massachusetts.

The consumer banking business is highly competitive. Charter One competes actively in all aspects and areas of its business with consumer and commercial banks, savings and loans, mortgage bankers and other financial service entities. The Registrant also competes with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers.

Regulation

As a financial holding company, Charter One is subject to regulation by the Federal Reserve Board. Charter One is required to file reports with the Federal Reserve Board and is subject to regular inspections by that agency. Financial holding companies may engage in a broad array of banking, insurance and securities activities. The insurance activities include both underwriting and agency activities, as well as title insurance activities, and are generally subject to state law licensing requirements. However, state anti-affiliation laws have been generally preempted. The securities activities include both underwriting and agency activities. Aside from activities expressly permitted under the Gramm-Leach-Bliley Act, financial holding companies may engage in activities which the Federal Reserve Board in consultation with, and with the non-objection of, the U.S. Treasury Department, determines to be (i) financial in nature or (ii) incidental to a financial activity, or activities which the Federal Reserve Board determines on its own to be “complementary” to a financial activity without posing a substantial risk to the safety and soundness of the depository institution or the financial system generally. With the exception of our minor real estate development activities, the list of permissible activities includes all current operations of Charter One. We intend to comply with the Federal Reserve Board’s divestiture orders with respect to these real estate development activities, the time period for which may be extended under the law.

As a federally chartered savings bank, Charter One Bank remains subject to supervision, regulation and examination by its primary regulator, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. On January 7, 2002, Charter One Bank filed an application to become a national bank. Once it becomes a national bank, its primary regulator will be the Office of the Comptroller of the Currency. Charter One Bank expects the conversion to be effective during the first quarter of 2002.

As a New York chartered commercial bank, Charter One Commercial is subject to supervision, regulation and examination by the Federal Deposit Insurance Corporation and the New York State Banking Department.

See Management’s Discussion and Analysis — “Capital and Dividends” under Part II, Item 7 of this Form 10-K, and Note 13 to the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K, for a discussion of the regulatory capital calculations and compliance with regulatory capital requirements as well as regulatory restrictions on cash dividends.

Executive Officers

Executive Officers of the Registrant. The executive officers of Charter One, each of whom is currently an executive officer of Charter One Bank, are identified below. The executive officers of Charter One are appointed annually by its Board of Directors to serve until the next annual election of officers following the Annual Meeting of Shareholders.





	Age at
	December 31,			Officer
Name	2001		Position	Since


Charles John Koch		55	Chairman of the Board, President and Chief Executive Officer		1987
Mark D. Grossi		48	Executive Vice President		1992
John David Koch		49	Executive Vice President		1987
Richard W. Neu		45	Executive Vice President and Chief Financial Officer		1995
Robert J. Vana		52	Senior Vice President, Chief Corporate Counsel and Corporate Secretary		1987

Charles John Koch has been President of Charter One Bank since 1980 and was Chief Operating Officer of Charter One from 1980 to 1988, when he was appointed Chief Executive Officer of Charter One. In February 1995, he was appointed Chairman of the Board of Charter One and of Charter One Bank. Mr. Koch is the brother of John David Koch.

Mark D. Grossi is an Executive Vice President of Charter One and of Charter One Bank, and has been responsible for retail banking and branch administration since Charter One’s merger with First American Savings Bank in 1992.

John David Koch joined Charter One Bank in 1982 and is Executive Vice President of Charter One and of Charter One Bank. Mr. Koch is responsible for the credit and lending functions of Charter One Bank and has management responsibility for numerous subsidiary corporations. Mr. Koch is the brother of Charles John Koch.

Richard W. Neu is Executive Vice President and Chief Financial Officer of Charter One and Charter One Bank. He joined Charter One in 1995 following Charter One’s merger with FirstFed Michigan Corporation. Prior to the merger he had served as FirstFed’s Executive Vice President and Chief Financial Officer.

Robert J. Vana has been Chief Corporate Counsel and Corporate Secretary of Charter One since 1988 and joined Charter One Bank as Senior Vice President and Corporate Secretary in 1982.

Item 2. Properties

The executive offices of Charter One and Charter One Bank are located at 1215 Superior Avenue, Cleveland, Ohio in a seven-story office building owned by Charter One. Charter One Bank also maintains an operations center and a service center in single-story buildings owned by the Bank and located in Cleveland, Ohio. The Bank owns various other office buildings including a 15-story office building in Cleveland, Ohio, two four-story office buildings in Rochester, New York, a two-story and three-story building in Albany, New York, a nine-story office building in Toledo, Ohio, a four-story office building in downtown Canton, Ohio, a three-story office building in Akron, Ohio, two two-story buildings in Michigan and nine two-story office buildings, three three-story office buildings and a four-story office building in metropolitan Chicago, Illinois. Most buildings include space for a branch office and various divisional administrative functions, with any remaining space leased to tenants.

As of December 31, 2001, in addition to the Bank’s 456 banking locations, Charter One Bank and its subsidiaries operated 29 loan production offices in 10 states. At December 31, 2001, Charter One Bank owned 236 of these banking facilities and leased the remainder. We operate 919 ATMs at various banking offices and are a member of the Money Access Center System (“MAC”) and the New York Cash Exchange (“NYCE”), which provide our customers access to ATMs nationwide. The lease terms for branch offices are not individually material. Lease terms range from monthly to seven years.


Item 3.	Legal Proceedings

Charter One and its subsidiaries are involved as plaintiff or defendant in various actions incident to their business, none of which is believed to be material to the financial condition of Charter One, except as discussed below.

Prior to the merger with FirstFed Michigan Corporation in 1995, Charter One and FirstFed each filed a lawsuit against the United States based upon the breach of certain agreements between Charter One and First Federal, respectively, and the government involving supervisory goodwill and capital credits in the aggregate amount of approximately $126 million. First Federal of Michigan v. United States, No. 95-464C was filed in the United States Court of Federal Claims (“CFC”) on July 20, 1995. Charter One Bank, F.S.B. v. United States, No. 95-528C was filed in the same court on August 8, 1995. These actions, claiming damages for the government’s breach of four separate contractual agreements, have been consolidated and the case is proceeding under docket number 95-464C. Charter One filed motions for summary judgment on liability as to the four contractual agreements at issue. These motions are currently pending pursuant to the terms of a case management order entered by the court to govern all similar goodwill contract cases.

The status of the litigation is dependent to some degree upon factors that are out of the control of Charter One, including, but not limited to, the outcome of other “Winstar-related” cases in the CFC and the Court of Appeals for the Federal Circuit. On July 1, 1996, the United States Supreme Court in United States v. Winstar Corp. affirmed the CFC’s finding that the government had breached contractual agreements with Glendale Federal Bank, Statesman Savings Bank, and Winstar Federal Savings and Loan for the regulatory capital treatment of goodwill and capital credits, and remanded the cases to the CFC for trials on damages. Glendale’s initial award of $909 million was reversed by the Federal Circuit and remanded to the CFC, where Glendale’s damages case is still pending. The Statesman and Winstar cases settled.

In 1992, Alliance Bancorp’s predecessor, Liberty Federal Bank, filed a similar breach of contract lawsuit against the United States involving approximately $47 million of supervisory goodwill in Liberty Federal Bank v. United States, No. 92-876. Alliance filed a short form motion for summary judgment in 1998, which is still pending. In light of Charter One’s acquisition of Alliance in July 2001, Charter One will request that the Court also consolidate that action into docket number 95-464C, such that all of the previously-separate cases now controlled by Charter One can proceed together.

As of January 31, 2002, the CFC had granted plaintiffs summary judgment on contract liability in 16 Winstar-related cases. In several cases, the CFC found a contract for the regulatory treatment of goodwill even though the parties had not executed an assistance agreement regarding the transaction (as the parties had in Winstar and other related cases). The CFC also has completed nine damages trials in Winstar-related cases and issued eight decisions, all but one of which were appealed to the Federal Circuit Court of Appeals. The Federal Circuit’s decisions have been favorable to plaintiffs on some issues but unfavorable on others. For example, in the California Federal Bank case, the Court affirmed the CFC’s rulings on restitution and reliance damages, but remanded the case for trial of plaintiff’s “lost profits” claim that the CFC had dismissed prior to trial. In the Bluebonnet Savings Bank case, the Federal Circuit reversed the CFC’s decision awarding no damages, found that damages were due to the investor plaintiffs, and remanded for a determination of the amount of those damages. (The bank settled its case in 1995.) In the Landmark Land Company case, the Court affirmed the CFC’s award of $21.5 million (the amount invested in the transaction) to Landmark, the shareholder plaintiff, but rejected its other damages claims. In the Glass case, the Federal Circuit reversed on liability grounds and remanded the case to the CFC for further proceedings.

Due to the number of pending cases, the case management order provides for a sequencing process whereby approximately 30 cases proceed to pretrial discovery each year and thereafter to trial. Pretrial discovery in Charter One’s case (and the Liberty Federal Bank case, whether or not consolidated with Charter One’s case), are scheduled to begin on June 7, 2002. Given the pendency of the other related cases, and the uncertainty inherent in the litigation, Charter One is not able to estimate either the time frame for resolution of its claims, or the final outcome of its litigation against the government, including the damages, if any, which could be awarded if Charter One ultimately prevails on liability issues.


Signatures
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Cleveland, State of Ohio, as of March 15, 2002.

CHARTER ONE FINANCIAL, INC.

By: /s/ Charles John Koch Director, Chairman of the Board, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and as of the date indicated above.

/s/ Charles John Koch (Principal Executive Officer) Director, Chairman of the Board, President and Chief Executive Officer

/s/ Richard W. Neu (Principal Financial and Accounting Officer) Director, Executive Vice President and Chief Financial Officer

/s/ Patrick J. Agnew, Director /s/ Herbert G. Chorbajian, Director /s/ Phillip Wm. Fisher, Director /s/ Denise Marie Fugo, Director /s/ Mark D. Grossi, Director, Executive Vice President /s/ Charles M. Heidel, Director /s/ Karen R. Hitchcock, Director /s/ John D. Koch, Director, Executive Vice President /s/ Michael P. Morley, Director /s/ Ronald F. Poe, Director /s/ Victor A. Ptak, Director /s/ Melvin J. Rachal, Director /s/ Jerome L. Schostak, Director /s/ Joseph C. Scully, Director /s/ Mark Shaevsky, Director /s/ Leonard S. Simon, Director /s/ John P. Tierney, Director /s/ Eresteen R. Williams, Director

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