CHARTER ONE FINANCIAL INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


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





				For the quarterly period ended June 30, 2003





				OR





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

Commission file number 001-15495

CHARTER ONE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		34-1567092

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)





1215 Superior Avenue, Cleveland, Ohio		44114

(Address of principal executive offices)		(Zip Code)

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

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No

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 July 31 2003 was 225,667,959.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
	ITEM 4. Controls and Procedures
PART II – OTHER INFORMATION
	ITEM 4. Submission of Matters to a Vote of Security Holders
	ITEM 5. Other Information
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EX-11 Computation of Per Share Earnings
EX-31.1 Rule 13a-14(a) CEO Certification
EX-31.2 Rule 13a-14(a) CFO Certification
EX-32 Section 1350 Certifications

TABLE OF CONTENTS


Item
Number				Page

			PART I — FINANCIAL STATEMENTS




	1.	Financial Statements




		Consolidated Statements of Financial Condition — June 30, 2003 and December 31, 2002			1




		Consolidated Statements of Income — Three and six months ended June 30, 2003 and 2002			2




		Consolidated Statements of Cash Flows — Six months ended June 30, 2003 and 2002			3




		Notes to Consolidated Financial Statements			4




	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			7




	3.	Quantitative and Qualitative Disclosure About Market Risk			23




	4.	Controls and Procedures			23




			PART II – OTHER INFORMATION




	4.	Submission of Matters to a Vote of Security Holders			24




	5.	Other Information			24




	6.	Exhibits and Reports on Form 8-K			25




Signatures					25




Index to Exhibits					26

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

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


				6/30/03			12/31/02

				(Dollars in thousands,
				except per share data)
ASSETS




Cash accounts				$	576,479		$	436,970




Interest-bearing deposits with banks					9,539			9,731




Federal funds sold and other					10,514			512

		Total cash and cash equivalents			596,532			447,213




Investment securities:




	Available for sale				336,126			210,095




	Held to maturity (fair value of $3,996 and $4,276)				3,691			3,973




Mortgage-backed securities:




	Available for sale				14,313,397			11,536,608




	Held to maturity (fair value of $378,614 and $565,072)				362,768			540,781




Loans and leases, net					25,127,882			25,852,846




Loans held for sale					362,270			351,892




Bank owned life insurance					834,337			829,043




Federal Home Loan Bank and Federal Reserve Bank stock					694,073			681,923




Premises and equipment					375,256			353,730




Accrued interest receivable					153,346			154,962




Real estate and other collateral owned					40,220			42,980




Loan servicing assets					115,242			128,564




Goodwill					433,014			386,372




Other assets					386,785			375,090

		Total assets		$	44,134,939		$	41,896,072

LIABILITIES AND SHAREHOLDERS’ EQUITY




Deposits				$	27,939,774		$	27,527,843




Federal Home Loan Bank advances					10,582,255			9,037,925




Federal funds purchased and repurchase agreements					51,399			283,912




Other borrowings					706,083			708,853




Advance payments by borrowers for taxes and insurance					58,593			23,595




Accrued interest payable					46,418			38,372




Accrued expenses and other liabilities					1,387,835			1,191,747

		Total liabilities			40,772,357			38,812,247

Commitments 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; 229,946,762 and 227,571,468 shares issued				2,299			2,276




	Additional paid-in capital				2,270,580			2,193,095




	Retained earnings				1,009,784			824,564




	Less 3,851,660 and 2,781,151 shares of common stock held in treasury at cost				(116,652	)		(82,610	)




	Accumulated other comprehensive income				196,571			146,500

			Total shareholders’ equity		3,362,582			3,083,825

			Total liabilities and shareholders’ equity	$	44,134,939		$	41,896,072

See Notes to Consolidated Financial Statements.

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


			Three Months Ended					Six Months Ended

			6/30/03			6/30/02		6/30/03			6/30/02

			(Dollars in thousands, except per share data)
Interest income:




	Loans and leases		$	367,602		$	415,057	$	745,326		$	842,895




	Mortgage-backed securities:




		Available for sale		154,490			141,773		303,801			252,901




		Held to maturity		6,858			12,261		15,127			27,061




	Investment securities:




		Available for sale		3,297			2,625		6,340			5,587




		Held to maturity		56			60		110			131




	Other interest-earning assets			7,856			9,478		15,241			17,390

		Total interest income		540,159			581,254		1,085,945			1,145,965

Interest expense:




	Deposits			126,734			169,576		260,477			339,977




	Federal Home Loan Bank advances			104,025			103,927		203,824			207,643




	Other borrowings			13,969			9,884		27,172			17,381

		Total interest expense		244,728			283,387		491,473			565,001

		Net interest income		295,431			297,867		594,472			580,964




Provision for loan and lease losses				35,360			55,277		96,831			83,994

		Net interest income after provision for loan and lease losses		260,071			242,590		497,641			496,970

Other income:




	Retail banking			97,087			83,543		181,187			157,299




	Mortgage banking			(23,895	)		9,168		(23,922	)		20,458




	Leasing operations			(12,230	)		317		(19,086	)		587




	Net gains			108,549			37,840		185,202			59,567




	Bank owned life insurance and other			8,450			8,924		16,406			18,432

		Total other income		177,961			139,792		339,787			256,343

Administrative expenses:




	Compensation and employee benefits			90,790			80,645		177,846			157,897




	Net occupancy and equipment			30,466			27,634		61,652			56,197




	Marketing expenses			20,205			10,012		33,852			18,841




	Federal deposit insurance premiums			1,125			1,106		2,267			2,317




	Other administrative expenses			52,168			49,219		102,429			95,526

		Total administrative expenses		194,754			168,616		378,046			330,778

Income before income taxes				243,278			213,766		459,382			422,535




Income taxes				77,241			67,871		145,854			134,155

		Net income	$	166,037		$	145,895	$	313,528		$	288,380

Basic earnings per share(1)			$	.74		$	.63	$	1.40		$	1.24

Diluted earnings per share(1)			$	.72		$	.61	$	1.36		$	1.21

Average common shares outstanding(1):




	Basic			225,501,687			231,197,406		225,249,543			231,441,018

	Diluted			231,095,694			239,123,292		230,778,271			238,672,614

Cash dividends declared per share(1)			$	.24		$	.21	$	.46		$	.40

(1)

Restated to reflect the 5% stock dividend issued September 30, 2002.

See Notes to Consolidated Financial Statements.

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


				Six Months Ended

				6/30/03			6/30/02

				(Dollars in thousands)
Cash flows from operating activities:




	Net income			$	313,528		$	288,380




	Adjustments to reconcile net income to net cash provided by operating activities:




		Provision for loan and lease losses			96,831			83,994




		Net gains			(185,202	)		(59,567	)




		Accretion of discounts, amortization of premiums, and amortization of depreciation, net			137,532			51,533




		Origination of loans held for sale			(1,648,230	)		(1,125,258	)




		Proceeds from sale of loans held for sale			1,646,068			1,122,671




		Increase (decrease) in accrued interest payable			8,046			(19,675	)




		Other			179,197			300,996

			Net cash provided by operating activities		547,770			643,074

Cash flows from investing activities:




	Net principal disbursed

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