ITEM 1. BUSINESS
Headquartered in Cleveland, Ohio, Charter One Financial, Inc., hereafter referred to as “Charter One” or the “Company,” 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, N.A. 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 3 and 19 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.
Our reports, proxy statements and other information we file with the SEC, as well our news releases, Corporate Governance Guidelines, Corporate Code of Business Conduct and Ethics, Audit Committee Charter, Corporate Governance/Nominating Committee Charter and Compensation Committee Charter, are available free of charge through our Internet site at http://www.charterone.com. This information can be found on the Investor Relations page of our Internet site. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act are available as soon as reasonably practicable after they have been filed with the SEC. Reference to our Internet address is not intended to incorporate any of the information contained on our Internet site into this document.
MARKET AREA AND COMPETITION
As of December 31, 2002, Charter One was ranked the 21st largest bank holding company in the country and operated through numerous banking offices: 112 in Ohio, 104 in Michigan, 128 in New York, 81 in Illinois, 26 in Vermont and 10 in Massachusetts. The branch locations operate under the Charter One Bank name in all areas.
Based on 2002 data from SNL Datasource, the counties served by the Bank include approximately 36% of the population of Ohio, 54% 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. Charter One 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.
On January 7, 2002, Charter One Bank filed an application with the Office of the Comptroller of the Currency (“OCC”) to convert from a thrift to a national bank. The conversion was effective May 7, 2002 and resulted in changing the Bank’s name to Charter One Bank, N.A. from Charter One Bank, F.S.B. As a national bank, Charter One Bank is subject to supervision, regulation and examination by its primary regulator, the OCC, as well as the Federal Deposit Insurance Corporation.
See Management’s Discussion and Analysis - “Capital and Dividends” under Part II, Item 7 of this Form 10-K, and Note 14 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.
Sarbanes-Oxley Act - On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “SOA”). The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.
The SOA is the most far-reaching U.S. securities legislation enacted in some time. The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the SEC under the Securities Exchange Act (the “Act”). Given the extensive SEC role in implementing rules relating to many of the SOA’s new requirements, the final scope of many of these requirements remains to be determined.
60 THE CHARTER ONE FINANCIAL, INC. ANNUAL REPORT
The SOA includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The SOA represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.
The SOA addresses, among other matters:
•
audit committees;
•
certification of financial statements by the chief executive officer and the chief financial officer;
•
the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the 12 month period following initial publication of any financial statements that later require restatement;
•
a prohibition on the sale of stock by directors and executives during pension plan black out periods;
•
disclosure of off-balance sheet transactions;
•
a prohibition on certain personal loans to directors and officers;
•
disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
•
“real time” filing of periodic reports; expedited filing requirements for Form 4s;
•
the formation of a public company accounting oversight board;
•
auditor independence; and
•
various increased criminal penalties for violations of securities laws.
The SOA contains provisions which became effective upon enactment on July 30, 2002 and provisions which become effective from within 30 days to one year from enactment. The SEC has been delegated the task of adopting rules to implement various provisions of the SOA.
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 elected annually by its Board of Directors to serve until the next annual election of officers following the Annual Meeting of Shareholders.
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.
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 in a single-story building and a service center in a two-story building owned by the Bank and located in Cleveland, Ohio. The Bank owns various other office buildings including two four-story office buildings in Rochester, New York; a two-story and three-story office 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; three two-story office buildings in Detroit, Michigan and six 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.
THE CHARTER ONE FINANCIAL, INC. ANNUAL REPORT 61
As of December 31, 2002, in addition to the Bank’s 461 banking locations, Charter One Bank and its subsidiaries operated 26 loan production offices in 11 states. At December 31, 2002, Charter One Bank owned 258 of these banking locations and leased the remainder. We operate 913 ATMs at various banking offices and are a member of Star Systems (“STAR”), which provides our customers access to ATMs nationwide. The lease terms for branch offices are not individually material. Lease terms range from monthly to 20 years.
ITEM 3.
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.
In 2002, Charter One filed stipulations of dismissal regarding five claims asserted in previously disclosed court cases related to its supervisory goodwill litigation, which have been outstanding since 1995. As outlined in previous SEC filings on Form 10-K, Charter One and various predecessors had asserted five separate claims against the United States of America for breach of certain agreements involving supervisory goodwill and capital credits. Based on the outcome of similar cases and related damages, Charter One has determined that the cost of further litigation of the five dismissed claims would likely exceed the potential benefits.
ITEM 14.
ITEM 14. CONTROLS AND PROCEDURES
An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Act) 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 within the 90-day period preceding the filing date of this annual report. 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 specified in the SEC’s rules and forms. Since the date of this evaluation there have been no significant changes in, or corrective actions taken regarding, the Company’s internal controls or in other factors that could significantly affect these controls.
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.
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 14, 2003.
CHARTER ONE FINANCIAL, INC.
By: 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.
Charles John Koch
(Principal Executive Officer)
Director, Chairman of the Board, President and
Chief Executive Officer
Richard W. Neu
(Principal Financial and Accounting Officer)
Director, Executive Vice President and Chief Financial Officer
Patrick J. Agnew, Director
Herbert G. Chorbajian, Director
Phillip Wm. Fisher, Director
Denise Marie Fugo, Director
Mark D. Grossi, Director, Executive Vice President
Karen R. Hitchcock, Director
John D. Koch, Director, Executive Vice President
Barbara J. Mahone, Director
Michael P. Morley, Director
Ronald F. Poe, Director
Victor A. Ptak, Director
Melvin J. Rachal, Director
Jerome L. Schostak, Director
Joseph C. Scully, Director
Mark Shaevsky, Director
Leonard S. Simon, Director
John P. Tierney, Director
62 THE CHARTER ONE FINANCIAL, INC. ANNUAL REPORT
certifications OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Charles John Koch, certify that:
1. I have reviewed this annual report on Form 10-K of Charter One Financial, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the Audit Committee of Registrant’s Board of Directors (or persons performing the equivalent functions):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6. The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 14, 2003
/s/ Charles John Koch
Charles John Koch
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
THE CHARTER ONE FINANCIAL, INC. ANNUAL REPORT 63
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Richard W. Neu, certify that:
1. I have reviewed this annual report on Form 10-K of Charter One Financial, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the Audit Committee of Registrant’s Board of Directors (or persons performing the equivalent functions):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6. The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 14, 2003
/s/ Richard W. Neu
Richard W. Neu
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
CHARTER ONE FINANCIAL, INC., CORPORATE DIRECTORY
DIRECTORS AND EXECUTIVE
OFFICERS
Charles John Koch
Chairman, President and
Chief Executive Officer,
Charter One Financial, Inc.
and Charter One Bank, N.A.
Patrick J. Agnew
Former President and
Chief Operating Officer,
St. Paul Bancorp, Inc.
Chicago, Illinois
Herbert G. Chorbajian
Vice Chairman,
Charter One Financial, Inc.
and former Chairman, President
and Chief Executive Officer,
ALBANK Financial Corporation
Albany, New York
Philip Wm. Fisher
Principal of The Fisher Group
Detroit, Michigan
Denise Marie Fugo
President of City Life, Inc.
Cleveland, Ohio
Mark D. Grossi
Executive Vice President,
Charter One Financial, Inc.
and Charter One Bank, N.A.
Karen R. Hitchcock, Ph.D.
President, University at Albany
Albany, New York
John D. Koch
Executive Vice President,
Charter One Financial, Inc.
and Charter One Bank, N.A.
Barbara J. Mahone
Executive Director,
Human Resources,
General Motors Product
Development,
Detroit, Michigan
Michael P. Morley
Executive Vice President and
Chief Administrative Officer,
Eastman Kodak Company
Rochester, New York
Richard W. Neu
Executive Vice President
and Chief Financial Officer,
Charter One Financial, Inc.
and Charter One Bank, N.A.
Ronald F. Poe
President,
Ronald F. Poe & Associates
White Plains, New York Victor A. Ptak
Vice President/
Investment Officer,
Wachovia Securities,
and formerly General Partner
of J.C. Bradford
Cleveland, Ohio
Melvin J. Rachal
President and
Chief Operating Officer,
Midwest Stamping, Inc.
Maumee, Ohio
Jerome L. Schostak
Vice Chairman,
Charter One Financial, Inc.
and Chairman of the Board
and Chief Executive Officer,
Schostak Brothers &
Company, Inc.
Southfield, Michigan
Joseph C. Scully
Former Chairman and
Chief Executive Officer,
St. Paul Bancorp, Inc.
Chicago, Illinois
Mark Shaevsky
Counsel,
Honigman Miller
Schwartz and Cohn LLP
Detroit, Michigan
Leonard S. Simon
Former Chairman and
Chief Executive Officer,
RCSB Financial, Inc.
Rochester, New York
John P. Tierney
Retired Chairman and
Chief Executive Officer,
Chrysler Financial Corporation
Detroit, Michigan
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders of Charter One Financial, Inc. will be held at 11 a.m. local time, Tuesday, April 22, 2003 at The Forum Conference Center in Cleveland, Ohio.
Direct Mailing of Annual Report
Shareholders whose common stock is held in a brokerage account or otherwise not in their own name may wish to receive copies of Charter One’s shareholder reports directly. Requests may be made through the corporate website, www.charterone.com, or mailed to the Investor Relations Department.
Dividend Policy and
Dividend Reinvestment Plan
A corporate objective of Charter One is to allow shareholders to benefit from the growth of Charter One through the payment of quarterly cash dividends. Dividends have been paid each quarter since October 1988. Charter One has established a Dividend Reinvestment Plan to enable shareholders to purchase additional shares. Information on the Plan may be obtained from the corporate website, www.charterone.com, or from the Transfer Agent.
Stock Trading Information
Common stock of Charter One Financial, Inc. is traded on the New York Stock Exchange under the trading symbol “CF.”
Transfer Agent
EquiServe
Shareholder Services Department
P.O. Box 43010
Providence, Rhode Island 02940
(800) 733-5001
www.equiserve.com
Directors Emeriti
Dr. Norman P. Auburn
Eugene B. Carroll, Sr.
Charles M. Heidel
George M. Jones
Henry R. Nolte, Jr.
Fred C. Reynolds
Charles A. Shirk
Eresteen R. Williams
CORPORATE INFORMATION
Corporate Website
www.charterone.com
Investor Relations
(800) 262-6301
Ellen L. Batkie
Senior Vice President
(734) 453-7334
Corporate Marketing
and Communications
Cindy Schulze
Senior Vice President
(216) 298-7155
Independent Auditors
Deloitte & Touche LLP
127 Public Square
Suite 2500
Cleveland, Ohio 44114-1303
(216) 589-1300
Legal Counsel: Internal
Robert J. Vana
Chief Corporate Counsel
and Secretary
Legal Counsel: External
LaPorte & Ipavec, L.P.A.
1215 Superior Avenue
Cleveland, Ohio 44114
Legal Counsel: External
(Corporate, Securities,
Bank Regulatory Counsel)
Silver, Freedman & Taff L.L.P.
1700 Wisconsin Avenue, N.W.
Washington, DC 20007
Headquarters
1215 Superior Avenue
Cleveland, Ohio 44114
(216) 566-5300
[CHARTER ONE FINANCIAL, INC.® LOGO]
www.charterone.com
CHARTER ONE FINANCIAL, INC. | 1215 SUPERIOR AVENUE | CLEVELAND, OHIO 44114
338-AR-03
INDEX TO EXHIBITS