Charter One Financial is one of those financial companies that's not quite a thrift and not quite a commercial bank. "We're neither fish nor fowl," says CEO Charles Koch. Charter One is a $33 billion-asset bank holding company based in Cleveland that operates two subsidiaries, one a bank and one a thrift, with the thrift substantially larger than the bank.

Despite its heavy dependence on the retail side, Charter One is trying to build its middle-market lending business, although that's where "we've had the toughest road." But he doesn't think there's much choice. "You have to think three to four years ahead," he says. Middle-market banking isn't sexy and doesn't attract much positive attention from Wall Street, but, he adds, "it is very profitable when done right."

In the meantime, Charter One's consumer business is moving along smartly. Fee revenue has been growing at a 20%-plus clip since 1995, and Koch expects that trend to continue through this year. He projects that the rise in fee income will account for the lion's share of meeting the company's 10%-to-12% target for revenue growth. That's fine, he says, "but at some point fee income has to slow down."

The 54-year-old CEO, who has been with Charter One 25 years, believes thrifts have a competitive advantage over commercial banks in retail. Last year, Charter One brought in 330,000 new checking accounts at an average out-of-pocket cost of $22 per account. "Some will be 'A' accounts and some will be 'F' accounts. We'll either turn the 'F' accounts into profitability or chase them out the door," he says.

Koch has adopted a different strategy than most banks and thrifts. Like the others, Charter One finds that 2% to 3% of its retail customers provide the bulk of its revenues. "We'll treat those customers well," says Koch. But he thinks the competition for that market is particularly keen and says, "we don't want to hang our hat on hopes of doubling that number."

Instead, Charter One plans to go after the lower tier, where the numbers are much larger and where the competition is less formidable.

To make a good profit in that market, he says, "we have to be efficient." And Charter One is. It's efficiency ratio last year was in the low 40s.

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