** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

----

 

**FORM 10-Q**

 

**ý****  Quarterly Report Pursuant to Section 13 or15(d) of theSecurities Exchange Act of 1934**

 

**For theQuarterly Period Ended**

**June 30,2004**

 

**OR**

 

**o****  Transition Report Pursuant to Section 13 or15(d) of theSecurities Exchange Act of 1934**

 

**001-14320**

Commission File Number

 

**GreenPoint Financial Corp.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                     | ** ** | **06-1379001**                                                                      |
|------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|
| (State or other jurisdiction  of  incorporation or organization) |       | (I.R.S. employer  identification number)                                            |
|                                                             |       |                                                                                |
| **90 Park  Avenue, New York, New York**                          | ** ** | **10016**                                                                           |
| (Address of principal  executive offices)                        |       | (Zip Code)                                                                          |
|                                                             |       |                                                                                |
| **(212)  834-1000**                                              | ** ** | **Not  Applicable**                                                                 |
| (Registrant’s telephone  number,  including area code)      |       | (Former name, former address  and former  fiscal year if changed since last report) |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  ý**Yes**  o**No**

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  ý**Yes**  o**No**

 

As of July 30, 2004, there were 132,454,866shares of common stock outstanding.

 

 

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**GreenPointFinancial Corp.**

**FORM 10-Q**

**For theQuarterly Period Ended**

**June 30,2004**

 

**TABLE OFCONTENTS**

 
| **PART I – FINANCIAL INFORMATION**                                                                                          |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                             |   |
| Item 1 - Financial Statements                                                                                                    |   |
|                                                                                                                             |   |
| Consolidated Statements of Financial  Condition (unaudited) as of June 30, 2004 and December 31, 2003                            |   |
|                                                                                                                             |   |
| Consolidated Statements of Income  (unaudited) for the quarter and six month periods ended June 30, 2004 and  2003               |   |
|                                                                                                                             |   |
| Consolidated Statements of Comprehensive  Income (unaudited) for the quarter and six month periods ended June 30, 2004  and 2003 |   |
|                                                                                                                             |   |
| Consolidated Statements of Changes in  Stockholders’ Equity (unaudited) for the six months ended June 30, 2004 and  2003    |   |
|                                                                                                                             |   |
| Consolidated Statements of Cash Flows  (unaudited) for the six months ended June 30, 2004 and 2003                          |   |
|                                                                                                                             |   |
| Notes to the Unaudited Consolidated  Financial Statements                                                                        |   |
|                                                                                                                             |   |
| Item 2 - Management’s Discussion and  Analysis of Financial Condition and Results of Operations                             |   |
|                                                                                                                             |   |
| Item 3 - Quantitative and Qualitative Disclosures about Market Risk                                                              |   |
|                                                                                                                             |   |
| Item 4 - Controls and Procedures                                                                                                 |   |
|                                                                                                                             |   |
| **PART II – OTHER INFORMATION**                                                                                             |   |
|                                                                                                                             |   |
| Item 1 - Legal Proceedings                                                                                                       |   |
|                                                                                                                             |   |
| Item 2 - Changes in Securities and Use of Proceeds                                                                               |   |
|                                                                                                                             |   |
| Item 4 - Submission of Matters to a Vote of Security Holders                                                                     |   |
|                                                                                                                             |   |
| Item 6 - Exhibits and Reports on Form 8-K                                                                                        |   |

 

2

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**GreenPoint Financial Corp. and Subsidiaries**

**Part I – Item 1. Financial Statements**

 

**Consolidated Statements of Financial Condition**

**(Unaudited)**

 
| **(In millions, except share  amounts)**                                                  | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| **ASSETS**                                                                                |       |               |       |               |       |
| Cash and due from banks                                                                   |       | $                  | 284        |               | $          | 268 |   |
| Money market investments:                                                                 |       |               |       |               |       |
| Interest-bearing deposits in other banks                                                  |       | 2                  |       | 3                  |       |
| Federal funds sold and securities purchased  under agreements to resell                   |       | 18                 |       | 64                 |       |
| Total cash and cash equivalents                                                           |       | 304                |       | 335                |       |
| Securities:                                                                               |       |               |       |               |       |
| Securities available for sale                                                             |       | 1,423              |       | 2,785              |       |
| Securities available for sale-pledged to  creditors                                       |       | 5,406              |       | 3,469              |       |
| Retained interests in securitizations  available for sale                                 |       | 45                 |       | 49                 |       |
| Federal Home Loan Bank of New York stock                                                  |       | 268                |       | 170                |       |
| Securities held to maturity (fair value of  $5 and $6, respectively)                      |       | 5                  |       | 6                  |       |
| Total securities                                                                          |       | 7,147              |       | 6,479              |       |
| Loans receivable held for sale                                                            |       | 5,241              |       | 4,764              |       |
| Loans receivable held for investment (net  of allowance for loan losses of $78)           |       | 11,666             |       | 9,885              |       |
| Other interest-earning assets                                                             |       | 142                |       | 142                |       |
| Accrued interest receivable                                                               |       | 89                 |       | 81                 |       |
| Banking premises and equipment, net                                                       |       | 180                |       | 183                |       |
| Servicing assets                                                                          |       | 208                |       | 183                |       |
| Goodwill (net of accumulated amortization  and impairment of $788)                        |       | 395                |       | 395                |       |
| Other assets                                                                              |       | 583                |       | 538                |       |
| Total assets                                                                              |       | $                  | 25,955     |               | $          | 22,985 |   |
|                                                                                      |       |               |       |               |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                             |       |               |       |               |       |
| **Liabilities:**                                                                          |       |               |       |               |       |
| Deposits:                                                                                 |       |               |       |               |       |
| N.O.W. and checking                                                                       |       | $                  | 3,606      |               | $          | 2,983 |   |
| Savings                                                                                   |       | 1,421              |       | 1,514              |       |
| Variable rate savings                                                                     |       | 2,046              |       | 2,146              |       |
| Money market                                                                              |       | 1,807              |       | 1,388              |       |
| Total core deposits                                                                       |       | 8,880              |       | 8,031              |       |
| Wholesale money market deposits                                                           |       | 344                |       | 205                |       |
| Term certificates of deposit                                                              |       | 3,832              |       | 4,310              |       |
| Total deposits                                                                            |       | 13,056             |       | 12,546             |       |
| Borrowings:                                                                               |       |               |       |               |       |
| Securities sold under agreements to  repurchase                                           |       | 4,103              |       | 3,327              |       |
| Other short term borrowings                                                               |       | 635                |       | 1,062              |       |
| Federal Home Loan Bank of New York advances                                               |       | 4,750              |       | 2,800              |       |
| Senior notes                                                                              |       | 345                |       | 353                |       |
| Subordinated bank notes                                                                   |       | 150                |       | 150                |       |
| Other long term debt                                                                      |       | 200                |       | 200                |       |
| Total borrowings                                                                          |       | 10,183             |       | 7,892              |       |
| Mortgagors’ escrow                                                                   |       | 59                 |       | 55                 |       |
| Liability under recourse exposure                                                         |       | 181                |       | 226                |       |
| Other liabilities                                                                         |       | 513                |       | 427                |       |
| Total liabilities                                                                         |       | 23,992             |       | 21,146             |       |
| Commitments and contingencies                                                             |       |               |       |               |       |
| **Stockholders’ equity:**                                                            |       |               |       |               |       |
| Preferred stock ($0.01 par value;  50,000,000 shares authorized; none issued)             |       | —             |       | —             |       |
| Common stock ($0.01 par value; 220,000,000  shares authorized; 165,391,746 shares issued) |       | 2                  |       | 2                  |       |
| Additional paid-in capital                                                                |       | 967                |       | 941                |       |
| Unallocated Employee Stock Ownership Plan  (ESOP) shares                                  |       | (81                | )          | (84                | )          |
| Retained earnings                                                                         |       | 2,092              |       | 1,926              |       |
| Accumulated other comprehensive income, net                                               |       | (88                | )          | (30                | )          |
| Treasury stock, at cost (33,505,486 shares  and 33,494,909 shares, respectively)          |       | (929               | )          | (916               | )          |
| Total stockholders’ equity                                                           |       | 1,963              |       | 1,839              |       |
| Total liabilities and stockholders’ equity                                           |       | $                  | 25,955     |               | $          | 22,985 |   |

 

*(See accompanying notes to the unauditedconsolidated financial statements)*

 

3

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**Consolidated Statements of Income**

**(Unaudited)**

 
| ** **                                                   | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In millions, except per share  amounts)**                 | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Interest income:**                                         |       |                        |       |                           |       |   |   |   |   |
| Mortgage loans held for investment                           |       | $                           | 157.8      |                           | $          | 157.1 |   | $ | 313.7 |   | $ | 323.8 |   |
| Loans held for sale                                          |       | 63.1                        |       | 70.6                           |       | 118.4 |   | 146.5 |   |
| Securities                                                   |       | 70.5                        |       | 59.6                           |       | 141.6 |   | 111.7 |   |
| Other                                                        |       | 3.0                         |       | 4.5                            |       | 6.4 |   | 8.1 |   |
| Total interest income                                        |       | 294.4                       |       | 291.8                          |       | 580.1 |   | 590.1 |   |
| **Interest expense:**                                        |       |                        |       |                           |       |   |   |   |   |
| Deposits                                                     |       | 48.9                        |       | 60.4                           |       | 98.4 |   | 123.1 |   |
| Other borrowed funds                                         |       | 57.8                        |       | 54.6                           |       | 110.3 |   | 107.3 |   |
| Long-term debt                                               |       | 8.9                         |       | 8.9                            |       | 17.9 |   | 17.0 |   |
| Total interest expense                                       |       | 115.6                       |       | 123.9                          |       | 226.6 |   | 247.4 |   |
| Net interest income                                          |       | 178.8                       |       | 167.9                          |       | 353.5 |   | 342.7 |   |
| Provision for loan losses                                    |       | (1.1                        | )          | (0.6                           | )          | (2.4 | ) | (0.9 | ) |
| Net interest income after provision for  loan losses         |       | 177.7                       |       | 167.3                          |       | 351.1 |   | 341.8 |   |
| **Non-interest income:**                                     |       |                        |       |                           |       |   |   |   |   |
| Income from fees and commissions:                            |       |                        |       |                           |       |   |   |   |   |
| Loan servicing income                                        |       | 10.9                        |       | (0.4                           | )          | 5.0 |   | 5.4 |   |
| Banking services fees and commissions                        |       | 23.6                        |       | 17.2                           |       | 46.0 |   | 31.7 |   |
| Fees, commissions and other income                           |       | 3.0                         |       | 3.1                            |       | 9.9 |   | 6.5 |   |
| Total income from fees and commissions                       |       | 37.5                        |       | 19.9                           |       | 60.9 |   | 43.6 |   |
| Net gain on sales of loans                                   |       | 123.7                       |       | 145.7                          |       | 244.4 |   | 270.0 |   |
| Change in valuation of retained interests                    |       | (0.9                        | )          | (0.7                           | )          | (1.3 | ) | (1.4 | ) |
| Net (loss) gain on sale of securities                        |       | —                      |       | (0.6                           | )          | 0.5 |   | 0.6 |   |
| Total non-interest income                                    |       | 160.3                       |       | 164.3                          |       | 304.5 |   | 312.8 |   |
| **Non-interest expense:**                                    |       |                        |       |                           |       |   |   |   |   |
| General and administrative expenses:                         |       |                        |       |                           |       |   |   |   |   |
| Salaries and benefits                                        |       | 70.3                        |       | 66.5                           |       | 134.1 |   | 128.1 |   |
| Employee Stock Ownership and stock plans  expense            |       | 8.4                         |       | 6.7                            |       | 17.3 |   | 12.8 |   |
| Net expense of premises and equipment                        |       | 23.0                        |       | 20.9                           |       | 46.5 |   | 41.8 |   |
| Federal deposit insurance premiums                           |       | 0.5                         |       | 0.5                            |       | 1.0 |   | 1.0 |   |
| Other administrative expenses                                |       | 37.7                        |       | 31.8                           |       | 75.5 |   | 63.3 |   |
| Total general and administrative expenses                    |       | 139.9                       |       | 126.4                          |       | 274.4 |   | 247.0 |   |
| Other real estate owned operating income                     |       | (1.2                        | )          | (1.7                           | )          | (1.2 | ) | (1.5 | ) |
| Total non-interest expense                                   |       | 138.7                       |       | 124.7                          |       | 273.2 |   | 245.5 |   |
| Income from continuing operations before  income taxes       |       | 199.3                       |       | 206.9                          |       | 382.4 |   | 409.1 |   |
| Income taxes related to earnings from  continuing operations |       | 76.3                        |       | 77.1                           |       | 146.9 |   | 152.4 |   |
| Net income from continuing operations                        |       | 123.0                       |       | 129.8                          |       | 235.5 |   | 256.7 |   |
| **Discontinued operations:**                                 |       |                        |       |                           |       |   |   |   |   |
| Net income from disposal of discontinued  business           |       | 0.5                         |       | 0.1                            |       | 0.6 |   | 0.4 |   |
| **Net income**                                               |       | $                           | 123.5      |                           | $          | 129.9 |   | $ | 236.1 |   | $ | 257.1 |   |
|                                                         |       |                        |       |                           |       |   |   |   |   |
| **Basic earnings per share:**                                |       |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                        |       | $                           | 1.05       |                           | $          | 1.05 |   | $ | 2.02 |   | $ | 2.05 |   |
| Net income from discontinued operations                      |       | —                      |       | —                         |       | — |   | — |   |
| Net income                                                   |       | $                           | 1.05       |                           | $          | 1.05 |   | $ | 2.02 |   | $ | 2.05 |   |
| **Diluted earnings per share:**                              |       |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                        |       | $                           | 1.03       |                           | $          | 1.03 |   | $ | 1.97 |   | $ | 2.01 |   |
| Net income from discontinued operations                      |       | —                      |       | —                         |       | — |   | — |   |
| Net income                                                   |       | $                           | 1.03       |                           | $          | 1.03 |   | $ | 1.97 |   | $ | 2.01 |   |
| **Dividends declared per share**                             |       | $                           | 0.30       |                           | $          | 0.21 |   | $ | 0.60 |   | $ | 0.42 |   |

 

*(See accompanying notes to the unauditedconsolidated financial statements.)*

 

4

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**Consolidated Statements of Comprehensive Income**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In millions)**                                                            | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                         |       |                        |       |                           |       |   |   |   |   |
| Net income                                                                   |       | $                           | 123.5      |                           | $          | 129.9 |   | $ | 236.1 |   | $ | 257.1 |   |
| Other comprehensive income, before tax:                                      |       |                        |       |                           |       |   |   |   |   |
| Unrealized gains (losses) on securities:                                     |       |                        |       |                           |       |   |   |   |   |
| Unrealized holding losses arising during  period                             |       | (154.4                      | )          | (15.2                          | )          | (101.5 | ) | (28.9 | ) |
| Less: reclassification adjustment for  losses (gains) included in net income |       | —                      |       | 0.6                            |       | (0.5 | ) | (0.6 | ) |
| Other comprehensive loss, before tax                                         |       | (154.4                      | )          | (14.6                          | )          | (102.0 | ) | (29.5 | ) |
| Income tax benefit related to items of  other comprehensive income           |       | 66.8                        |       | 6.3                            |       | 44.1 |   | 12.6 |   |
| Other comprehensive loss, net of tax                                         |       | (87.6                       | )          | (8.3                           | )          | (57.9 | ) | (16.9 | ) |
| **Total comprehensive income, net of tax**                                   |       | $                           | 35.9       |                           | $          | 121.6 |   | $ | 178.2 |   | $ | 240.2 |   |

 

*(See accompanying notes to the unauditedconsolidated financial statements.)*

 

5

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**Consolidated Statements of Changes In Stockholders’ Equity**

**(Unaudited)**

 
| ** **                                                 | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------|------------|
| **(In millions)**                                          | ** ** | **2004**                       | ** ** | **2003** | ** ** |
| **Common stock**                                           |       |                           |       |   |   |
| Balance at beginning of period                             |       | $                              | 2          |   | $ | 1 |   |
| Balance at end of period                                   |       | 2                              |       | 1 |   |
| **Additional paid-in capital**                             |       |                           |       |   |   |
| Balance at beginning of period                             |       | 941                            |       | 907 |   |
| Reissuance of treasury stock                               |       | 4                              |       | (1 | ) |
| Amortization of ESOP shares committed to be  released      |       | 18                             |       | 13 |   |
| Tax benefit for vested stock plans shares                  |       | 4                              |       | 7 |   |
| Balance at end of period                                   |       | 967                            |       | 926 |   |
| **Unallocated ESOP shares**                                |       |                           |       |   |   |
| Balance at beginning of period                             |       | (84                            | )          | (89 | ) |
| Amortization of ESOP shares committed to be  released      |       | 3                              |       | 2 |   |
| Balance at end of period                                   |       | (81                            | )          | (87 | ) |
| **Retained earnings**                                      |       |                           |       |   |   |
| Balance at beginning of period                             |       | 1,926                          |       | 1,563 |   |
| Net income                                                 |       | 236                            |       | 257 |   |
| Dividends declared                                         |       | (70                            | )          | (52 | ) |
| Balance at end of period                                   |       | 2,092                          |       | 1,768 |   |
| **Accumulated other comprehensive income, net**            |       |                           |       |   |   |
| Balance at beginning of period                             |       | (30                            | )          | 24 |   |
| Net change in accumulated other  comprehensive income, net |       | (58                            | )          | (17 | ) |
| Balance at end of period                                   |       | (88                            | )          | 7 |   |
| **Treasury stock, at cost**                                |       |                           |       |   |   |
| Balance at beginning of period                             |       | (916                           | )          | (482 | ) |
| Reissuance of treasury stock                               |       | 7                              |       | 24 |   |
| Purchase of treasury stock                                 |       | (20                            | )          | (238 | ) |
| Balance at end of period                                   |       | (929                           | )          | (696 | ) |
| **Total stockholders’ equity**                        |       | $                              | 1,963      |   | $ | 1,919 |   |

 

*(See accompanying notes to the unauditedconsolidated financial statements)*

 

6

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**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| **(In millions)**                                                                  | ** ** | **2004**                       | ** ** | **2003** | ** ** |
| **Cash flows from operating activities:**                                          |       |                           |       |   |   |
| Net income                                                                         |       | $                              | 236        |   | $ | 257 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                           |       |   |   |
| Net premium amortization on mortgage loans                                         |       | 14                             |       | 20 |   |
| Net premium amortization on securities                                             |       | 15                             |       | 17 |   |
| Provision for loan losses                                                          |       | 3                              |       | 1 |   |
| Depreciation and amortization                                                      |       | 20                             |       | 17 |   |
| Gain on sales of loans                                                             |       | (244                           | )          | (270 | ) |
| Gain on sale of securities                                                         |       | (1                             | )          | (1 | ) |
| ESOP and stock plans expense                                                       |       | 21                             |       | 16 |   |
| Capitalization of servicing assets                                                 |       | (88                            | )          | (27 | ) |
| Amortization and impairment of servicing  assets                                   |       | 35                             |       | 24 |   |
| (Increase) decrease in assets associated  with operating activities:               |       |                           |       |   |   |
| Loans receivable held for sale:                                                    |       |                           |       |   |   |
| Loan originations                                                                  |       | (19,381                        | )          | (20,675 | ) |
| Proceeds from loan sales                                                           |       | 18,668                         |       | 20,948 |   |
| Other                                                                              |       | 480                            |       | 222 |   |
| Retained interests in securitizations                                              |       | 3                              |       | 21 |   |
| Accrued interest receivable                                                        |       | (8                             | )          | 9 |   |
| Other assets                                                                       |       | 5                              |       | 4 |   |
| Increase (decrease) in liabilities  associated with operating activities:          |       |                           |       |   |   |
| Liabilities under recourse exposure                                                |       | (45                            | )          | (21 | ) |
| Other liabilities                                                                  |       | 97                             |       | (19 | ) |
| Other, net                                                                         |       | 3                              |       | (7 | ) |
| Net cash (used in) provided by operating  activities                               |       | (167                           | )          | 536 |   |
| **Cash flows from investing activities:**                                          |       |                           |       |   |   |
| Net change in loans receivable held for  investment                                |       | (1,834                         | )          | (105 | ) |
| Purchases of premises and equipment                                                |       | (17                            | )          | (26 | ) |
| Available for sale securities:                                                     |       |                           |       |   |   |
| Proceeds from maturities                                                           |       | 150                            |       | 1,626 |   |
| Proceeds from sales                                                                |       | 1,146                          |       | 1,946 |   |
| Purchase of securities                                                             |       | (3,286                         | )          | (6,360 | ) |
| Principal repayments                                                               |       | 1,306                          |       | 1,834 |   |
| Federal Home Loan Bank Stock – (purchases)  redemptions                       |       | (98                            | )          | 45 |   |
| Other, net                                                                         |       | 35                             |       | 29 |   |
| Net cash used in investing activities                                              |       | (2,598                         | )          | (1,011 | ) |
| **Cash flows from financing activities:**                                          |       |                           |       |   |   |
| Net change in:                                                                     |       |                           |       |   |   |
| Domestic deposits                                                                  |       | 510                            |       | 529 |   |
| Mortgagors’ escrow deposits                                                   |       | 4                              |       | (1 | ) |
| Proceeds from securities sold under  agreements to repurchase and other borrowings |       | 117,884                        |       | 29,222 |   |
| Repayments of securities sold under  agreements to repurchase and other borrowings |       | (117,535                       | )          | (29,192 | ) |
| Proceeds from advances from Federal Home  Loan Bank                                |       | 116,004                        |       | 125,230 |   |
| Repayments of advances from Federal Home  Loan Bank                                |       | (114,054                       | )          | (125,330 | ) |
| Proceeds from issuance of senior notes                                             |       | —                         |       | 348 |   |
| Cash dividends paid                                                                |       | (70                            | )          | (52 | ) |
| Treasury stock purchased                                                           |       | (20                            | )          | (238 | ) |
| Exercise of stock options                                                          |       | 11                             |       | 24 |   |
| Net cash provided by financing activities                                          |       | 2,734                          |       | 540 |   |
| Net (decrease) increase in cash and cash  equivalents                              |       | (31                            | )          | 65 |   |
| Cash and cash equivalents – beginning of  period                              |       | 335                            |       | 369 |   |
| Cash and cash equivalents – end of period                                     |       | $                              | 304        |   | $ | 434 |   |
| **Non-cash activities:**                                                           |       |                           |       |   |   |
| Additions to other real estate owned, net                                          |       | $                              | 24         |   | $ | 24 |   |
| Unsettled securities trades                                                        |       | $                              | —     |   | $ | (96 | ) |
| **Supplemental disclosure of cash flow  information:**                             |       |                           |       |   |   |
| Cash paid for income taxes                                                         |       | $                              | 98         |   | $ | 172 |   |
| Interest paid                                                                      |       | $                              | 232        |   | $ | 257 |   |

 

*(See accompanying notes to the unauditedconsolidated financial statements)*

 

7

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**NotesTo The Unaudited Consolidated Financial Statements**

 

**NOTE 1****                ****Summary of Significant AccountingPolicies**

 

**Basis of Presentation**

The unaudited consolidated financialstatements of GreenPoint Financial Corp. and Subsidiaries (“GreenPoint” or the“Company”) are prepared in accordance with generally accepted accountingprinciples for interim financial information. In the opinion of management, alladjustments (consisting only of normal recurring accruals) necessary for a fairpresentation of the Company’s interim financial condition as of the datesindicated and the results of operations for the periods presented have beenincluded. Certain reclassifications have been made to the prior periodfinancial statements to conform to the current period presentation. The resultsof operations for the interim periods shown are not necessarily indicative ofresults that may be expected for the entire year.

The Company adopted a plan to exit themanufactured housing lending business in December 2001. Current and comparativeprior period consolidated statements of income present the results ofcontinuing operations and discontinued operations separately.

These unaudited consolidated interimfinancial statements should be read in conjunction with the consolidatedfinancial statements and notes included in the Company’s Annual Report toshareholders for the year ended December 31, 2003.

 

##### **Use of Estimates**

The preparation of the Consolidated FinancialStatements under U.S. Generally Accepted Accounting Principals (“GAAP”)requires management to make estimates and assumptions that affect the reportedamounts of revenues, expenses, assets, liabilities and disclosures ofcontingent assets and liabilities as of the date of the Consolidated FinancialStatements. Actual results could differ from those estimates.

 

**Accounting for Loan Sales**

GreenPoint primarily sells loans in the wholeloan market. Loans sold on a whole loan basis are sold either with GreenPointreleasing or retaining the right to service the loans. When GreenPoint does notretain the servicing rights to the loans, the gain or loss on the sale is equalto the difference between the proceeds received and the book basis of the loanssold. If the loans are sold with GreenPoint retaining the servicing rights, thegain or loss depends in part on the fair value attributed to the servicingrights.

In addition to selling through the whole loanmarket, GreenPoint on occasion securitizes certain mortgage loans.

The rules governing the accounting for loansecuritizations are established in Statement of Financial Accounting StandardsNO. 140 – “Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities” (“SFAS 140”). This standard establishes theconditions that must be present for treating a transfer of financial assets asa sale and the conditions that must be met to treat the transferor as aQualifying Special Purpose Entity (“QSPE”).

GreenPoint’s securitizations of mortgageloans involve the sale of a pool of loans to a QSPE and securities supported bythe cash flow from the transferred loans are sold by the QSPE to third partyinvestors. Funds received from the third-party investors are returned toGreenPoint as payment for the transferred loans. Generally, the Company mayretain servicing rights and one or more retained interests. These retainedinterests include interest-only strips, subordinated certificates, transferorinterests, demand notes and certain other credit enhancements.

For a securitization transaction to betreated as a sale under SFAS 140, the loans transferred by the Company musthave been isolated from the seller (even in bankruptcy or receivership), theQSPE must meet the significant limitations on it’s activities and thetransferor can not maintain effective control of the transferred assets. Inorder to determine if the loans have been isolated, GreenPoint obtains anopinion of legal counsel. The opinion must state that the transaction is a saleand that the assets transferred would not be consolidated with the transferor’sother assets in the event of a bankruptcy or receivership. A QSPE is exemptfrom being consolidated in the financial statements of a transferor or itsaffiliates under SFAS 140.

 

8

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In calculating the gain or loss on the sale,GreenPoint allocates the cost basis of the loans sold between the assets sold,the retained interests and servicing rights based on their relative fair valuesat the date of sale. A gain or loss is recognized as the difference between thecash proceeds from the sale and the allocated cost basis of the assets sold.Because market quotes are generally not available for retained interests andservicing assets, the Company generally estimates fair value using modelingtechniques based on the assumptions the Company believes market participantswould use for similar assets and liabilities.

#####  

**Allowance forLoan Losses**

The allowance for loan losses is intended to coverprobable losses inherent in the loans receivable held for investment portfolio.Additions to the allowance are made by means of the provision for loan losses.Credit losses are deducted from the allowance and subsequent recoveries areadded.

GreenPoint calculates its allowance for loanlosses in accordance with Statement of Financial Accounting Standards No. 5,“Accounting for Contingencies” (“SFAS 5”). This accounting standard is used todetermine the allowance associated with large groups of smaller balancehomogeneous loans that are collectively evaluated for impairment. GreenPointconsiders all of its loans held for investment to be smaller-balancehomogeneous loans. SFAS 5 requires the accrual of a loss when it is probablethat an asset has been impaired and the amount of the loss can be reasonably estimated.The allowance for loan losses represents management’s estimate of probable butunconfirmed asset impairment in the loans held for investment portfolio as ofthe date of the financial statements.

 

**DerivativeFinancial Instruments**

Derivative financial instruments are recognized in thestatements of financial condition in either “other assets” or “otherliabilities” at fair value. The accounting for changes in the fair value ofderivatives depends on whether the derivative is designated and qualifies forhedge accounting. Certain hedging relationships that have qualified for hedgeaccounting have been designated as either a fair value or a cash flow hedge. Inorder to qualify for hedge accounting, GreenPoint must identify at theinception of the hedge, the item hedged, the nature of the risk being hedged,the derivative used and how the hedging instrument’s effectiveness will beassessed.

In fair value hedge accounting,the change in fair value of the hedging instruments and the change in fairvalue of the hedged item attributed to the hedged risk are recognized currentlyin earnings. The amount of hedge ineffectiveness recognized in earnings isbased on the extent to which an exact offset is not achieved. In cash flowhedge accounting, the effective portion of the gain or loss on the derivativeinstrument is reported as a component of other comprehensive income andreclassified into earnings in the same period or periods during which thehedged transaction affects earnings. To the extent a cash flow hedge isineffective, changes in fair value are recognized immediately into earnings.

GreenPoint designates certain fixed ratemortgage loans held for sale as hedged items in fair value hedges. The riskbeing hedged on these loans is the changes in fair value attributable tochanges in market interest rates. GreenPoint designates forward deliverycommitments as the hedging instruments used in the fair value hedges. Theresults of previous retrospective assessments of hedge effectiveness haveestablished an expectation that the results of the derivative hedginginstruments will substantially offset the effects of changes in the fair valueof the hedged item on a prospective basis. If the retrospective assessmentdetermines that the hedge was not highly effective, GreenPoint will discontinuehedge accounting prospectively. GreenPoint will re-establish the prospectiveexpectation of correlation if the hedge is determined to be highly effective.The Company accounts for certain fair value hedges under the short cut methodof accounting for derivatives. The short cut method assumes no ineffectivenessbetween an interest-bearing financial instrument and an interest rate swap.Changes in the fair value of the interest rate swap are recorded as changes invalue of the swap and the hedged financial instrument.

 

9

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GreenPoint designates certain commitments topurchase mortgage loans to be held for investment as the derivative used incash flow hedges. The risk being hedged in these transactions is thevariability in the cash flows of a forecasted purchase. To the extent that thehedge is effective, GreenPoint includes in other comprehensive income changesin the fair value of these derivatives.

Certain derivative financial instruments donot qualify for hedge accounting. The company records these derivatives at fairvalue with changes in fair value recognized through net income. For example, aninterest rate lock commitment on a mortgage loan that the Company does notintend to hold for investment is a derivative. During the accumulation of thesecommitments with borrowers, the Company is exposed to interest rate risk. Ifmarket interest rates required by investors are higher than management’sassumptions, the prices paid by investors and resultant gain on sale of loanswill be lower than previously estimated. In order to mitigate this interestrate risk, the Company uses a combination of other derivatives, such as forwarddelivery commitments and forward sales contracts. The amount and duration ofthese derivatives are selected in order to have the changes in their fair valuecorrelate closely with the changes in fair value of the interest rate lockcommitments on loans to be sold.

 

##### **Representations andWarranties**

In the normal course of business, GreenPointmay be required to repurchase a previously sold mortgage if certaindeficiencies exist in the loan documentation. GreenPoint has established aliability for losses it estimates might be incurred (“the representation andwarranty liability”). This liability is included in the Consolidated Statementsof Financial Condition under other liabilities.

Additions to the representation and warrantyliability are reported as a reduction to gain on sale of loans. Payments madeto indemnify an investor for losses and credit losses that occur afterGreenPoint has re-acquired the loan are deducted from the representation andwarranty liability.

 

**Retained Interests inSecuritizations**

Generally, GreenPoint retains one or moreinterests in loans sold in a securitization. These interests includeinterest-only strips, subordinated certificates, transferor interests, demandnotes and the recorded liabilities for limited recourse provided on mortgageloans.

GreenPoint classifies theseretained interests in securitizations as available for sale and carries thesesecurities at fair value. To obtain fair values quoted market prices are usedif available. Since market quotes are generally not available for retainedinterests, GreenPoint generally estimates fair value by using modelingtechniques to determine the present value of future cash flows usingassumptions of prepayments, defaults, loss severity rates, future interestrates and discount rates. These assumptions are based on GreenPoint’s management’sbest estimates of what market participants would use for similar assets andliabilities.

Generally, if the fair value of aretained interest declines below its amortized cost basis, the change invaluation is recognized in the consolidated statement of income and isclassified as a change in valuation of retained interests. If the fair value ofa retained interest increases above its amortized cost basis, the unrealizedgain is reported, net of applicable taxes, in accumulated other comprehensiveincome, as a separate component of stockholders’ equity.

 

**Servicing Assets**

Servicing assets are carried at the lower ofcost or fair value and are amortized in proportion to and over the estimatednet servicing revenue.

In determining fair valueGreenPoint stratifies its servicing assets based on the risk characteristics ofthe underlying loan pools. The fair value of servicing assets is determined bycalculating the present value of estimated future net servicing cash flows,using assumptions of prepayments, defaults, ancillary income, servicing costsand discount rates that GreenPoint believes market participants would use forsimilar assets.

If GreenPoint determines that the impairmentfor a stratum is temporary, a valuation allowance is recognized through a chargeto current earnings for the amount the amortized balance exceeds the currentfair value. If the fair value of the stratum were to later increase, thereduction of the valuation allowance may be recorded as an increase toservicing income. However, if GreenPoint determines that an impairment for astratum is other-than-temporary, the value of the servicing asset and anyrelated valuation allowance is written down.

 

10

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**Goodwill**

Goodwill represents the excess of cost over fair valueof assets of businesses acquired. The goodwill reported on the ConsolidatedStatements of Financial Condition arose from the 1995 acquisition of the NewYork Branches of Home Savings of America. In December 2001, GreenPoint formallyadopted a plan to discontinue the manufactured housing lending business. As aresult of this decision, management determined that the goodwill relating tothe 1998 acquisition of the manufactured housing finance business ofBankAmerica Housing Services (“BAHS”) was impaired and the remaining carryingvalue was written off.

In accordance with the adoption on January 1,2002 of Financial Accounting Standards No. 142, “Goodwill and Other IntangibleAssets” (“SFAS 142”), GreenPoint ceased the amortization of goodwill. Sincethat date, the Company is required to test goodwill annually for impairment.The test allocates goodwill to the Company’s reporting units and compares thefair value of a reporting unit with its carrying amount, which includesgoodwill. Impairment does not exist if the fair value of a reporting unitexceeds its carrying amount.

The goodwill shown on the ConsolidatedStatements of Financial Condition is attributable to the retail-banking segmentand is carried at its January 1, 2002 book value of $395 million. Based onGreenPoint’s testing of the retail-banking segment, no goodwill impairment wasrecognized in either 2003 or 2002.

 

**Accounting for Discontinued Operations**

In the fourth quarter of 2001, GreenPointdiscontinued the operations of the manufactured housing lending segment.GreenPoint accounts for this discontinued operation under the provisions ofAccounting Principles Board Statement No. 30 “Reporting the Results ofOperation – Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions”(“APB 30”).

 

**Stock-BasedCompensation Plans**

Deferred compensation for stock award plansare recorded as a reduction of stockholders’ equity and are calculated as thecost of the shares purchased by the Bank and contributed to the plan.Compensation expense is recognized over the vesting period of actual stockawards based upon the fair value of shares at the award date.

Compensation expense for the Employee StockOwnership Plan and Trust (“ESOP”) is recognized for the number of sharesallocated to ESOP participants, as they are committed to be released. Thedifference between the fair value of the shares allocated and the cost of theshares to the ESOP is charged or credited to additional paid-in capital.

The Company adopted the disclosure approachunder Statement of Financial Accounting Standards No. 123, “Accounting forStock-Based Compensation” (“SFAS 123”), as amended by Statement of FinancialAccounting Standards No. 148, “Accounting for Stock-Based Compensation –Transition and Disclosure”. Under these standards the Company discloses in thenotes to the financial statements the pro forma effects on net income andearnings per share, determined as if the fair value-based method had beenapplied in measuring compensation cost. The Company continues to applyAccounting Principal Board Statement No. 25, “Accounting for Stock Issued toEmployees” (“APB 25”) in accounting for its plans. Under APB 25, the Companyhas not recognized any costs related to its stock option plans since theoptions granted under these plans have an exercise price equal to the marketvalue of the Company’s common stock on the grant date.

 

11

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The following table illustrates the effect onnet income and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS 123, to stock-based employee compensation.

 
| ** **                                                                                                                    | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In millions, except per share  amounts)**                                                                                  | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                          |       |                        |       |                           |       |   |   |   |   |
| Net income as reported                                                                                                        |       | $                           | 123.5      |                           | $          | 129.9 |   | $ | 236.1 |   | $ | 257.1 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method net of related  tax effects |       | (2.6                        | )          | (2.5                           | )          | (4.9 | ) | (4.8 | ) |
| Proforma net income                                                                                                           |       | $                           | 120.9      |                           | $          | 127.4 |   | $ | 231.2 |   | $ | 252.3 |   |
|                                                                                                                          |       |                        |       |                           |       |   |   |   |   |
| Earnings per share:                                                                                                           |       |                        |       |                           |       |   |   |   |   |
| Basic – as reported                                                                                                      |       | $                           | 1.05       |                           | $          | 1.05 |   | $ | 2.02 |   | $ | 2.05 |   |
| Basic – pro forma                                                                                                        |       | $                           | 1.03       |                           | $          | 1.03 |   | $ | 1.98 |   | $ | 2.01 |   |
| Diluted – as reported                                                                                                    |       | $                           | 1.03       |                           | $          | 1.03 |   | $ | 1.97 |   | $ | 2.01 |   |
| Diluted – pro forma                                                                                                      |       | $                           | 1.01       |                           | $          | 1.01 |   | $ | 1.93 |   | $ | 1.97 |   |

 

 

**NOTE 2****                ****Agreement and Plan of Merger**

 

On February 16, 2004, an Agreement and Planof Merger dated as of February 15, 2004 by and between North ForkBancorporation, Inc. (“North Fork”) and GreenPoint was announced. The agreementprovides that North Fork will acquire GreenPoint in an all stock transaction.Under the terms of the agreement, in a tax-free exchange of shares, GreenPointshareholders will receive a fixed exchange ratio of 1.0514 shares of North Forkcommon stock for each GreenPoint share held upon consummation of theacquisition.

The agreement has been approved unanimouslyby the Boards of Directors of both companies and all regulatory approvals havebeen obtained. The agreement is subject to approval by shareholders of bothcompanies and other customary conditions. The agreement establishes areciprocal termination fee of $220 million. The merger is expected to becompleted on or about September 30, 2004.

 

 

**NOTE 3****                ****Loans Receivable**

 

The Company’s loans receivable held for salebalances are summarized as follows:

 
| **(In millions)**                     | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------|------------|
| Conventional first mortgage loans:    |       |               |       |               |       |
| Residential one-to four-family        |       | $                  | 3,935      |               | $          | 4,036 |   |
| Commercial property                   |       | 67                 |       | 93                 |       |
| Second mortgage and home equity loans |       | 1,191              |       | 589                |       |
| Other                                 |       | 1                  |       | 1                  |       |
| Total loans receivable held for sale  |       | 5,194              |       | 4,719              |       |
| Net deferred loan origination costs   |       | 47                 |       | 45                 |       |
| Loans receivable held for sale, net   |       | $                  | 5,241      |               | $          | 4,764 |   |

 

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The Company’s loans receivable held forinvestment balances are summarized as follows:

 
| **(In millions)**                                         | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|-----------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| Conventional first mortgage loans:                        |       |               |       |               |       |
| Residential one-to four-family                            |       | $                  | 9,885      |               | $          | 8,289 |   |
| Residential multi-family                                  |       | 176                |       | 217                |       |
| Commercial property                                       |       | 1,281              |       | 1,029              |       |
| Second mortgage and home equity loans                     |       | 284                |       | 301                |       |
| Manufactured housing loans                                |       | 47                 |       | 55                 |       |
| Other                                                     |       | 26                 |       | 25                 |       |
| Total loans receivable held for investment                |       | 11,699             |       | 9,916              |       |
| Net deferred loan origination costs and  purchase premium |       | 45                 |       | 47                 |       |
| Allowance for loan losses                                 |       | (78                | )          | (78                | )          |
| Loans receivable held for investment, net                 |       | $                  | 11,666     |               | $          | 9,885 |   |

 

 

**NOTE 4****                ****Securities Available for Sale**

 

Theamortized cost and estimated fair value of securities available for sale atJune 30, 2004 and December 31, 2003 are summarized as follows:

 
| ** **                                            | ** ** | **June 30, 2004**   | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|
| **(In  millions)**                                    | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. Government and Federal  Agency Obligations:      |       |                |       |   |   |   |   |   |   |
| U.S. Treasury notes/bills                             |       | $                   | 100        |   | $ | — |   | $ | (5 | ) | $ | 95 |   |
| Agency notes                                          |       | 232                 |       | — |   | (8 | ) | 224 |   |
| Mortgage-backed securities                            |       | 496                 |       | 7 |   | (9 | ) | 494 |   |
| Collateralized mortgage  obligations                  |       | 5,634               |       | 7 |   | (114 | ) | 5,527 |   |
| Trust certificates  collateralized by GNMA securities |       | 2                   |       | — |   | — |   | 2 |   |
| Corporate bonds                                       |       | 149                 |       | 2 |   | (2 | ) | 149 |   |
| Municipal bonds                                       |       | 36                  |       | 2 |   | — |   | 38 |   |
| Equity securities                                     |       | 330                 |       | — |   | (30 | ) | 300 |   |
| Total securities available for  sale                  |       | $                   | 6,979      |   | $ | 18 |   | $ | (168 | ) | $ | 6,829 |   |

 
| ** **                                            | ** ** | **December 31, 2003** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|
| **(In  millions)**                                    | ** ** | **Amortized  Cost**   | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. Government and Federal  Agency Obligations:      |       |                  |       |   |   |   |   |   |   |
| U.S. Treasury notes/bills                             |       | $                     | 101        |   | $ | — |   | $ | (4 | ) | $ | 97 |   |
| Agency notes                                          |       | 240                   |       | — |   | (5 | ) | 235 |   |
| Mortgage-backed securities                            |       | 581                   |       | 9 |   | (5 | ) | 585 |   |
| Collateralized mortgage  obligations                  |       | 4,912                 |       | 8 |   | (44 | ) | 4,876 |   |
| Trust certificates  collateralized by GNMA securities |       | 2                     |       | — |   | — |   | 2 |   |
| Corporate bonds                                       |       | 149                   |       | 1 |   | (3 | ) | 147 |   |
| Municipal bonds                                       |       | 46                    |       | 3 |   | — |   | 49 |   |
| Equity securities                                     |       | 278                   |       | 2 |   | (17 | ) | 263 |   |
| Total securities available for  sale                  |       | $                     | 6,309      |   | $ | 23 |   | $ | (78 | ) | $ | 6,254 |   |

 

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Thefollowing is a summary of the fair value of securities with unrealized lossesand identification, by security type, of those unrealized losses that have beenin place for less than twelve months and for twelve months or more:

 
| ** **                                            | ** ** | **At June 30, 2004**    | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|
| ** **                                            | ** ** | **Less Than 12 Months** | ** ** | **12 Months or More** | ** ** | **Total** | ** ** |
| **(In millions)**                                     | ** ** | **Fair  Value**         | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| U.S. Government and Federal Agency  Obligations:      |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury notes/bills                             |       | $                       | 95         |   | $ | 5 |   | $ | — |   | $ | — |   | $ | 95 |   | $ | 5 |   |
| Agency notes                                          |       | 197                     |       | 8 |   | 27 |   | — |   | 224 |   | 8 |   |
| Mortgage-backed securities                            |       | 475                     |       | 9 |   | 19 |   | — |   | 494 |   | 9 |   |
| Collateralized mortgage obligations                   |       | 4,953                   |       | 110 |   | 574 |   | 4 |   | 5,527 |   | 114 |   |
| Trust certificates collateralized by GNMA  securities |       | —                  |       | — |   | 2 |   | — |   | 2 |   | — |   |
| Corporate bonds                                       |       | 110                     |       | 1 |   | 39 |   | 1 |   | 149 |   | 2 |   |
| Municipal bonds                                       |       | 38                      |       | — |   | — |   | — |   | 38 |   | — |   |
| Equity securities                                     |       | 186                     |       | 21 |   | 114 |   | 9 |   | 300 |   | 30 |   |
| Total                                                 |       | $                       | 6,054      |   | $ | 154 |   | $ | 775 |   | $ | 14 |   | $ | 6,829 |   | $ | 168 |   |

 
| ** **                                            | ** ** | **At December 31, 2003** | ** ** |
|-------------------------------------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **Less Than 12 Months**  | ** ** | **12 Months or More** | ** ** | **Total** | ** ** |
| **(In millions)**                                     | ** ** | **Fair  Value**          | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| **U.S. Government and Federal Agency  Obligations:**  |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury notes/bills                             |       | $                        | 97         |   | $ | 4 |   | $ | — |   | $ | — |   | $ | 97 |   | $ | 4 |   |
| Agency notes                                          |       | 235                      |       | 5 |   | — |   | — |   | 235 |   | 5 |   |
| Mortgage-backed securities                            |       | 585                      |       | 5 |   | — |   | — |   | 585 |   | 5 |   |
| Collateralized mortgage obligations                   |       | 4,792                    |       | 43 |   | 84 |   | 1 |   | 4,876 |   | 44 |   |
| Trust certificates collateralized by GNMA  securities |       | 2                        |       | — |   | — |   | — |   | 2 |   | — |   |
| Corporate bonds                                       |       | 74                       |       | 1 |   | 73 |   | 2 |   | 147 |   | 3 |   |
| Municipal bonds                                       |       | —                   |       | — |   | 49 |   | — |   | 49 |   | — |   |
| Equity securities                                     |       | 174                      |       | 10 |   | 89 |   | 7 |   | 263 |   | 17 |   |
| Total                                                 |       | $                        | 5,959      |   | $ | 68 |   | $ | 295 |   | $ | 10 |   | $ | 6,254 |   | $ | 78 |   |

 

The unrealized losses in the portfolio resulted from changes in marketinterest rates and not from a deterioration in the creditworthiness of theissuer. At June 30, 2004 there were 275 positions in the portfolio with anunrealized loss.

 

14

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**NOTE 5****                ****Mortgage Recourse Arrangements,Retained Interests in Securitizations and Servicing Assets**

 

The following describes the balancesassociated with recourse arrangements, the balances and activity in thecorresponding retained interests, the balances and activity in servicing assetsand the economic assumptions used in valuing the retained interests andservicing assets of mortgage loans. The discussion of manufactured housingrecourse and servicing assets is discussed in Note 10.

 

**Recourse Arrangements**

GreenPoint sells loans in the secondarymarket either through whole loan sales or by securitization.  Generally the credit risk associated withthose loans is transferred to the buyer. GreenPoint retains recourse on suchsales. In whole loan sales the recourse is limited to documentationrepresentations and warranties and in securitizations the recourse is limitedto the amount of credit enhancement GreenPoint contributes to the particulartransaction. The investors and the securitization trusts have no recourse toGreenPoint’s other assets for failure of debtors to pay when due except for thelimited recourse described herein.

Typically in securitizations,GreenPoint will provide credit enhancement to the transaction to indemnifylosses incurred by the investors. These credit enhancements will be in the formof over-collateralization, excess interest cash flows, subordinated interestsor demand notes. GreenPoint retains those interests and, as such, thoseinterests represent the maximum recourse that GreenPoint has on a mortgagesecuritization. GreenPoint also entered into a whole loan sale where the riskof loss is shared between GreenPoint and the investor.

The following table shows theprincipal balances of mortgage loans and amounts of maximum recourse toGreenPoint for securitizations and risk-share sales:

 
| **(In millions)**          | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|----------------------------|------------|--------------------|------------|--------------------|------------|
| Mortgage securitizations:  |       |               |       |               |       |
| Principal balance          |       | $                  | 340        |               | $          | 458 |   |
| Maximum recourse *(1)*     |       | 44                 |       | 48                 |       |
| Mortgage risk-share sales: |       |               |       |               |       |
| Principal balance          |       | 128                |       | 170                |       |
| Maximum recourse *(2)*     |       | 125                |       | 166                |       |
|                            |            |                    |            |                    |            |  |  |

 

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*(1)**                               Representsthe sum of all mortgage retained interests on the balance sheet.*

*(2)**                               Therecourse arrangements under the mortgage sale transactions represent a risksharing arrangement in which GreenPoint has transferred the first 2% of lossesto the purchaser. GreenPoint maintains a liability of $1 million to coverexpected losses from this arrangement.*

 

The following represents quantitativeinformation about delinquencies on loans securitized and loans sold underrisk-sharing arrangements:

 
| ** **                                           | ** ** | **June 30, 2004** | ** ** | **December 31, 2003** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In millions)**                                    | ** ** | **Securitized**   | ** ** | **Sold**              | ** ** | **Securitized** | ** ** | **Sold** | ** ** |
| Principal balance of loans                           |       | $                 | 340        |                  | $          | 128 |   | $ | 458 |   | $ | 170 |   |
| Principal balance of loans 90 days or more  past due |       | 8                 |       | 20                    |       | 14 |   | 26 |   |
|                                                      |            |                   |            |                       |            |  |  |  |  |  |  |  |  |

 

## **Balances and Changes in Retained Interests**

The assets recognized as retained interestsin mortgage securitizations include interest-only strips, transferor interests,demand notes and subordinated certificates. These retained interests representthe maximum amount of loss GreenPoint can incur in its mortgagesecuritizations.

 

15

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The activity in retained interests in mortgage securitizations issummarized as follows:

 
| ** **                                 | ** ** | **At and for the  Quarter Ended  June 30,** | ** ** | **At and for the  Six Months Ended  June 30,** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| **(In millions)**                          | ** ** | **2004**                                    | ** ** | **2003**                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Retained Interests in Securitizations:** |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period             |       | $                                           | 51         |                                           | $          | 75 |   | $ | 48 |   | $ | 104 |   |
| Additions from securitizations             |       | —                                      |       | 8                                              |       | — |   | 8 |   |
| Interest and other income                  |       | 3                                           |       | 3                                              |       | 4 |   | 5 |   |
| Cash advanced (received)                   |       | (7                                          | )          | (3                                             | )          | (5 | ) | (9 | ) |
| Cleanup call exercise                      |       | —                                      |       | —                                         |       | — |   | (23 | ) |
| Change in unrealized gain                  |       | (2                                          | )          | —                                         |       | (1 | ) | (1 | ) |
| Change in subordinated certificates        |       | —                                      |       | —                                         |       | (1 | ) | — |   |
| Change in valuation of retained interests  |       | (1                                          | )          | —                                         |       | (1 | ) | (1 | ) |
| Balance at end of period                   |       | $                                           | 44         |                                           | $          | 83 |   | $ | 44 |   | $ | 83 |   |

 

On a quarterly basis, GreenPoint reviewsretained interests for impairment based on management’s best estimate of thefair value of future cash flows associated with the retained interests.

 

**Valuation Assumptions**

There were no new securitizations recordedduring the quarter ended June 30, 2004. The key economic assumptions used inestimating the fair value of the entire portfolio of mortgage retainedinterests at June 30, 2004 and December 31, 2003 were as follows:

 
| ** **                       | ** ** | **Estimate of Fair  Value at** | ** ** |
|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **June 30,  2004**             | ** ** | **Dec. 31,  2003** | ** ** |
| Weighted average life (in years) |       | 0.6                            |       | 0.7 |   |
| Weighted average prepayment rate |       | 59.3                           | %          | 59.7 | % |
| Weighted average loss rate       |       | 3.8                            | %          | 3.2 | % |
| Cumulative loss *(1)*            |       | 2.3                            | %          | 2.2 | % |
| Asset cash flows discounted at   |       | 8.0                            | %          | 8.0 | % |

 

----

*(1)**          Remaining estimated netlosses divided by outstanding principal balance.*

 

**Representations andWarranties**

**A majority of GreenPoint’s loan sales are done aswhole loan sales. GreenPoint makes certain representations and warranties,which permit the investor to return the mortgage loan to the originator ifdeficiencies exist in the loan documentation. This is a common practice in themortgage secondary markets. GreenPoint maintains a liability for such potentialindemnifications and repurchases. The following table summarizes the activityin that liability and the amount of losses incurred by GreenPoint on suchrepurchases:**

 
| ** **                        | ** ** | **At and for the  Quarter Ended  June 30,** | ** ** | **At and for the  Six Months Ended  June 30,** | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| **(In millions)**                 | ** ** | **2004**                                    | ** ** | **2003**                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Balance at beginning of period    |       | $                                           | 66         |                                           | $          | 35 |   | $ | 61 |   | $ | 32 |   |
| Provision charged to income *(1)* |       | 19                                          |       | 14                                             |       | 30 |   | 26 |   |
| Losses                            |       | (9                                          | )          | (6                                             | )          | (15 | ) | (15 | ) |
| Balance at end of period          |       | $                                           | 76         |                                           | $          | 43 |   | $ | 76 |   | $ | 43 |   |

 

----

*(1)**          The provision charged toincome is reported as a reduction to gain on sale of loans.*

 

16

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**Servicing Assets**

On a quarterly basis, GreenPoint reviewscapitalized servicing rights for impairment. This review is performed based onrisk strata, which are determined on a disaggregated basis given thepredominant risk characteristics of the underlying loans. For mortgage loans,the predominant risk characteristics are loan type and interest rate. The assetpools underlying certain mortgage servicing assets at times do not meetagreed-upon servicing covenants. Management evaluates the impact of thesecovenants on the value of the servicing assets and incorporates the assessmentin their quarterly impairment review. The activity in mortgage servicing assetsis summarized as follows:

 
| ** **                                     | ** ** | **At and for the  Quarter Ended  June 30,** | ** ** | **At and for the  Six Months Ended  June 30,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| **(In millions)**                              | ** ** | **2004**                                    | ** ** | **2003**                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Servicing assets**                           |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period                 |       | $                                           | 232        |                                           | $          | 105 |   | $ | 203 |   | $ | 112 |   |
| Additions                                      |       | 42                                          |       | 27                                             |       | 87 |   | 47 |   |
| Sales                                          |       | (26                                         | )          | —                                         |       | (27 | ) | (20 | ) |
| Amortization                                   |       | (16                                         | )          | (10                                            | )          | (31 | ) | (17 | ) |
| Balance at end of period                       |       | 232                                         |       | 122                                            |       | 232 |   | 122 |   |
| **Reserve for impairment of servicing assets** |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period                 |       | (37                                         | )          | (26                                            | )          | (27 | ) | (27 | ) |
| Additional (impairment) recovery               |       | 10                                          |       | (3                                             | )          | — |   | (2 | ) |
| Balance at end of period                       |       | (27                                         | )          | (29                                            | )          | (27 | ) | (29 | ) |
| Servicing assets, net                          |       | $                                           | 205        |                                           | $          | 93 |   | $ | 205 |   | $ | 93 |   |

 

The estimated fair values of mortgageservicing assets were $215 million and $94 million at June 30, 2004 and 2003,respectively and $177 million at December 31, 2003.

Servicer advances receivable totaled $70million and $60 million at June 30, 2004 and 2003, respectively and $79 millionat December 31, 2003.

The significant assumptions used inestimating the fair value of the servicing assets at June 30, 2004 and December31, 2003 were as follows:

 
| ** **                       | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|----------------------------------|------------|--------------------|------------|--------------------|------------|
| Weighted average prepayment rate |       | 21.0               | %          | 30.5               | %          |
| Weighted average life (in years) |       | 4.8                |       | 4.2                |       |
| Cash flows discounted at         |       | 10.4               | %          | 10.3               | %          |

 

 

**NOTE 6****                ****Derivative Financial Instruments**

 

The company uses various derivative financialinstruments to manage certain risks and reduce the effect they may have on netincome. Those derivatives, that qualify for hedge accounting, are designated aseither (1) a fair value hedge of a recognized asset or liability, or of anunrecognized firm commitment or; (2) a cash flow hedge of a recognized asset orliability, or of a forecasted transaction. GreenPoint formally documents therelationship between the hedging instruments and the hedge item, as well as ourrisk management objective and strategy for undertaking various hedgetransactions. This includes linking derivatives designated as fair value orcash flow hedges to specific assets and liabilities on the balance sheet or tospecific forecasted transactions. We also assess, both at the inception of thehedge and on an ongoing basis whether the hedging relationship is highlyeffective in offsetting changes in the fair value or cash flows of the hedgeitem. If a derivative no longer qualifies for hedge accounting, weprospectively continue to carry the derivative on the balance sheet at fairvalue and record changes in fair value in earnings until the derivative issettled.

 

17

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**Fair Value Hedges**

GreenPoint enters into mandatory commitmentsto deliver mortgage whole loans to various investors and to issue privatesecurities and Fannie Mae and Freddie Mac securities (“forward deliverycommitments”). The forward delivery commitments are used to manage the interestrate risk associated with mortgage loans and certain interest rate lockcommitments made by GreenPoint to mortgage borrowers. The notional amounts ofthese contracts were $2.9 billion and $2.6 billion at June 30, 2004 andDecember 31, 2003, respectively. The forward delivery commitments designated asfair value hedges associated with mortgage loans had notional values of$2.3 billion and $2.2 billion at June 30, 2004 and December 31, 2003,respectively. The notional amounts of forward delivery commitments used tomanage the interest rate risk associated with interest rate lock commitments onmortgage loans were $602 million and $494 million at June 30, 2004 and December31, 2003, respectively. The following table shows hedge ineffectiveness on fairvalue hedges included in gain on sale of loans for the quarter and six monthsended June 30, 2004 and 2003:

 
| ** **                               | ** ** | **For the Quarter  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|------------------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|
| **(In millions)**                        | ** ** | **2004**                            | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| Gain (loss) on hedged asset or liability |       | $                                   | (32        | )                                      | $          | 19 |   | $ | (14 | ) | $ | 34 |   |
| Gain (loss) on derivatives               |       | 32                                  |       | (16                                    | )          | 16 |   | (29 | ) |
| Hedge ineffectiveness                    |       | $                                   | —     |                                   | $          | 3 |   | $ | 2 |   | $ | 5 |   |

 

In November 2003, the Company entered into aninterest swap agreement with a notional amount of $350 million. TheCompany has designated this swap as a fair value hedge of the $350 million of3.20% Senior Notes issued in June of 2003. This swap met the criteria requiredto qualify for short cut method accounting for derivatives. Based on thismethod, no ineffectiveness is assumed and fair value changes in the swap arerecorded as changes in value of the swap and the long term debt.

The notional amounts of derivatives do notrepresent amounts exchanged by the parties and, thus, are not a measure of theCompany’s exposure through its use of derivatives. The amounts exchanged aredetermined by reference to the notional amounts and the other terms of thederivatives.

The risks inherent in derivatives are thepotential inability of a counterparty to meet the terms of its contract and therisk associated with changes in the fair values of the contracts due tomovements in the underlying interest rates. The current credit exposure ofderivatives is represented by the fair value of contracts with a positive fairvalue at the reporting date. At June 30, 2004 and December 31, 2003 thereceivable on contracts with a positive fair value was $6 million and $3million, respectively. To reduce credit risk, management may deem it necessaryto obtain collateral.

 

**Cash Flow Hedges**

Certain commitments to purchase mortgageloans for the held for investment portfolio are designated as cash flow hedgesof forecasted purchases. The fair value of each commitment changes in directcorrelation to the fair value of the forecasted transaction. When thecommitment is settled, the assets purchased are recorded at fair value. Thegain or loss associated with the derivative will be recognized into net income,as the income for purchased asset is included into net income. At the end ofthe quarter ended June 30, 2004, the Company did not have any commitmentsoutstanding and had recorded $7 million of pre-tax losses associated with thesepreviously settled derivatives in other comprehensive income.

 

18

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**NOTE 7****                ****Pension Plan and Other EmployeeBenefits**

 

The Company maintains a noncontributory,qualified, defined benefit pension plan (the “Pension Plan”) coveringsubstantially all employees who have completed one year of service. The fundingof the Pension Plan is actuarially determined on an annual basis.

The Company also provides a comprehensivemedical plan for certain current and future retirees and certain of theirspouses until they become eligible for Medicare and a Medicare SupplementalPlan once they become eligible for Medicare. The plan was amended effectiveMarch 1, 1998 to provide different benefit and eligibility provisions toemployees who retire after that date. The Company also offers life insurance tocertain current and future retirees. Benefits are funded on a pay-as-you-gobasis and there are no plan assets to pre-fund the liability. Currently, thecompany expects to make a post-retirement contribution in 2004 of less than onemillion.

The following tables set forth the componentsof net periodic benefit cost for the quarter and six months ended June 30, 2004and 2003. An actuarial analysis of plan assets and benefit obligations iscompleted as of September 30th of each year.

 
| ** **                               | ** ** | **Pension Benefits**       | ** ** | **Postretirement  Benefits**  | ** ** | **Pension Benefits** | ** ** | **Postretirement  Benefits** | ** ** |
|------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|----------------------|------------|------------------------------|------------|
| ** **                               | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| **(In millions)**                        | ** ** | **2004**                   | ** ** | **2003**                      | ** ** | **2004**             | ** ** | **2003**                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Components of Net Periodic Benefit Cost: |       |                       |       |                          |       |                 |       |                         |       |   |   |   |   |   |   |   |   |
| Service cost                             |       | $                          | 1.1        |                          | $          | 1.0                  |       | $                            | 0.2        |   | $ | 0.2 |   | $ | 2.2 |   | $ | 2.0 |   | $ | 0.4 |   | $ | 0.4 |   |
| Interest cost                            |       | 0.8                        |       | 0.7                           |       | 0.3                  |       | 0.2                          |       | 1.6 |   | 1.4 |   | 0.6 |   | 0.4 |   |
| Expected return on plan assets           |       | (0.9                       | )          | (0.7                          | )          | —               |       | —                       |       | (1.8 | ) | (1.4 | ) | — |   | — |   |
| Amortization of prior service cost       |       | —                     |       | —                        |       | (0.1                 | )          | (0.1                         | )          | — |   | — |   | (0.2 | ) | (0.2 | ) |
| Recognized actuarial gain                |       | —                     |       | —                        |       | —               |       | —                       |       | — |   | — |   | — |   | — |   |
| Curtailment                              |       | —                     |       | —                        |       | —               |       | —                       |       | — |   | — |   | — |   | — |   |
| Net periodic benefit cost                |       | $                          | 1.0        |                          | $          | 1.0                  |       | $                            | 0.4        |   | $ | 0.3 |   | $ | 2.0 |   | $ | 2.0 |   | $ | 0.8 |   | $ | 0.6 |   |

 

 

**NOTE 8****                ****Stock Incentive Plans**

 

For the six months ended June 30, 2004, theCompany granted options to purchase 1,985,250 shares of the Company’s commonstock to certain officers and directors, at an exercise price range of between$37.95 and $39.00. These awards vest at various intervals over three years, onthe anniversary dates of the awards.

 

 

**NOTE 9****                ****Discontinued Operations**

 

In December 2001, GreenPoint formally adopteda plan to discontinue the manufactured housing lending business. GreenPoint’sconsolidated statements of income have been presented to reflect themanufactured housing lending business as a discontinued operation. Accordingly,the income and expenses relating to the manufactured housing business arereported as “discontinued operations” in the consolidated statements of income.In conjunction with this plan, GreenPoint honored previously existing loancommitments to fund approved loans, but did not approve or process any new loanapplications subsequent to the announcement to discontinue the business.GreenPoint continues to service a portfolio of manufactured housing loans andwill proceed with the orderly liquidation of the business in conjunction withits existing servicing commitments. See Note 10 for a further description ofthe valuation of retained interests associated with the discontinuedoperations.

 

19

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The assets and liabilities from discontinuedoperations at June 30, 2004 and December 31, 2003 were as follows:

 
| **(In millions)**                         | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|-------------------------------------------|------------|--------------------|------------|--------------------|------------|
| **Assets:**                               |       |               |       |               |       |
| Cash, cash equivalents and securities     |       | $                  | 36         |               | $          | 37 |   |
| Retained interests in securitizations     |       | 1                  |       | 1                  |       |
| Loans receivable:                         |       |               |       |               |       |
| Loans receivable held for investment      |       | 47                 |       | 55                 |       |
| Deferred loan fees and unearned discount  |       | —             |       | (1                 | )          |
| Allowance for loan losses                 |       | (3                 | )          | (3                 | )          |
| Loans receivable held for investment, net |       | 44                 |       | 51                 |       |
| Servicing assets                          |       | 3                  |       | 7                  |       |
| Deferred tax assets                       |       | 113                |       | 117                |       |
| Intercompany receivable                   |       | 10                 |       | 25                 |       |
| Other assets                              |       | 130                |       | 134                |       |
| Total assets                              |       | $                  | 337        |               | $          | 372 |   |
| Liabilities:                              |       |               |       |               |       |
| Liability under recourse exposure         |       | $                  | 181        |               | $          | 225 |   |
| Other liabilities                         |       | 65                 |       | 69                 |       |
| Allocated capital                         |       | 91                 |       | 78                 |       |
| Total liabilities and equity              |       | $                  | 337        |               | $          | 372 |   |

 

## **The deferred tax asset representsthe tax receivable associated with the write-down to the carrying value ofcertain assets of the discontinued business. A portion of the recorded loss(primarily goodwill) was not currently deductible for tax purposes and will beamortized on a straight-line basis through 2011.**

## **Other assets include premises andequipment, servicer advances and other operating receivables associated withthe servicing operation. Other liabilities represent balances due to investorsand surety providers and accrued expenses incurred in the normal course of thediscontinued operation. Allocated equity represents the balance of equitycapital allocated to the discontinued business under the Company’s equityallocation formula.**

The net income of $0.5 million and $0.1million reported for the quarters ended June 30, 2004 and 2003, respectivelyand $0.6 million and $0.4 million reported for the six months ended June 30,2004 and 2003, respectively, represents the difference between the projectedresults and the actual results of the discontinued business.

The Bank has used interest rate swaps forspecific manufactured housing securitizations. These swaps are recorded at fairvalue. The combined notional value of these swaps was $488 million and $533million at June 30, 2004 and December 31, 2003, respectively.

 

 

**NOTE 10****              ****ManufacturedHousing Recourse Arrangements, Retained Interests in Securitizations andServicing Assets**

 

In December 2001, GreenPoint formally adopted aplan to discontinue the manufactured housing lending business. Although itexited the manufactured housing lending business, GreenPoint continues toservice existing loans. GreenPoint is exposed to losses on or fromsecuritizations and loan sales completed prior to the adoption of the plan ofdiscontinuance. The investors and the securitization trusts have no recourse toGreenPoint’s other assets for failure of debtors to pay when due except for therecourse described herein. The following describes the balances associated withrecourse arrangements, the balances and activity in the corresponding retainedinterests, the balances and activity in servicing assets and the economicassumptions used in valuing the retained interests and servicing assets.

 

20

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**Recourse Arrangements**

The following table summarizes the principal balancesof manufactured housing loans securitized and sold, the maximum recourse toGreenPoint on those loans and the liability recorded for such recourse.

 
| **(In millions)**                     | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------|------------|
| Manufactured housing securitizations: |       |               |       |               |       |
| Principal balance                     |       | $                  | 3,365      |               | $          | 3,623 |   |
| Maximum recourse *(1)*                |       | 499                |       | 538                |       |
| Recorded liability                    |       | 173                |       | 217                |       |
| Manufactured housing sales:           |       |               |       |               |       |
| Principal balance                     |       | 205                |       | 218                |       |
| Maximum recourse                      |       | 205                |       | 218                |       |
| Recorded liability                    |       | 7                  |       | 8                  |       |
|                                       |            |                    |            |                    |            |  |  |

 

----

*(1)**                               Aportion of the securitization maximum exposure is a retained interest asset. Asof June 30, 2004 and December 31, 2003 the manufactured housing retainedinterest asset was $1 million for both periods.*

 

GreenPoint’s manufactured housing securitization exposure lies in acorporate guarantee issued with each securitization in the form of a letter ofcredit to indemnify a limited amount of losses to the investors. The followingtable summarizes those letters of credit and the amount of draws GreenPointexpects.

 
| **(In millions)**                    | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|--------------------------------------|------------|--------------------|------------|--------------------|------------|
| Letters of credit outstanding        |       | $                  | 498        |               | $          | 537 |   |
| Projected letter of credit draws     |       | (191               | )          | (239               | )          |
| Unreserved letter of credit exposure |       | $                  | 307        |               | $          | 298 |   |

 

GreenPoint’sliability under recourse exposure for manufactured housing securitizationsrepresents the present value of the projected letter of credit draws. Of the$3.4 billion of securitized loans outstanding there are five securitizationstotaling $1.4 billion, with $52 million in letters of credit remaining, inwhich GreenPoint’s recorded liability is equal to its remaining exposure underthose letters of credit.

Under certain securitizations, GreenPoint iscommitted to exercise its optional termination right and retire suchtransactions when the underlying loans total 10% of the original loan balance.Loans to be repurchased under this commitment total $376 million and theprojected financial statement impact is included in the operating results ofthe discontinued business.

Pursuant to GreenPoint’s letter of creditagreements associated with its manufactured housing securitizations, theannouncement of a change in control, more fully described in Note 2, mayrequire GreenPoint to fully fund its remaining obligations under itsoutstanding letters of credit. The funds remaining in the trusts would bereturned to GreenPoint upon maturity of each securitization agreement. As ofAugust 5, 2004, one surety provider had formally requested such funding. Thisfunding, expected to be completed prior to the end of August of 2004, willresult in a payment of approximately $380 million into certain securitizationtrusts. This event, along with the potential funding of the remaining lettersof credit totaling $111 million at July 31, 2004, is not expected to have amaterial impact on the Company’s financial position.

The following presents quantitativeinformation about delinquencies on loans sold with recourse:

 
| ** **                                                 | ** ** | **June 30, 2004** | ** ** | **December 31, 2003** | ** ** |
|------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In millions)**                                          | ** ** | **Securitized**   | ** ** | **Sold**              | ** ** | **Securitized** | ** ** | **Sold** | ** ** |
| Principal balance of loans                                 |       | $                 | 3,365      |                  | $          | 205 |   | $ | 3,623 |   | $ | 218 |   |
| Principal balance of loans 90 days or more  past due *(1)* |       | 139               |       | 1                     |       | 191 |   | 2 |   |
|                                                            |            |                   |            |                       |            |  |  |  |  |  |  |  |  |

 

----

*(1)**                               Manufacturedhousing past due loans include repossessed inventory.*

 

21

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## **Balances and Changes in Retained Interests**

The activity in the recorded liability formanufactured housing securitizations and sales is summarized as follows:

 
| ** **                                | ** ** | **At and for the  Quarter Ended  June 30,** | ** ** | **At and for the  Six Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| **(In millions)**                         | ** ** | **2004**                                    | ** ** | **2003**                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Liability for Recourse Exposure:**      |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period            |       | $                                           | 207        |                                           | $          | 289 |   | $ | 225 |   | $ | 300 |   |
| Interest expense                          |       | 3                                           |       | 4                                              |       | 6 |   | 9 |   |
| Letter of credit draws and other charges  |       | (24                                         | )          | (25                                            | )          | (41 | ) | (42 | ) |
| Change in valuation of retained interests |       | (5                                          | )          | 11                                             |       | (9 | ) | 12 |   |
| Balance at end of period                  |       | $                                           | 181        |                                           | $          | 279 |   | $ | 181 |   | $ | 279 |   |

 

On a quarterly basis, GreenPoint reviews theliability for recourse exposure on manufactured housing securitizations basedon management’s best estimate of future cash flows associated with thecorporate guarantees.

 
| ** **                                 | ** ** | **At and for the  Quarter Ended  June 30,** | ** ** | **At and for the  Six Months Ended  June 30,** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| **(In millions)**                          | ** ** | **2004**                                    | ** ** | **2003**                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Retained Interests in Securitizations:** |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period             |       | $                                           | 1          |                                           | $          | 3 |   | $ | 1 |   | $ | 4 |   |
| Change in valuation of retained interests  |       | —                                      |       | (2                                             | )          | — |   | (3 | ) |
| Balance at end of period                   |       | $                                           | 1          |                                           | $          | 1 |   | $ | 1 |   | $ | 1 |   |

 

**Valuation Assumptions**

The key economic assumptions used inestimating the fair value of the entire portfolio of manufactured housingretained interests, both assets and liabilities, at June 30, 2004 and December31, 2003 were as follows:

 
| ** **                             | ** ** | **Estimate of Fair  Value at** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **June 30,  2004**             | ** ** | **Dec. 31,  2003** | ** ** |
| Weighted average life (in years)       |       | 5.3                            |       | 5.4 |   |
| Weighted average prepayment rate *(1)* |       | 5.9                            | %          | 5.9 | % |
| Weighted average default rate          |       | 6.1                            | %          | 6.1 | % |
| Loss severity rate                     |       | 92.4                           | %          | 90.5 | % |
| Weighted average loss rate             |       | 5.6                            | %          | 5.5 | % |
| Cumulative loss *(2)*                  |       | 29.7                           | %          | 29.7 | % |
| Asset cash flows discounted at         |       | 14.0                           | %          | 14.0 | % |
| Liability cash flows discounted at     |       | 6.6                            | %          | 6.6 | % |

 

----

*(1)**  Excludes weighted averagedefault rate.*

*(2)**  Remaining estimated net lossesdivided by outstanding principal balance.*

 

22

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**Servicing Assets**

On a quarterly basis, GreenPoint reviewscapitalized servicing rights for impairment. This review is performed based onrisk strata, which are determined on a disaggregated basis given thepredominant risk characteristics of the underlying loans. For manufacturedhousing loans, the predominant risk characteristics are loan type and interestrate type. The asset pools underlying certain manufactured housing servicingassets at times do not meet agreed-upon servicing covenants. Managementevaluates the impact of these covenants on the value of the servicing assetsand incorporates the assessment in their quarterly impairment review.

The activity in manufactured housingservicing assets is summarized as follows:

 
| ** **                                     | ** ** | **At and for the  Quarter Ended  June 30,** | ** ** | **At and for the  Six Months Ended  June 30,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| **(In millions)**                              | ** ** | **2004**                                    | ** ** | **2003**                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Servicing assets**                           |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period                 |       | $                                           | 36         |                                           | $          | 99 |   | $ | 35 |   | $ | 101 |   |
| Amortization                                   |       | 2                                           |       | (2                                             | )          | 3 |   | (4 | ) |
| Balance at end of period                       |       | 38                                          |       | 97                                             |       | 38 |   | 97 |   |
| **Reserve for impairment of servicing assets** |       |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period                 |       | (29                                         | )          | (69                                            | )          | (28 | ) | (69 | ) |
| Additions                                      |       | (6                                          | )          | (1                                             | )          | (7 | ) | (1 | ) |
| Balance at end of period                       |       | (35                                         | )          | (70                                            | )          | (35 | ) | (70 | ) |
| Servicing assets, net                          |       | $                                           | 3          |                                           | $          | 27 |   | $ | 3 |   | $ | 27 |   |

 

The estimated fair values of manufacturedhousing servicing assets were $14 million and $37 million at June 30, 2004and 2003, respectively and $16 million at December 31, 2003.

Manufactured housing servicer advancesreceivable totaled $37 million and $36 million at June 30, 2004 and 2003,respectively, and $39 million at December 31, 2003.

The significant assumptions used inestimating the fair value of manufactured housing servicing assets at June 30,2004 and December 31, 2003 were as follows:

 
| ** **                             | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|----------------------------------------|------------|--------------------|------------|--------------------|------------|
| Weighted average prepayment rate *(1)* |       | 6.0                | %          | 6.6                | %          |
| Weighted average life (in years)       |       | 5.4                |       | 5.3                |       |
| Weighted average default rate          |       | 5.1                | %          | 5.1                | %          |
| Cash flows discounted at               |       | 14.0               | %          | 14.0               | %          |

 

----

*(1)**  Excludes weighted averagedefault rate.*

 

 

**NOTE 11****              ****Loan Commitments andContingencies**

 

In the normal course of business, there arevarious outstanding loan commitments and contingent liabilities that have notbeen reflected in the consolidated financial statements. In addition, in thenormal course of business, there are various other outstanding legal andadministrative proceedings. In the opinion of management, after consultationwith legal counsel, the financial position and results of operations of theCompany will not be affected materially as a result of such loan commitmentsand contingent liabilities or by the outcome of such legal or administrativeproceedings.

The principal commitments and contingentliabilities of the Company are discussed in the following paragraphs.

 

23

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**Pending Litigation**

In the ordinary course of business, the Corporationand its subsidiaries are defendants in or parties to a number of pending andthreatened legal actions and proceedings, and are also involved from time totime in investigations and administrative proceedings by governmental agencies.Certain of such actions and proceedings involve alleged violations of consumerprotection laws, including claims relating to the Corporation’s loanorigination and collection efforts, and other federal and state banking laws.Certain of such actions and proceedings include claims for breach of contract,restitution, compensatory damages, punitive damages and other forms of relief.Due to the difficulty of predicting the outcome of such matters, theCorporation can give no assurance that it will prevail on all claims madeagainst it; however, management believes, based on current knowledge and afterconsultation with counsel, that these legal matters and administrativeproceedings and the losses, if any, resulting from the final outcome thereof,will not have a material adverse effect on the Corporation and itssubsidiaries’ financial position, results of operations or liquidity, but cangive no assurance that they will not have such an effect.

 

**Loan Commitments**

At June 30, 2004 and December 31, 2003, theCompany had an outstanding pipeline of mortgage loans of approximately, $8.6billion and $7.0 billion, respectively. This pipeline represents applicationsreceived, but not yet funded and is therefore the maximum amount of theCompany’s origination commitments. Of this amount, at June 30, 2004, approvedapplications totaled approximately $5.2 billion.

The Company is contractually committed tofund the undrawn portion of home equity lines of credit (HELOC’s), which it hasoriginated. The commitment extends to HELOC’s, which are currently held by theCompany, and HELOC’s securitized by the Company. As of June 30, 2004, thecompany is primarily responsible to fund undrawn HELOC’s of approximately $420 million.

 

##### **Guarantees**

Under agreements with a third party, the Company has guaranteed aportion of the third party’s secured lending arrangements. As of June 30, 2004,the total potential commitment under this guarantee totaled approximately$40 million. This guarantee would require payment by the company only ifthe third party’s were to default on payment of this borrowing. Managementbelieves the likelihood a material payment will be required under thisguarantee is remote.

 

 

**NOTE 12****              ****Business Segments**

 

The Company has identified three domestic business segments. Thepredominant factor by which each segment is organized is the unique productsand services they offer. The accounting policies of the segments are the sameas those described in Note 1 “Summary of Significant Accounting Policies”. TheMortgage Banking segment originates, sells and services mortgage loans with aspecialization in Alt A and NoDoc mortgage loan products. The Retail Bankingsegment consists of 93 full service banking offices offering a variety offinancial services to the Greater New York area. The Balance Sheet Managementsegment includes earnings from the held for investment mortgage portfolios andother corporate investment activities.

Expenses under the direct control of eachbusiness segment and the expense of premises and equipment incurred to supportbusiness operations are allocated accordingly, by segment. Credit losses arecharged to the Balance Sheet Management segment in an amount equal to netcharge-offs. The expenses relating to administrative units of the Company suchas executive, finance and audit are not allocated to individual operatingsegments and are identified in the “other” column. The “other” column alsoincludes intercompany eliminations. The management of the Company evaluates theperformance of each business segment based on income before income taxes.

 

24

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The following table sets forth information bybusiness segment:

 
| ** **                                           | ** ** | **Quarter Ended June 30, 2004**      | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|
| **(In millions)**                                    | ** ** | **Balance****Sheet  Management (1)** | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** | ** ** | **Segment  Totals** | ** ** | **Other (4)** | ** ** | **Consolidated****Continuing  Operations** | ** ** |
| Net interest income                                  |       | $                                    | 83.2       |   | $ | 54.7 |   | $ | 137.9 |   | $ | 40.9 |   | $ | 178.8 |   | $ | — |   | $ | 178.8 |   |
| Provision for loan losses                            |       | (1.1                                 | )          | — |   | (1.1 | ) | — |   | (1.1 | ) | — |   | (1.1 | ) |
| Net interest income after provision for  loan losses |       | 82.1                                 |       | 54.7 |   | 136.8 |   | 40.9 |   | 177.7 |   | — |   | 177.7 |   |
| Non-interest income:                                 |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                  |       | —                               |       | — |   | — |   | 17.8 |   | 17.8 |   | (6.9 | ) | 10.9 |   |
| Banking fees and commissions                         |       | —                               |       | 23.6 |   | 23.6 |   | — |   | 23.6 |   | — |   | 23.6 |   |
| Other income                                         |       | 2.4                                  |       | 0.5 |   | 2.9 |   | 0.1 |   | 3.0 |   | — |   | 3.0 |   |
| Net gain on sale of loans                            |       | —                               |       | — |   | — |   | 161.9 |   | 161.9 |   | (38.2 | ) | 123.7 |   |
| Change in valuation of retained interests            |       | —                               |       | — |   | — |   | (0.9 | ) | (0.9 | ) | — |   | (0.9 | ) |
| Net gain on sale of securities                       |       | —                               |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total non-interest income                            |       | 2.4                                  |       | 24.1 |   | 26.5 |   | 178.9 |   | 205.4 |   | (45.1 | ) | 160.3 |   |
| Non-interest expense:                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                         |       | —                               |       | 2.6 |   | 2.6 |   | 4.7 |   | 7.3 |   | 1.6 |   | 8.9 |   |
| ESOP and stock plans expense                         |       | 0.1                                  |       | 1.6 |   | 1.7 |   | 5.2 |   | 6.9 |   | 1.5 |   | 8.4 |   |
| Other expenses                                       |       | 0.4                                  |       | 36.6 |   | 37.0 |   | 61.2 |   | 98.2 |   | 23.2 |   | 121.4 |   |
| Total non-interest expense                           |       | 0.5                                  |       | 40.8 |   | 41.3 |   | 71.1 |   | 112.4 |   | 26.3 |   | 138.7 |   |
| Segment income (loss) before taxes                   |       | $                                    | 84.0       |   | $ | 38.0 |   | $ | 122.0 |   | $ | 148.7 |   | $ | 270.7 |   | $ | (71.4 | ) | $ | 199.3 |   |
| Total Assets                                         |       | $                                    | 18,548     |   | $ | 524 | *(2)* | $ |  19,072 |   | $ |  5,685 |   | $ |  24,757 |   | $ | 1,198 | *(3)* | $ | 25,955 |   |
|                                                      |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                           | ** ** | **Quarter Ended June 30, 2003**      | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|
| **(In millions)**                                    | ** ** | **Balance****Sheet  Management (1)** | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** | ** ** | **Segment  Totals** | ** ** | **Other (4)** | ** ** | **Consolidated****Continuing  Operations** | ** ** |
| Net interest income                                  |       | $                                    | 61.2       |   | $ | 60.1 |   | $ | 121.3 |   | $ | 46.6 |   | $ | 167.9 |   | $ | — |   | $ | 167.9 |   |
| Provision for loan losses                            |       | (0.6                                 | )          | — |   | (0.6 | ) | — |   | (0.6 | ) | — |   | (0.6 | ) |
| Net interest income after provision for  loan losses |       | 60.6                                 |       | 60.1 |   | 120.7 |   | 46.6 |   | 167.3 |   | — |   | 167.3 |   |
| Non-interest income:                                 |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                  |       | —                               |       | — |   | — |   | (0.7 | ) | (0.7 | ) | 0.3 |   | (0.4 | ) |
| Banking fees and commissions                         |       | —                               |       | 17.2 |   | 17.2 |   | — |   | 17.2 |   | — |   | 17.2 |   |
| Other income                                         |       | 5.1                                  |       | — |   | 5.1 |   | (2.0 | ) | 3.1 |   | — |   | 3.1 |   |
| Net gain on sale of loans                            |       | —                               |       | — |   | — |   | 162.6 |   | 162.6 |   | (16.9 | ) | 145.7 |   |
| Change in valuation of retained interests            |       | —                               |       | — |   | — |   | (0.7 | ) | (0.7 | ) | — |   | (0.7 | ) |
| Net gain on sale of securities                       |       | (0.6                                 | )          | — |   | (0.6 | ) | — |   | (0.6 | ) | — |   | (0.6 | ) |
| Total non-interest income                            |       | 4.5                                  |       | 17.2 |   | 21.7 |   | 159.2 |   | 180.9 |   | (16.6 | ) | 164.3 |   |
| Non-interest expense:                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                         |       | —                               |       | 2.2 |   | 2.2 |   | 3.9 |   | 6.1 |   | 1.4 |   | 7.5 |   |
| ESOP and stock plans expense                         |       | 0.1                                  |       | 1.5 |   | 1.6 |   | 4.2 |   | 5.8 |   | 0.9 |   | 6.7 |   |
| Other expenses                                       |       | 0.5                                  |       | 30.9 |   | 31.4 |   | 59.8 |   | 91.2 |   | 19.3 |   | 110.5 |   |
| Total non-interest expense                           |       | 0.6                                  |       | 34.6 |   | 35.2 |   | 67.9 |   | 103.1 |   | 21.6 |   | 124.7 |   |
| Segment income (loss) before taxes                   |       | $                                    | 64.5       |   | $ | 42.7 |   | $ | 107.2 |   | $ | 137.9 |   | $ | 245.1 |   | $ | (38.2 | ) | $ | 206.9 |   |
| Total Assets                                         |       | $                                    | 15,827     |   | $ | 490 | *(2)* | $ | 16,317 |   | $ | 5,987 |   | $ | 22,304 |   | $ | 372 | *(3)* | $ | 22,676 | * * |

 

----

*(1)**  Balance Sheet Management segmentlargely consists of the mortgage portfolio, MBS and investment securities.*

*(2)**  Retail Banking segment excludesintercompany funds transfers. Intersegment assets and liabilities eliminatedfor consolidation purposes were $13.0 billion and $12.3 billion for the quarterended June 30, 2004 and 2003, respectively.*

*(3)**  Includes the assets of thediscontinued business segment.*

*(4)**  Other includes intercompanyeliminations and unallocated administrative expenses.*

*(5)**  Intersegment revenues, in theMortgage Banking segment, for the quarter ended June 30, 2004 and 2003 were $45million and $17 million.*

 

25

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| ** **                                           | ** ** | **Six Months Ended June 30, 2004** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|
| **(In millions)**                                    | ** ** | **Balance  Sheet  Management (1)** | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** | ** ** | **Segment  Totals** | ** ** | **Other (4)** | ** ** | **Consolidated  Continuing  Operations** | ** ** |
| Net interest income                                  |       | $                                  | 166.8      |   | $ | 110.0 |   | $ | 276.8 |   | $ | 76.7 |   | $ | 353.5 |   | $ | — |   | $ | 353.5 |   |
| Provision for loan losses                            |       | (2.4                               | )          | — |   | (2.4 | ) | — |   | (2.4 | ) | — |   | (2.4 | ) |
| Net interest income after provision for  loan losses |       | 164.4                              |       | 110.0 |   | 274.4 |   | 76.7 |   | 351.1 |   | — |   | 351.1 |   |
| Non-interest income:                                 |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                  |       | —                             |       | — |   | — |   | 6.2 |   | 6.2 |   | (1.2 | ) | 5.0 |   |
| Banking fees and commissions                         |       | —                             |       | 46.0 |   | 46.0 |   | — |   | 46.0 |   | — |   | 46.0 |   |
| Other income                                         |       | 6.6                                |       | 0.8 |   | 7.4 |   | 2.5 |   | 9.9 |   | — |   | 9.9 |   |
| Net gain on sale of loans                            |       | —                             |       | — |   | — |   | 294.8 |   | 294.8 |   | (50.4 | ) | 244.4 |   |
| Change in valuation of retained interests            |       | —                             |       | — |   | — |   | (1.3 | ) | (1.3 | ) | — |   | (1.3 | ) |
| Net gain on sale of securities                       |       | 0.5                                |       | — |   | 0.5 |   | — |   | 0.5 |   | — |   | 0.5 |   |
| Total non-interest income                            |       | 7.1                                |       | 46.8 |   | 53.9 |   | 302.2 |   | 356.1 |   | (51.6 | ) | 304.5 |   |
| Non-interest expense:                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                         |       | —                             |       | 5.7 |   | 5.7 |   | 9.6 |   | 15.3 |   | 3.2 |   | 18.5 |   |
| ESOP and stock plans expense                         |       | 0.1                                |       | 3.3 |   | 3.4 |   | 10.6 |   | 14.0 |   | 3.3 |   | 17.3 |   |
| Other expenses                                       |       | 0.9                                |       | 71.4 |   | 72.3 |   | 117.2 |   | 189.5 |   | 47.9 |   | 237.4 |   |
| Total non-interest expense                           |       | 1.0                                |       | 80.4 |   | 81.4 |   | 137.4 |   | 218.8 |   | 54.4 |   | 273.2 |   |
| Segment income (loss) before taxes                   |       | $                                  | 170.5      |   | $ | 76.4 |   | $ | 246.9 |   | $ | 241.5 |   | $ | 488.4 |   | $ | (106.0 | ) | $ | 382.4 |   |
| Total Assets                                         |       | $                                  | 18,548     |   | $ | 524 | *(2)* | $ | 19,072 |   | $ | 5,685 |   | $ | 24,757 |   | $ | 1,198 | *(3)* | $ | 25,955 |   |

 
| ** **                                           | ** ** | **Six Months Ended June 30, 2003** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|
| **(In millions)**                                    | ** ** | **Balance  Sheet  Management (1)** | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** | ** ** | **Segment  Totals** | ** ** | **Other (4)** | ** ** | **Consolidated  Continuing  Operations** | ** ** |
| Net interest income                                  |       | $                                  | 128.0      |   | $ | 118.9 |   | $ | 246.9 |   | $ | 95.8 |   | $ | 342.7 |   | $ | — |   | $ | 342.7 |   |
| Provision for loan losses                            |       | (0.9                               | )          | — |   | (0.9 | ) | — |   | (0.9 | ) | — |   | (0.9 | ) |
| Net interest income after provision for  loan losses |       | 127.1                              |       | 118.9 |   | 246.0 |   | 95.8 |   | 341.8 |   | — |   | 341.8 |   |
| Non-interest income:                                 |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                  |       | —                             |       | — |   | — |   | 0.8 |   | 0.8 |   | 4.6 |   | 5.4 |   |
| Banking fees and commissions                         |       | —                             |       | 31.7 |   | 31.7 |   | — |   | 31.7 |   | — |   | 31.7 |   |
| Other income                                         |       | 9.2                                |       | — |   | 9.2 |   | (2.7 | ) | 6.5 |   | — |   | 6.5 |   |
| Net gain on sale of loans                            |       | —                             |       | — |   | — |   | 301.6 |   | 301.6 |   | (31.6 | ) | 270.0 |   |
| Change in valuation of retained interests            |       | —                             |       | — |   | — |   | (1.4 | ) | (1.4 | ) | — |   | (1.4 | ) |
| Net gain on sale of securities                       |       | 0.6                                |       | — |   | 0.6 |   | — |   | 0.6 |   | — |   | 0.6 |   |
| Total non-interest income                            |       | 9.8                                |       | 31.7 |   | 41.5 |   | 298.3 |   | 339.8 |   | (27.0 | ) | 312.8 |   |
| Non-interest expense:                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                         |       | —                             |       | 4.5 |   | 4.5 |   | 7.7 |   | 12.2 |   | 2.8 |   | 15.0 |   |
| ESOP and stock plans expense                         |       | 0.1                                |       | 3.0 |   | 3.1 |   | 7.8 |   | 10.9 |   | 1.9 |   | 12.8 |   |
| Other expenses                                       |       | 0.8                                |       | 60.9 |   | 61.7 |   | 117.7 |   | 179.4 |   | 38.3 |   | 217.7 |   |
| Total non-interest expense                           |       | 0.9                                |       | 68.4 |   | 69.3 |   | 133.2 |   | 202.5 |   | 43.0 |   | 245.5 |   |
| Segment income (loss) before taxes                   |       | $                                  | 136.0      |   | $ | 82.2 |   | $ | 218.2 |   | $ | 260.9 |   | $ | 479.1 |   | $ | (70.0 | ) | $ | 409.1 |   |
| Total Assets                                         |       | $                                  | 15,827     |   | $ | 490 | *(2)* | $ | 16,317 |   | $ | 5,987 |   | $ | 22,304 |   | $ | 372 | *(3)* | $ | 22,676 |   |

 

----

*(1)**  Balance Sheet Management segmentlargely consists of the mortgage portfolio, MBS and investment securities.*

*(2)**  Retail Banking segment excludesintercompany funds transfers. Intersegment assets and liabilities eliminatedfor consolidation purposes were $13.0 billion and $12.3 billion for the sixmonths ended June 30, 2004 and 2003, respectively.*

*(3)**  Includes the assets of thediscontinued business segment.*

*(4)**  Other includes intercompanyeliminations and unallocated administrative expenses.*

*(5)**  Intersegment revenues, in theMortgage Banking segment, for the six months ended June 30, 2004 and 2003 were$52 million and $27 million.*

 

26

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**NOTE 13****              ****Earnings Per Share**

 

The Company’s reconciliation of the income and sharesused in the basic and diluted EPS computations is summarized as follows:

 
| ** **                                                                                                           | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In millions, except per share  amounts)**                                                                         | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                 |       |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                                                                                |       | $                           | 123.0      |                           | $          | 129.8 |   | $ | 235.5 |   | $ | 256.7 |   |
| Net income from discontinued operations                                                                              |       | 0.5                         |       | 0.1                            |       | 0.6 |   | 0.4 |   |
| Net income                                                                                                           |       | $                           | 123.5      |                           | $          | 129.9 |   | $ | 236.1 |   | $ | 257.1 |   |
|                                                                                                                 |       |                        |       |                           |       |   |   |   |   |
| Weighted average number of common shares  outstanding during each period – basic                                |       | 117,085,000                 |       | 123,439,000                    |       | 116,892,000 |   | 125,222,000 |   |
| Effect of dilutive securities – stock  options                                                                  |       | 2,863,000                   |       | 2,596,000                      |       | 3,023,000 |   | 2,498,000 |   |
| Weighted average number of common shares  and common stock equivalents outstanding during each period – diluted |       | 119,948,000                 |       | 126,035,000                    |       | 119,915,000 |   | 127,720,000 |   |
|                                                                                                                 |       |                        |       |                           |       |   |   |   |   |
| **Basic earnings per share:**                                                                                        |       |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                                                                                |       | $                           | 1.05       |                           | $          | 1.05 |   | $ | 2.02 |   | $ | 2.05 |   |
| Net income from discontinued operations                                                                              |       | —                      |       | —                         |       | — |   | — |   |
| Net income                                                                                                           |       | $                           | 1.05       |                           | $          | 1.05 |   | $ | 2.02 |   | $ | 2.05 |   |
|                                                                                                                 |       |                        |       |                           |       |   |   |   |   |
| **Diluted earnings per share:**                                                                                      |       |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                                                                                |       | $                           | 1.03       |                           | $          | 1.03 |   | $ | 1.97 |   | $ | 2.01 |   |
| Net income from discontinued operations                                                                              |       | —                      |       | —                         |       | — |   | — |   |
| Net income                                                                                                           |       | $                           | 1.03       |                           | $          | 1.03 |   | $ | 1.97 |   | $ | 2.01 |   |

 

----

*(1)**  All options to purchase sharesof common stock were included in the computation of diluted earnings per sharebecause the options’ exercise prices were less than the average market price ofthe common shares for the quarter and six months ended June 30, 2004.*

*(2)**  Options to purchase 63,750shares of common stock at prices between $32.97 and $34.26 per share wereoutstanding at June 30, 2003, but were not included in thecomputation of diluted earnings per share because the options’ exercise priceswere greater than the average market price of the common shares for the quarterended June 30, 2003. For the six months ended June 30, 2004, optionsto purchase 142,500 shares of common stock at prices between $31.42 and $34.26where not included in the computation of diluted earnings per share because theoptions’ exercise prices were greater than the average market price of commonshares.*

 

27

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| ** **                                                                                            | ** ** | **Quarter Ended**  | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| **(Dollars in millions, except  per share data)**                                                     | ** ** | **June 30,  2004** | ** ** | **March 31,  2004**  | ** ** | **Dec. 31,  2003** | ** ** | **Sept. 30,  2003** | ** ** | **June 30,  2003** | ** ** | **June 30,** | ** ** |
| **2004**                                                                                              | ** ** | **2003**           |
| **Performance Ratios – Continuing Operations  (Annualized):**                                    |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                                                                              |       | 1.98               | %          | 1.98                 | %          | 2.00 | % | 1.76 | % | 2.34 | % | 1.98 | % | 2.37 | % |
| Return on average equity                                                                              |       | 25.43              |       | 23.95                |       | 25.07 |   | 21.86 |   | 27.46 |   | 24.71 |   | 26.99 |   |
| Net interest margin                                                                                   |       | 3.10               |       | 3.30                 |       | 3.19 |   | 2.84 |   | 3.23 |   | 3.20 |   | 3.37 |   |
| Net interest spread                                                                                   |       | 3.01               |       | 3.21                 |       | 3.09 |   | 2.73 |   | 3.11 |   | 3.10 |   | 3.25 |   |
| General and administrative expense to  average assets                                                 |       | 2.25               |       | 2.36                 |       | 2.08 |   | 2.26 |   | 2.24 |   | 2.30 |   | 2.28 |   |
| Total non-interest expense to operating  revenue                                                      |       | 30.5               |       | 31.3                 |       | 28.2 |   | 31.4 |   | 27.3 |   | 30.9 |   | 27.2 |   |
| Efficiency ratio *(1)*                                                                                |       | 41.3               |       | 42.2                 |       | 39.2 |   | 44.3 |   | 37.5 |   | 41.7 |   | 37.7 |   |
| Average interest-earning assets to average  interest-bearing liabilities                              |       | 1.05               | x     | 1.05                 | x     | 1.05 | x  | 1.05 | x  | 1.05 | x  | 1.05 | x  | 1.05 | x  |
|                                                                                                  |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Per Share Data:**                                                                                   |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share – continuing  operations                                                |       | $                  | 1.05       |                 | $          | 0.96 |   | $ | 1.00 |   | $ | 0.84 |   | $ | 1.05 |   | $ | 2.02 |   | $ | 2.05 |   |
| Diluted earnings per share – continuing  operations                                              |       | 1.03               |       | 0.94                 |       | 0.98 |   | 0.82 |   | 1.03 |   | 1.97 |   | 2.01 |   |
| Book value per common share                                                                           |       | 16.35              |       | 16.24                |       | 15.46 |   | 15.17 |   | 15.35 |   | N/A |   | N/A |   |
| Tangible book value per common share                                                                  |       | 13.06              |       | 12.95                |       | 12.14 |   | 11.91 |   | 12.19 |   | N/A |   | N/A |   |
| Dividends per share                                                                                   |       | 0.30               |       | 0.30                 |       | 0.24 |   | 0.24 |   | 0.21 |   | 0.60 |   | 0.42 |   |
| Shares used in calculations (in thousands):                                                           |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Average *(2)*                                                                                         |       | 119,948            |       | 119,856              |       | 119,897 |   | 123,253 |   | 126,035 |   | 119,915 |   | 127,720 |   |
| Period-end *(3)*                                                                                      |       | 120,070            |       | 119,941              |       | 118,885 |   | 121,351 |   | 125,011 |   | N/A |   | N/A |   |
| Total shares outstanding (shares issued  less treasury stock purchased)                               |       | 131,886            |       | 131,722              |       | 131,897 |   | 134,404 |   | 138,110 |   | N/A |   | N/A |   |
|                                                                                                  |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Asset Quality Ratios – continuing  operations:**                                               |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Non-accruing loans held for investment to  mortgage loans held for investment                         |       | 1.13               | %          | 1.44                 | %          | 1.60 | % | 1.72 | % | 1.62 | % |   |   |   |   |
| Non-accruing loans held for sale to  mortgage loans held for sale                                     |       | 1.20               |       | 1.99                 |       | 2.15 |   | 1.60 |   | 1.60 |   |   |   |   |   |
| Non-performing assets to total assets                                                                 |       | 0.83               |       | 1.10                 |       | 1.24 |   | 1.22 |   | 1.18 |   |   |   |   |   |
| Allowance for loan losses to non-performing  loans held for investment                                |       | 56.7               |       | 51.3                 |       | 47.2 |   | 46.0 |   | 46.0 |   |   |   |   |   |
| Allowance for loan losses to mortgage loans  held for investment                                      |       | 0.64               |       | 0.74                 |       | 0.75 |   | 0.79 |   | 0.75 |   |   |   |   |   |
| Net loan charge-off experience (annualized)  to average mortgage loans held for investment            |       | 0.04               |       | 0.05                 |       | 0.09 |   | 0.05 |   | 0.03 |   |   |   |   |   |
| Ratio of allowance for loan losses to  annualized net charge-offs                                     |       | 17.79              | x     | 14.34                | x     | 8.87 | x  | 16.94 | x  | 30.13 | x  |   |   |   |   |
|                                                                                                  |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Capital Data:**                                                                                     |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to risk weighted assets)                                                              |       | 11.23              | %          | 11.50                | %          | 11.26 | % | 10.96 | % | 11.28 | % |   |   |   |   |
| Total Risk Based Capital (to risk weighted  assets)                                                   |       | 12.63              |       | 13.02                |       | 12.81 |   | 12.47 |   | 12.79 |   |   |   |   |   |
| Tier I Capital (average assets)                                                                       |       | 7.34               |       | 7.60                 |       | 7.28 |   | 7.18 |   | 7.68 |   |   |   |   |   |
| Tangible equity to tangible managed assets                                                            |       | 5.84               |       | 5.91                 |       | 5.75 |   | 5.71 |   | 5.89 |   |   |   |   |   |
| Tangible equity to managed receivables                                                                |       | 8.37               |       | 8.75                 |       | 8.25 |   | 7.78 |   | 7.96 |   |   |   |   |   |
| Purchase of treasury stock                                                                            |       | $                  | —     |                 | $          | 20 |   | $ | 86 |   | $ | 147 |   | $ | 113 |   | $ | 20 |   | $ | 238 |   |
|                                                                                                  |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                                       |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage loan originations                                                                            |       | $                  | 11,168     |                 | $          | 8,211 |   | $ | 8,747 |   | $ | 9,449 |   | $ | 11,343 |   | $ | 19,380 |   | $ | 20,671 |   |
| Total managed assets *(4)*                                                                            |       | 28,643             |       | 26,690               |       | 25,982 |   | 26,053 |   | 26,135 |   | N/A |   | N/A |   |
| Total managed receivables *(5)*                                                                       |       | 19,771             |       | 17,775               |       | 17,846 |   | 18,848 |   | 19,053 |   | N/A |   | N/A |   |
| Earnings to combined fixed charges and  preferred stock dividends – continuing operations: *(6)* |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Excluding interest on deposits                                                                        |       | 19.20              | x     | 18.92                | x     | 15.77 | x  | 13.25 | x  | 19.66 | x  | 18.20 | x  | 20.15 | x  |
| Including interest on deposits                                                                        |       | 4.33               | x     | 4.33                 | x     | 3.75 | x  | 3.36 | x  | 3.89 | x  | 4.17 | x  | 3.83 | x  |
| Full-service retail bank offices                                                                      |       | 93                 |       | 90                   |       | 90 |   | 85 |   | 85 |   |   |   |   |   |

 

----

*(1)**  The efficiency ratio iscalculated by dividing general and administrative expenses by the sum of netinterest income and non-interest income.*

*(2)**  Used in the calculation of fullydiluted earnings per share.*

*(3)**  Used in the calculation ofcommon book value and tangible common book value ratios.*

*(4)**  Managed assets are the sum oftotal assets and off-balance sheet managed receivables.*

*(5)**  Managed receivables are the sumof on-balance sheet loans and off-balance sheet managed receivables.*

*(6)**  For purposes of computing theratio of earnings to combined fixed charges, earnings represent net income plusapplicable income taxes and fixed charges of a consolidated subsidiary. Fixedcharges represent interest expense on long-term debt and one-third (the portiondeemed to be representative of the interest factor) of rents.*

 

28

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**ForwardLooking Statements**

 

This Reportcontains certain forward-looking statements, which are based on management’scurrent expectations. These forward-looking statements include informationconcerning possible or assumed future results of operations, trends, financialresults and business plans, including those relating to earnings growth;revenue growth; origination volume in the Company’s mortgage business; interestand non-interest income levels; fees from product sales; credit performance onloans made by the Company; tangible capital generation; margins on sales orsecuritizations of loans; market share; expense levels; results from newbusiness initiatives in both the retail banking and mortgage businesses; andother business operations and strategies. For these statements, GreenPointclaims the protection of the safe harbor for forward-looking statementscontained in the Private Securities Litigation Reform Act of 1995 to the extentprovided by applicable law. Forward-looking statements involve inherent risksand uncertainties. We caution you that a number of important factors couldcause actual results to differ materially from those contained in anyforward-looking statement. Such factors include, but are not limited to:prevailing economic conditions; changes in interest rates, loan demand, realestate values, and competition, which can materially affect origination levels,interest and non-interest income levels, gain on sale results in the Company’smortgage business and other aspects of our financial performance; the level ofdefaults, losses and prepayments on loans made by the Company, whether held inportfolio, sold in the whole loan secondary markets or securitized, which canmaterially affect charge-off levels, required loan loss and representation andwarranty reserve levels, and the Company’s periodic valuation of its retainedinterests from securitizations; changes in accounting principles, policies, andguidelines; adverse changes or conditions in capital or financial markets,which can adversely affect the ability of the Company to sell or securitizeloan originations on a timely basis or at prices which are acceptable to theCompany, as well as other aspects of our financial performance; actions byrating agencies and the affects of these actions on the Company’s businesses,operations and funding requirements; changes in any applicable law, rule,regulation or practice with respect to tax or legal issues, whether of generalapplicability or specific to the Company and its subsidiaries; other economic,competitive, governmental, regulatory, and technological factors affecting theCompany’s operations, pricing, products and services; and the risk factors orother uncertainties described from time to time in the Company’s filings withthe Securities and Exchange Commission, including the Risk Factors sectionincluded in the Annual Report on Form 10-K filed on March 10, 2004 on page 9.The forward-looking statements are made as of the date of this Report, and theCompany assumes no obligation to update the forward-looking statements or toupdate the reasons why actual results could differ from those projected in theforward-looking statements.

 

**General**

 

GreenPoint Financial Corp. (the“Corporation”, “Company” or “GreenPoint”), a $26 billion asset bank holdingcompany, consists of two primary businesses – a New York retail bank and anational mortgage business. The retail bank is a New York State charteredsavings bank and is the second largest thrift depository in the Greater NewYork area with $13 billion in deposits in 93 branches serving more than475,000 households. GreenPoint Mortgage (“GPM”), headquartered in Novato,California, originates a wide variety of exclusively “A” quality loans. Thisincludes agency qualifying loans and Jumbo A loans, and GreenPoint’s specialtyAlternative A mortgages.

 

29

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**GreenPoint Financial Corp. and Subsidiaries**

**PartI – Item 2. Management’sDiscussion and Analysis of**

**Financial Condition and Results of Operations**

 

**Overview Of Second Quarter 2004 FinancialResults**

 

•      As described more fully in Note 2 of theConsolidated Financial Statements, on February 16, 2004 an Agreement and Planof Merger between North Fork and GreenPoint was announced.

 

•      Net income from continuing operations forthe second quarter of 2004 matched the record earnings achieved a year ago of$1.03 per diluted share. Strong performance in both the banking and mortgagebusinesses contributed to the record results.

 

•      Retail banking initiatives continued thestrong momentum established during 2003. Core deposits grew 18% over the secondquarter of 2003 and banking fee income increased 37%.

 

•      Total mortgage originations of $11.2billion matched the year ago quarter despite an estimated 13% decline inindustry activity. Applications received increased 9% over the first quarter of2004 reflecting the continued lower interest rates during much of the secondquarter.

 

•      Mortgage sales and securitizations totaled$7.5 billion resulting in realized gains of $124 million, compared with salesand securitizations of $9.0 billion and a gain of $146 million in thecomparative quarter a year ago.

 

•      The average margin earned on loan sales was164 basis points, down slightly from 169 basis points in the first quarter of2004. The average sale margin was unchanged from the second quarter a year ago.

 

•      Asset quality in the mortgage portfolioremained very strong as mortgage loan charge-offs of $1 million representedjust 4 basis points (on an annualized basis) of the mortgage loans held forinvestment portfolio.

 

•      Net interest income was $179 million in thesecond quarter, up versus the $168 million in the year ago period. The netinterest margin declined 20 basis points to 3.10% from 3.30% in the firstquarter. Net interest margin for the second quarter of 2003 was 3.23%.

 

•      GreenPoint continued to maintain a strongcapital position with a leverage ratio of 7.34%, a Tier 1 risk-based ratio of11.23% and a total risk-based capital ratio of 12.63%.

 

•      Net income from the discontinuedmanufactured housing business was $0.5 million, reflecting performance in linewith the expectations established when the business was discontinued.

 

 

**BusinessSegment Results**

 

The Company consists of two primary continuingbusinesses – a banking business and a mortgage business. The banking businessincludes the results of the retail banking segment and a balance sheetmanagement segment. The Company evaluates the performance of its businesssegments based on income before income taxes. The accounting policies of thesegments are the same as described in Note 1 “Summary of Significant AccountingPolicies”. However, the preparation of business line results requiresmanagement to establish methodologies to allocate funding costs (charges) andbenefits (credits), expenses and other financial elements to each line ofbusiness as described below. These internal transfers are eliminated in the“Other” segment as shown in the accompanying table.

The Retail Banking unit consistsof 93 full service banking offices serving the Greater New York area. TheRetail Bank attracts deposits within its market area by offering a variety ofdeposit instruments including demand and NOW accounts, money market and savingsaccounts, certificates of deposit and retirement savings plans. The Retail Bankgenerates banking fees such as ATM service charges, debit card fees, NSFservice charges, overdraft fees, monthly maintenance charges, safe depositrental fees, official check fees and check replacement fees as well as incomefrom annuity and insurance sales commissions. The Retail Bank also generatesnet interest income via the internal transfer of deposits to the Balance SheetManagement unit for which the Retail Bank unit receives credit (“interestincome”) based on the anticipated length of time that an average deposit isexpected to remain with the bank using market rates to calculate the credits.Expenses under the direct control of the Retail Bank and allocated expensessuch as benefits, ESOP and occupancy are incurred by the unit.

 

30

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TheBalance Sheet Management Segment is responsible for developing and maintainingthe majority of the Company’s interest earning asset portfolio. This includesthe held for investment mortgage portfolio, mortgage-backed securities andother investments. Balance Sheet Management is also responsible for theinterest expense on GreenPoint’s borrowings and debt, and interest expense onintercompany borrowings. Balance Sheet Management is charged for the depositsit receives by means of a matched funds transfer pricing system. Credit lossesare charged to the Balance Sheet Management Segment in an amount equal to netcharge-offs. Expenses under the direct control of the unit and allocatedexpenses such as benefits, ESOP and occupancy are incurred by the unit.

TheMortgage Banking segment specializes in originating “A” quality loans,including agency qualifying loans and Jumbo A loans, Alternative A mortgageloans, and home equity products. The loans are originated in the nationalmarket primarily through the Company’s network of registered mortgage brokers,but also through correspondent lenders and in-house mortgage brokers. TheMortgage Bank sells the majority of its loans to the secondary marketgenerating gain on sale of loan income, and also transfers a portion of itsloans to Balance Sheet Management recording internal gain on sale of loanincome. The Mortgage Bank also generates revenue from the servicing of loansboth in externally owned portfolios as well as the Balance Sheet Managementportfolio from which it receives internal fee income. The remaining source ofrevenue for the Mortgage Bank is derived from interest earned on loans pendingsale. To fund its balance sheet (largely the warehouse of loans awaiting saleand secondarily the asset value of mortgage servicing rights), the MortgageBank is charged interest expense on intercompany borrowing by means of amatched funds transfer pricing system.

Inthe segment footnote (Note 12), the “Other” column represents the eliminationof the intercompany gain on sale of mortgage loans and the servicing incomederived from the Balance Sheet Management Segment. The Company does not employcost transfer methodology for support units. As such, “Other” includes theexpenses from unallocated overhead units of the Company including Executive,Finance, Legal, Auditing, General Services, Corporate Communications,Information Systems, Risk Management and Human Resources.

 

**Banking Business**

** **
| ** **                                           | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                                   | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net interest income                                  |       | $                           | 137.9      |                           | $          | 121.3 |   | $ | 276.8 |   | $ | 246.9 |   |
| Provision for loan losses                            |       | (1.1                        | )          | (0.6                           | )          | (2.4 | ) | (0.9 | ) |
| Net interest income after provision for  loan losses |       | 136.8                       |       | 120.7                          |       | 274.4 |   | 246.0 |   |
| Non-interest income:                                 |       |                        |       |                           |       |   |   |   |   |
| Banking fees and commissions                         |       | 23.6                        |       | 17.2                           |       | 46.0 |   | 31.7 |   |
| Other income                                         |       | 2.9                         |       | 5.1                            |       | 7.4 |   | 9.2 |   |
| Net gain on sale of securities                       |       | ––                |       | (0.6                           | )          | 0.5 |   | 0.6 |   |
| Total non-interest income                            |       | 26.5                        |       | 21.7                           |       | 53.9 |   | 41.5 |   |
| Non-interest expense                                 |       | 41.3                        |       | 35.2                           |       | 81.4 |   | 69.3 |   |
| Segment income before taxes                          |       | $                           | 122.0      |                           | $          | 107.2 |   | $ | 246.9 |   | $ | 218.2 |   |
| Total Assets                                         |       | $                           | 19,072     |                           | $          | 16,317 |   | $ | 19,072 |   | $ | 16,317 |   |

 

TheBanking Business includes the results of the Retail Banking and Balance SheetManagement segments. The Banking Business operates similar to a traditionalthrift with the Retail Bank gathering low cost deposits and the Balance SheetManagement segment managing an earning asset portfolio that consists primarilyof mortgage loans and mortgage backed securities. Revenue is generated in theform of net interest income and Retail Banking fee income. For the quarter andsix months ended June 30, 2004, the Banking Business earned $122 millionpre-tax and $247 million pre-tax, respectively, an increase of 14% and 13%,respectively, from the previous periods a year ago. The increase was duelargely to an increase in net interest income in the Balance Sheet Managementunit as a result of a higher average balance of earning assets.

 

31

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For the quarter and six months ended June 30, 2004, the Retail Bankingsegment earned $38 million and $76 million pre-tax, a decrease of 11% and7% respectively from the previous periods a year ago. Retail Banking’s netinterest income for the second quarter and six months ended June 30, 2004 was$55 million and $110 million, a decrease of $5 million and $9 million, or 9%and 7% from the same periods of 2003. The average balance of core depositsincreased by $1.3 billion and $1.4 billion partly offset by the strategicrun-off of $983 million and $998 million of average balance of time depositsfor the second quarter and six month periods of 2004 versus the respectiveperiods a year ago. The average spread on Retail Banking deposits declineddespite a 44 basis point and 49 basis point reduction in the cost of depositsfor the second quarter and six month periods, as the rate credited to RetailBanking declined at a faster pace. Non-interest income in the Retail Bankingsegment was $24 million and $46 million for the second quarter and sixmonths ended June 30, 2004, an increase of 40% and 48% from the previousperiods a year ago. Non-interest expense of $41 million and $80 millionincreased $6 million and $12 million over the respective periods of 2003. Theincrease in both non-interest income and expense was primarily due to theCompany bringing the Broker/Dealer sales of insurance and investment productsin-house in 2004 and the *de novo*branch expansion. Previously, Retail Banking recognized net income from theBroker/Dealer business in non-interest income. For the quarter and six monthsended June 30, 2004, Retail Banking earned $6 million and $13 million oninsurance and investment products with $2 million and $5 million of expensecompared to $4 million and $7 million of net income in the second quarter andsix month periods of 2003.

For the quarter ended June 30, 2004, the Balance Sheet ManagementSegment earned pre-tax income of $84 million and $171 million, an increase of$20 million and $35 million, or 30% and 25% over the second quarter and sixmonth period of 2003. The increases were attributable to an increase in netinterest income of $22 million and $37 million in the second quarter and sixmonths ended June 30, 2004 versus the respective periods of 2003. Balance SheetManagement’s net interest income benefited from a higher average balance of theloans held for investment and securities (mortgage-backed and investment)portfolios. The loan and securities portfolios increased by $1.0 billion and$1.5 billion, respectively for the second quarter of 2004 versus the year agoquarter, and increased by $679 million and $1.8 billion for the six monthsended June 30, 2004 versus the same period of 2003. These increases werepartially offset by a combined 97 basis point and 81 basis point declines inthe yield for the quarter and six month periods of 2004 versus 2003. Theaverage balance of borrowings for the second quarter and six months ended June30, 2004 was $8.7 billion and $8.0 billion with an average cost of 2.62% and2.72%, a decline of 32 basis points and 33 basis points compared to the secondquarter and six month periods of 2003.

 

**Mortgage Banking**

** **
| ** **                                | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                        | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net interest income                       |       | $                           | 40.9       |                           | $          | 46.6 |   | $ | 76.7 |   | $ | 95.8 |   |
| Non-interest income:                      |       |                        |       |                           |       |   |   |   |   |
| Loan servicing income                     |       | 17.8                        |       | (0.7                           | )          | 6.2 |   | 0.8 |   |
| Other income                              |       | 0.1                         |       | (2.0                           | )          | 2.5 |   | (2.7 | ) |
| Net gain on sale of loans                 |       | 161.9                       |       | 162.6                          |       | 294.8 |   | 301.6 |   |
| Change in valuation of retained interests |       | (0.9                        | )          | (0.7                           | )          | (1.3 | ) | (1.4 | ) |
| Total non-interest income                 |       | 178.9                       |       | 159.2                          |       | 302.2 |   | 298.3 |   |
| Non-interest expense                      |       | 71.1                        |       | 67.9                           |       | 137.4 |   | 133.2 |   |
| Segment income before taxes               |       | $                           | 148.7      |                           | $          | 137.9 |   | $ | 241.5 |   | $ | 260.9 |   |
| Total Assets                              |       | $                           | 5,685      |                           | $          | 5,987 |   | $ | 5,685 |   | $ | 5,987 |   |

 

32

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Forthe quarter and six months ended June 30, 2004, the Mortgage segment earned$149 million and $242 million pretax, an increase of 8% from the year agoquarter and a decrease of 7% from the previous six month period. MortgageBanking net interest income was $41 million and $77 million in the quarter andsix month period, down from $47 million and $96 million in the 2003 periods.The lower level of net interest income resulted from a decrease in both theaverage balance and yield of loans-held-for-sale. The lower average balancereflected the slow down in year-over-year mortgage originations. MortgageBanking originated $11.2 billion and $19.4 billion in loans in the quarter andsix month periods compared with $11.3 billion and $20.7 billion in 2003 and hadsales of $7.5 billion and $14.7 billion compared to $9.0 billion and $17.8billion in the previous periods. The net gain on sale of loans of $162 millionand $295 million decreased from $163 million and $302 million in 2003 due tothe decline in sales volume, partially offset by an increase in the averagesales margin from 2003. Loan servicing income increased $18 million over theprior year second quarter. The increase reflected a recovery of net servicingimpairment (both internal and external) of $16 million, compared with a $1million servicing impairment recorded in the year ago quarter. The year-to-dateservicing income of $6 million reflects a servicing impairment of $1million compared with an impairment of $3 million recorded for the six monthsended June 30, 2003.

 

**Net Interest Income**

Netinterest income on a fully taxable-equivalent basis was $181 million and $358million, respectively, for the quarter and six months ended June 30, 2004,increased versus the $170 million and $346 million, respectively, in theyear ago periods. The net interest margin declined from 3.23% to 3.10% and from3.37% to 3.20% for the quarter and six months ended June 30, 2004, respectively.

The increase in net interest income in both the quarter andyear-to-date periods reflected increases in average earning assets funded bystrong growth in core deposit balances. Higher average earning assets werepartially offset by the narrower net interest margin resulting from declininginterest rates during much of the previous year. Premium amortization on theheld for investment mortgage portfolio and the mortgage-backed securitiesportfolio totaled $20 million in the second quarter of 2004, unchanged comparedwith last year and was $30 million for the first six months of 2004 comparedwith $36 million in the six month period a year ago.

 

*Average interest-earningassets*

Averageearning assets increased by $2.3 billion and $1.9 billion, or 11% and 9% to$23.3 billion and $22.4 billion in the second quarter and six months periodsended June 30, 2004 from $21.1 billion and $20.6, respectively, a yearago. The increase reflected growth in loans held for investment and a higherbalance of investment securities. Mortgage loans originated and transferred tothe held for investment portfolio totaled $2.7 billion for the six month periodended June 30, 2004, compared with $985 million in corresponding period a yearago. Average mortgage loans held for sale decreased $202 million and $485 fromthe second quarter and six month periods of 2003, reflecting the drop inorigination volume following the rise in interest rates in late 2003. Theaverage balance of securities increased $1.5 billion and $1.8 billion, respectivelyto $7.3 billion and $7.1 billion, respectively, from the year ago periods.

A decline in the level of market interest rates through much of 2003resulted in a decline in the yield on average earning assets of 49 basis pointsand 58 basis points for the quarter and six months ended June 30, 2004,compared to a year ago. Interest income on mortgages held for investment andheld for sale decreased by a combined $7 million, or 3%, to $220 millionfor the second quarter from $227 million a year ago. The decrease reflects adecline in the average yield on the portfolios of 58 and 39 basis points,respectively, partially offset by a higher average balances in the portfolios.

Interest income on securities for the second quarter and six monthsended June 30, 2004 increased by $11 million and $31 million to $72million and $145 million from $61 million and $114 million in the comparableperiods a year ago due to a higher average balance of investment securities in2004.

 

33

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*Average interest-bearing liabilities*

Theaverage balance of core deposits increased from $7.4 billion and $7.1 billionto $8.7 billion and $8.5 billion for the quarter and six month periods. Thegrowth in these core balances was a primary contributor to the strength of theCompany’s net interest income. The average balance of savings and money marketaccounts increased by a combined $311 million while the average balance ofdemand deposit and NOW accounts increased $1.0 billion or 41%, for the quarterended June 30, 2004. The growth in demand and NOW deposit balances resultedfrom the continued success of GreenPoint’s free checking, new branching andsmall business banking programs. In the declining interest rate environment,the average rate paid on core deposits declined to 1.12%, from 1.28% reportedin the second quarter of 2003.

The average balance of term certificates of deposit (“CD”) declined$983 million for the quarter ended June 30, 2004. CD balances were allowed torun off, as market pricing required offering rates above those available fromalternative wholesale funding sources, in order to retain balances.

The average balance of borrowed funds increased $1.4 billion for thequarter ended June 30, 2004. The average rate paid on borrowed funds declinedfrom 2.94% to 2.62% reflecting the overall decline in market interest rates.

 

**Average Consolidated Balance Sheet, Interest and Rates – ContinuingOperations**

 
| ** **                                                        | ** ** | **Quarter Ended**    | ** ** |
|-------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                        | ** ** | **June 30, 2004**    | ** ** | **June 30, 2003** | ** ** |
| **(Taxable-equivalent  interest and rates, in millions) (1)**     | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** |
| **Assets:**                                                       |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                          |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage loans held for investment *(2)*                          |       | $                    | 10,854     |   | $ | 157.4 |   | 5.81 | % | $ | 9,809 |   | $ | 156.7 |   | 6.39 | % |
| Other loans*(2)*                                                  |       | 25                   |       | 0.4 |   | 7.00 |   | 22 |   | 0.4 |   | 7.62 |   |
| Loans held for sale *(2)*                                         |       | 4,887                |       | 63.1 |   | 5.16 |   | 5,089 |   | 70.6 |   | 5.55 |   |
| Securities *(3)*                                                  |       | 7,343                |       | 72.4 |   | 3.94 |   | 5,883 |   | 61.0 |   | 4.15 |   |
| Other interest-earning assets                                     |       | 223                  |       | 3.0 |   | 5.38 |   | 276 |   | 5.0 |   | 7.22 |   |
| Total interest-earning assets                                     |       | 23,332               |       | 296.3 |   | 5.08 |   | 21,079 |   | 293.7 |   | 5.57 |   |
| Non-interest earning assets *(4)*                                 |       | 1,583                |       |   |   |   |   | 1,154 |   |   |   |   |   |
| Total assets                                                      |       | $                    | 24,915     |   |   |   |   |   | $ | 22,233 |   |   |   |   |   |
|                                                              |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Stockholders’ Equity:**                    |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Savings                                                           |       | $                    | 1,470      |   | 2.1 |   | 0.58 |   | $ | 1,465 |   | 2.5 |   | 0.68 |   |
| Demand deposits and N.O.W.                                        |       | 3,463                |       | 11.4 |   | 1.32 |   | 2,462 |   | 9.3 |   | 1.51 |   |
| Money market and variable rate savings                            |       | 3,766                |       | 10.8 |   | 1.15 |   | 3,460 |   | 11.8 |   | 1.38 |   |
| Total core deposits                                               |       | 8,699                |       | 24.3 |   | 1.12 |   | 7,387 |   | 23.6 |   | 1.28 |   |
| Wholesale money market deposits                                   |       | 261                  |       | 1.0 |   | 1.47 |   | 40 |   | 0.2 |   | 1.53 |   |
| Term certificates of deposit                                      |       | 3,869                |       | 23.6 |   | 2.46 |   | 4,852 |   | 36.6 |   | 3.02 |   |
| Total deposits                                                    |       | 12,829               |       | 48.9 |   | 1.53 |   | 12,279 |   | 60.4 |   | 1.97 |   |
| Borrowed funds                                                    |       | 8,733                |       | 57.8 |   | 2.62 |   | 7,322 |   | 54.6 |   | 2.94 |   |
| Senior notes                                                      |       | 354                  |       | 0.9 |   | 1.03 |   | 96 |   | 0.8 |   | 3.27 |   |
| Subordinated bank notes                                           |       | 150                  |       | 3.5 |   | 9.35 |   | 150 |   | 3.5 |   | 9.36 |   |
| Other long term debt                                              |       | 200                  |       | 4.5 |   | 9.15 |   | 200 |   | 4.6 |   | 9.16 |   |
| Total interest-bearing liabilities                                |       | 22,266               |       | 115.6 |   | 2.07 |   | 20,047 |   | 123.9 |   | 2.46 |   |
| Other liabilities *(5)*                                           |       | 714                  |       |   |   |   |   | 295 |   |   |   |   |   |
| Total liabilities                                                 |       | 22,980               |       |   |   |   |   | 20,342 |   |   |   |   |   |
| Stockholders’ equity                                         |       | 1,935                |       |   |   |   |   | 1,891 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |       | $                    | 24,915     |   |   |   |   |   | $ | 22,233 |   |   |   |   |   |
| Net interest income/interest rate spread *(6)*                    |       |                 |       | $ | 180.7 |   | 3.01 | % |   |   | $ | 169.8 |   | 3.11 | % |
| Net interest-earning assets/net interest  margin *(7)*            |       | $                    | 1,066      |   |   |   | 3.10 | % | $ | 1,032 |   |   |   | 3.23 | % |
| Ratio of interest-earning assets to  interest-earning liabilities |       | 1.05                 | x          |   |   |   |   | 1.05 | x |   |   |   |   |

 

34

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| ** **                                                        | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                        | ** ** | **June 30, 2004**    | ** ** | **June 30, 2003** | ** ** |
| **(Taxable-equivalent  interest and rates, in millions) (1)**     | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** |
| **Assets:**                                                       |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                          |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage loans held for investment *(2)*                          |       | $                    | 10,458     |   | $ | 312.8 |   | 5.98 | % | $ | 9,779 |   | $ | 323.0 |   | 6.61 | % |
| Other loans *(2)*                                                 |       | 25                   |       | 0.9 |   | 7.04 |   | 21 |   | 0.8 |   | 7.66 |   |
| Loans held for sale *(2)*                                         |       | 4,606                |       | 118.4 |   | 5.14 |   | 5,091 |   | 146.5 |   | 5.80 |   |
| Securities *(3)*                                                  |       | 7,114                |       | 145.4 |   | 4.09 |   | 5,362 |   | 114.3 |   | 4.27 |   |
| Other interest-earning assets                                     |       | 233                  |       | 7.3 |   | 6.30 |   | 308 |   | 9.0 |   | 5.86 |   |
| Total interest-earning assets                                     |       | 22,436               |       | 584.8 |   | 5.21 |   | 20,561 |   | 593.6 |   | 5.79 |   |
| Non-interest earning assets *(4)*                                 |       | 1,399                |       |   |   |   |   | 1,143 |   |   |   |   |   |
| Total assets                                                      |       | $                    | 23,835     |   |   |   |   |   | $ | 21,704 |   |   |   |   |   |
|                                                              |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Stockholders’ Equity:**                    |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Savings                                                           |       | $                    | 1,509      |   | 4.2 |   | 0.56 |   | $ | 1,412 |   | 5.5 |   | 0.79 |   |
| Demand deposits and N.O.W.                                        |       | 3,277                |       | 20.9 |   | 1.28 |   | 2,240 |   | 17.0 |   | 1.53 |   |
| Money market and variable rate savings                            |       | 3,670                |       | 21.2 |   | 1.16 |   | 3,400 |   | 24.7 |   | 1.46 |   |
| Total core deposits                                               |       | 8,456                |       | 46.3 |   | 1.10 |   | 7,052 |   | 47.2 |   | 1.35 |   |
| Wholesale money market deposits                                   |       | 233                  |       | 1.7 |   | 1.46 |   | 40 |   | 0.2 |   | 1.51 |   |
| Term certificates of deposit                                      |       | 4,001                |       | 50.4 |   | 2.53 |   | 4,999 |   | 75.7 |   | 3.05 |   |
| Total deposits                                                    |       | 12,690               |       | 98.4 |   | 1.56 |   | 12,091 |   | 123.1 |   | 2.05 |   |
| Borrowed funds                                                    |       | 8,024                |       | 110.3 |   | 2.72 |   | 6,996 |   | 107.3 |   | 3.05 |   |
| Senior notes                                                      |       | 355                  |       | 1.8 |   | 1.02 |   | 48 |   | 0.8 |   | 3.25 |   |
| Subordinated bank notes                                           |       | 150                  |       | 7.0 |   | 9.35 |   | 150 |   | 7.0 |   | 9.36 |   |
| Other long term debt                                              |       | 200                  |       | 9.1 |   | 9.16 |   | 200 |   | 9.2 |   | 9.16 |   |
| Total interest-bearing liabilities                                |       | 21,419               |       | 226.6 |   | 2.11 |   | 19,485 |   | 247.4 |   | 2.54 |   |
| Other liabilities *(5)*                                           |       | 509                  |       |   |   |   |   | 317 |   |   |   |   |   |
| Total liabilities                                                 |       | 21,928               |       |   |   |   |   | 19,802 |   |   |   |   |   |
| Stockholders’ equity                                         |       | 1,907                |       |   |   |   |   | 1,902 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |       | $                    | 23,835     |   |   |   |   |   | $ | 21,704 |   |   |   |   |   |
| Net interest income/interest rate spread *(6)*                    |       |                 |       | $ | 358.2 |   | 3.10 | % |   |   | $ | 346.2 |   | 3.25 | % |
| Net interest-earning assets/net interest  margin *(7)*            |       | $                    | 1,017      |   |   |   | 3.20 | % | $ | 1,076 |   |   |   | 3.37 | % |
| Ratio of interest-earning assets to  interest-earning liabilities |       | 1.05                 | x          |   |   |   |   | 1.05 | x |   |   |   |   |

* *

----

*(1)** **Net interest income is calculatedon a taxable-equivalent basis.*

*(2)** **In computing the average balancesand average yield on loans, non-accruing loans have been included.*

*(3)** **The average yield does not giveeffect to changes in fair value that are reflected as a component ofstockholders’ equity.*

*(4)** **Includes goodwill, bankingpremises and equipment, servicing assets, deferred tax assets, accrued interestreceivable, and other miscellaneous non-interest earning assets.*

*(5)** **Includes accrued interestpayable, accounts payable and other miscellaneous non-interest bearingobligations of the Company.*

*(6)** **Net interest rate spreadrepresents the difference between the average yield on interest-earning assetsand the average cost of interest-bearing liabilities.*

*(7)** **Net interest margin representsnet interest income divided by average interest-earning assets.*

 

35

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**Rate/Volume Analysis**

Thefollowing table presents the effects of changes in interest rates and changesin volume of interest-earning assets and interest-bearing liabilities on theCompany’s interest income on a tax equivalent basis and interest expense duringthe periods indicated. The changes attributable to the combined impact ofvolume and rate have been allocated proportionately to volume and rate.

 
| ** **                               | ** ** | **Quarter Ended June 30, 2004  Compared to  Quarter Ended June 30, 2003  Increase/(Decrease)** | ** ** | **Six Months Ended June 30, 2004  Compared to  Six Months Ended June 30, 2003  Increase/(Decrease)** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                               | ** ** | **Due to**                                                                                     | ** ** | ** **                                                                                           | ** ** | **Due to** | ** ** | ** ** | ** ** |
| **(In  millions)**                       | ** ** | **Average  Volume**                                                                            | ** ** | **Average  Rate**                                                                                    | ** ** | **Net  Change** | ** ** | **Average  Volume** | ** ** | **Average  Rate** | ** ** | **Net  Change** | ** ** |
| Mortgage loans held for investment *(1)* |       | $                                                                                              | 15.9       |                                                                                                 | $          | (15.2 | ) | $ | 0.7 |   | $ | 21.5 |   | $ | (31.7 | ) | $ | (10.2 | ) |
| Other loan*s  (1)*                       |       | ––                                                                                   |       | ––                                                                                         |       | –– |   | 0.2 |   | (0.1 | ) | 0.1 |   |
| Loans held for sale                      |       | (2.7                                                                                           | )          | (4.8                                                                                                 | )          | (7.5 | ) | (13.3 | ) | (14.8 | ) | (28.1 | ) |
| Securities                               |       | 14.5                                                                                           |       | (3.1                                                                                                 | )          | 11.4 |   | 36.0 |   | (4.9 | ) | 31.1 |   |
| Other interest-earning assets            |       | (0.9                                                                                           | )          | (1.1                                                                                                 | )          | (2.0 | ) | (2.3 | ) | 0.6 |   | (1.7 | ) |
| Total interest earned on assets          |       | 26.8                                                                                           |       | (24.2                                                                                                | )          | 2.6 |   | 42.1 |   | (50.9 | ) | (8.8 | ) |
| Savings                                  |       | ––                                                                                   |       | (0.4                                                                                                 | )          | (0.4 | ) | 0.4 |   | (1.7 | ) | (1.3 | ) |
| Demand deposits and N.O.W.               |       | 3.4                                                                                            |       | (1.3                                                                                                 | )          | 2.1 |   | 7.0 |   | (3.1 | ) | 3.9 |   |
| Money market and variable rate savings   |       | 1.0                                                                                            |       | (2.0                                                                                                 | )          | (1.0 | ) | 1.8 |   | (5.3 | ) | (3.5 | ) |
| Wholesale money market deposits          |       | 0.8                                                                                            |       | ––                                                                                         |       | 0.8 |   | 1.4 |   | 0.1 |   | 1.5 |   |
| Term certificates of deposit             |       | (6.7                                                                                           | )          | (6.3                                                                                                 | )          | (13.0 | ) | (13.7 | ) | (11.6 | ) | (25.3 | ) |
| Borrowed funds                           |       | 9.8                                                                                            |       | (6.6                                                                                                 | )          | 3.2 |   | 14.8 |   | (11.8 | ) | 3.0 |   |
| Senior notes                             |       | 1.0                                                                                            |       | (0.9                                                                                                 | )          | 0.1 |   | 1.9 |   | (0.9 | ) | 1.0 |   |
| Subordinated bank notes                  |       | ––                                                                                   |       | ––                                                                                         |       | –– |   | –– |   | –– |   | –– |   |
| Other long term debt                     |       | (0.1                                                                                           | )          | ––                                                                                         |       | (0.1 | ) | (0.1 | ) | –– |   | (0.1 | ) |
| Total interest paid on liabilities       |       | 9.2                                                                                            |       | (17.5                                                                                                | )          | (8.3 | ) | 13.5 |   | (34.3 | ) | (20.8 | ) |
| Net change in net interest income        |       | $                                                                                              | 17.6       |                                                                                                 | $          | (6.7 | ) | $ | 10.9 |   | $ | 28.6 |   | $ | (16.6 | ) | $ | 12.0 |   |

 

----

*(1)** **In computing the volume and ratecomponents of net interest income for loans, non-accrual loans have beenincluded.*

 

**Provision for Loan Losses**

Netmortgage loan charge-offs for the quarter and six months ended June 30, 2004,which equaled the provision for loan loss for the continuing operations, were$1 million and $2 million, respectively, and represented only 4 basispoints on an annualized basis of the portfolio of loans held for investment.

 

**Non-Interest Income**

Thefollowing table summarizes the components of non-interest income:

 
| ** **                                | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                        | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Income from fees and commissions:         |       |                        |       |                           |       |   |   |   |   |
| Loan servicing income                     |       | $                           | 10.9       |                           | $          | (0.4 | ) | $ | 5.0 |   | $ | 5.4 |   |
| Banking services fees and commissions     |       | 23.6                        |       | 17.2                           |       | 46.0 |   | 31.7 |   |
| Fees, commissions and other income        |       | 3.0                         |       | 3.1                            |       | 9.9 |   | 6.5 |   |
| Total income from fees and commissions    |       | 37.5                        |       | 19.9                           |       | 60.9 |   | 43.6 |   |
| Net gain on sales of mortgage loans       |       | 123.7                       |       | 145.7                          |       | 244.4 |   | 270.0 |   |
| Change in valuation of retained interests |       | (0.9                        | )          | (0.7                           | )          | (1.3 | ) | (1.4 | ) |
| Net gain on sale of securities            |       | ––                |       | (0.6                           | )          | 0.5 |   | 0.6 |   |
| Total non-interest income                 |       | $                           | 160.3      |                           | $          | 164.3 |   | $ | 304.5 |   | $ | 312.8 |   |

 

36

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Non-interest income was $160 million and $305 million for the quarterand six month periods, a decline of $4 million and $8 million from $164million and $313 million a year ago. The decrease in each period was due to adecline in gain on sale of mortgage loans. The decline was partially offset byincreased banking fees in both the quarter and year-to-date period and higherloan servicing income in the second quarter of 2004. The gain on sale of loansis described in further detail in the following section.

For the quarter ended June 30, 2004, loan servicing income was $11million, compared to none in the previous period. The revenue was earned on aservicing portfolio of $37.7 billion at June 30, 2004 and $28.7 billion atJune 30, 2003. The increase reflected recovery of net servicing impairment of$10 million compared with a $3 million servicing impairment in the year agoquarter. The year-to-date servicing income of $5 million reflects no netservicing recovery or impairment as the $10 million impairment reported in thefirst quarter was offset by the $10 million recovery reported in the secondquarter.

As more fully described in Note 5, GreenPoint makes certain assumptionsin valuing its mortgage servicing assets. The projected average life of theservicing asset portfolio increased during the quarter ended June 30, 2004 ascompared to 2003. This increase was due to lower prepayment assumptions on theexisting loans reflecting the rise in interest rates during the second quarter.

Bankingservices fees and commissions are the fees generated from the Retail Bankdeposit accounts such as ATM service charges, debit card fees, NSF servicecharges, overdraft fees, monthly maintenance charges, safe deposit rental fees,official check fees and annuity and insurance sales commissions. For thequarter and six months ended June 30, 2004, banking services fees andcommissions were $24 million and $46 million compared to $17 million and $32million in the previous periods. ATM fee income was $3 million and $5 millionfor the quarterly and six month period, up from $2 million and $4 million a yearago. Deposit related fee income increased to $8 million and $16 million in 2004from $5 million and $10 million in 2003. Service charge and banking servicesincome was $6 million and $12 million as compared to $6 million and$11 million in 2004 and 2003, in the respective quarterly and six monthperiods. Income from investment services increased to $6 million and $13million for the quarter and six months ended June 30, 2004 from $4 million and$7 million in the year ago periods. The increase is attributable to the Companyopening a registered Broker/Dealer on January 2, 2004 to replace the agentedprogram. As a result the net activities are reported differently in thefinancial statements. Previously the net commissions were earned on the sale ofproducts with no direct expenses associated with the activity. Beginning in thefirst quarter of 2004 the Company reported larger commissions, since we do notshare them with the agent, and the expenses associated with the Broker/Dealeremployees. In the second quarter and six months ended June 30, 2004, investmentservice fee income would have been approximately $2 million and $5 millionlower, under the old arrangement.

 

**Gain on Sale of Loans**

GreenPointsells those loans it does not place in its portfolio through either (1) wholeloan sales, which involves selling pools of loans to individual purchasers, or(2) securitization, which involves the private placement or public offering ofpass-through asset-backed securities. This approach allows GreenPoint to capitalizeon favorable conditions in either the securitization or whole loan sale marketwhen loans are sold.

During each of the last two years most mortgage loans were sold aswhole loan sales. These sales are completed with no direct credit enhancementfrom GreenPoint, but do include certain standard representations andwarranties, which permit the purchaser to return the loan to the Company ifcertain deficiencies exist in the loan documentation. Whole loan sales mayeither retain, or transfer to the buyer, the right to service the loans.

Gain on sale and the gain on sale margins include the net impact of thevaluation of mortgage loans held for sale and interest rate lock commitments,the impact of the valuation of derivatives utilized to manage the exposure tointerest rate risk associated with mortgage loan commitments and mortgage loansheld for sale, and the impact of adjustments related to liabilities establishedfor representations and warranties made in conjunction with the loan sale.

 

37

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The following table summarizes loans sold and average margins earned:

 
| ** **                           | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                   | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Whole loan – Mortgage:**      |       |                        |       |                           |       |   |   |   |   |
| Whole loan sales:                    |       |                        |       |                           |       |   |   |   |   |
| Specialty products                   |       | $                           | 3,028      |                           | $          | 2,562 |   | $ | 5,722 |   | $ | 5,383 |   |
| Home equity / Seconds                |       | 589                         |       | 37                             |       | 1,093 |   | 175 |   |
| Agency / Jumbo                       |       | 3,905                       |       | 6,087                          |       | 7,817 |   | 11,930 |   |
| Total whole loan sales               |       | $                           | 7,522      |                           | $          | 8,686 |   | $ | 14,632 |   | $ | 17,488 |   |
|                                 |       |                        |       |                           |       |   |   |   |   |
| Gain on sale                         |       | $                           | 123.4      |                           | $          | 140.7 |   | $ | 243.7 |   | $ | 264.4 |   |
|                                 |       |                        |       |                           |       |   |   |   |   |
| Margins on whole loan sales:         |       |                        |       |                           |       |   |   |   |   |
| Specialty products                   |       | 2.60                        | %          | 3.06                           | %          | 2.59 | % | 2.97 | % |
| Home equity / Seconds                |       | 1.81                        | %          | 1.19                           | %          | 1.90 | % | 1.22 | % |
| Agency / Jumbo                       |       | 0.87                        | %          | 1.02                           | %          | 0.95 | % | 0.86 | % |
| Average margin                       |       | 1.64                        | %          | 1.62                           | %          | 1.67 | % | 1.51 | % |
|                                 |       |                        |       |                           |       |   |   |   |   |
| **Securitizations – Mortgage:** |       |                        |       |                           |       |   |   |   |   |
| Loans securitized                    |       | $                           | 19         |                           | $          | 319 |   | $ | 37 |   | $ | 353 |   |
| Gain on sale *(2)*                   |       | $                           | 0.3        |                           | $          | 5.0 |   | $ | 0.7 |   | $ | 5.6 |   |
| Average margin                       |       | 1.84                        | %          | 1.57                           | %          | 1.93 | % | 1.58 | % |

 

----

*(1)Specialty products include: Alt A, No Docand A minus programs.*

*(2)Includes draws from prior periodsecuritizations.*

 

Gain on sale from whole loan sales and securitizations of mortgageloans decreased $22 million and $26 million, respectively, for the secondquarter and six months ended June 30, 2004 versus a year ago. The gain fromwhole loans sales decreased due to the lower volume of loans sold.

The Company sold mortgage loans totaling $7.5 billion and $14.6 billionin the second quarter and six month period of 2004, a decrease of $1.2 billionand $2.9 billion, or 13% and 16%, from the balance of loans sold in 2003. Theaverage margin earned on loan sales was 1.64% in the second quarter, unchangedfrom the 1.62% earned in the year ago quarter. The average margin earned onloan sales was 1.67% in first six months 2004, an increase from the 1.51%earned in the same period a year ago. The higher margin reflected, in part, ahigher proportion of specialty loan sales during the quarter and six monthperiods. During the second quarter and six month periods of 2004, agency andjumbo mortgage sales totaled 52% and 53% of total mortgages sold compared with70% and 68% in the 2003 periods, while higher-spread specialty products totaled40% and 39% of mortgages sold in the periods, compared with 30% and 31% a yearago. Specialty product margins declined in the second quarter and six monthperiods to 2.60% and 2.59% from 3.06% and 2.97%. The narrower sales margins onspecialty products reflect, in part, an increase in competition as moremortgage originators compete in the specialty product market. Going forward,the gain on mortgage sales will fluctuate with the level of market interestrates and the secondary market demand for mortgage-backed investments.

 

**Representation and Warranty Liabilities**

TheCompany has established a liability to cover losses associated with repurchasesand indemnifications of mortgage loans sold, made under representations andwarranties. On a quarterly basis, management reassesses the adequacy of theliability based on the most recent historic trends and future expectations.Additions to the liability are made when loans are sold.

The liability related to representations and warranties for mortgageloans totaled $76 million and $61 million at June 30, 2004 and December31, 2003, respectively. The activity in the liability is summarized in thetable in Note 5.

 

38

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Losses charged against the representation and warranty liabilitytotaled $9 million and $15 million in the second quarter and six month periodsof 2004, compared with $6 million and $15 million in the comparableperiods 2003. These losses included indemnifications of $3 million and$3 million in the second quarter of 2004 and 2003, respectively, and $6million and $5 million in the first six months of 2004 and 2003, respectively.The balance of the losses represented charges incurred on the repurchase,valuation and subsequent disposition of outstanding loans. Loan repurchasestotaled $44 million and $80 million in the quarter and six months endedJune 30, 2004, compared to $34 million and $85 million in the secondquarter and six month periods of 2003. Loans were repurchased at their facevalue and losses on subsequent dispositions were charged against therepresentation and warranty liability.

 

**Non-Interest Expense**

Thefollowing is a summary of the components of non-interest expense:

 
| ** **                                        | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                                | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Salaries and benefits                             |       | $                           | 70.3       |                           | $          | 66.5 |   | $ | 134.1 |   | $ | 128.1 |   |
| Employee Stock Ownership and stock plans  expense |       | 8.4                         |       | 6.7                            |       | 17.3 |   | 12.8 |   |
| Net expense of premises and equipment             |       | 23.0                        |       | 20.9                           |       | 46.5 |   | 41.8 |   |
| Advertising                                       |       | 5.3                         |       | 4.5                            |       | 10.5 |   | 8.9 |   |
| Federal deposit insurance premiums                |       | 0.5                         |       | 0.5                            |       | 1.0 |   | 1.0 |   |
| Other administrative expenses                     |       | 32.4                        |       | 27.3                           |       | 65.0 |   | 54.4 |   |
| Total general and administrative expenses         |       | 139.9                       |       | 126.4                          |       | 274.4 |   | 247.0 |   |
| Other real estate owned operating income          |       | (1.2                        | )          | (1.7                           | )          | (1.2 | ) | (1.5 | ) |
| Total non-interest expense                        |       | $                           | 138.7      |                           | $          | 124.7 |   | $ | 273.2 |   | $ | 245.5 |   |

 

Total general and administrative expense increased $14 million and$27 million to $140 million and $274 million from $126 million and $247 millionfor the quarter and six months ended June 30, 2004, respectively.

Salaries and benefits increased $4 million and $6 million for thequarter and six month periods due to additional costs in the Broker/Dealer thathad previously been netted from banking fees, in addition to increased staffingcosts associated with the retail bank *de novo*branch expansion.

Employee Stock Ownership and stock plans expense increased $2 millionand $5 million for the quarterly and six month periods due to a rise in theprice of the Company’s stock.

Premises and equipment expenses increased $2 million and $5 million forthe quarterly and six month periods primarily due to the retail bank *de novo* branch expansion and depreciationassociated with the installation of a new mortgage loan origination system inJuly 2003.

Other administrative expenses were $32 million and $65 million for thequarter and six months ended June 30, 2004, an increase of $5 million and$11 million compared to the second quarter and six months period a year ago.The increase for the second quarter and year-to-date periods reflects higherinsurance and outsourcing costs and slightly higher processing costs acrossboth the banking and mortgage business. The year-to-date comparison alsoreflects costs of $2 million recognized in conjunction with the announced mergeragreement.

 

**Income Tax Expense**

Incometax expense decreased $1 million and $5 million, to $76 million and $147million for the quarter and six months ended June 30, 2004, versus thecomparable periods a year ago. The decrease for the quarter and six monthperiods is due to lower pre-tax income offset by a rise in the effective taxrate from 37.3% to 38.4%.

 

39

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**Loan Originations**

Thefollowing table summarizes loan origination activity for each of the reportedperiods:

 
| ** **                   | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**           | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Mortgage:**                |       |                        |       |                           |       |   |   |   |   |
| Total applications received  |       | $                           | 19,868     |                           | $          | 23,189 |   | $ | 38,175 |   | $ | 41,578 |   |
| Loans originated:            |       |                        |       |                           |       |   |   |   |   |
| Specialty products*(1)*      |       | $                           | 3,453      |                           | $          | 2,921 |   | $ | 6,225 |   | $ | 5,681 |   |
| Home equity / Seconds        |       | 1,256                       |       | 614                            |       | 2,130 |   | 1,142 |   |
| Agency/Jumbo                 |       | 6,460                       |       | 7,808                          |       | 11,025 |   | 13,848 |   |
| Total loans originated *(2)* |       | $                           | 11,169     |                           | $          | 11,343 |   | $ | 19,380 |   | $ | 20,671 |   |

 

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*(1)** **Specialty products include: AltA, No Doc and A minus programs.*

*(2)** **Total loans originated includecorrespondent purchases for the held for investment portfolio, which totaled$461 million and $1.1 billion for the quarter ended June 30, 2004 and 2003,respectively. Correspondent purchases for the six months ended June 30, 2004and 2003 were $911 million and $1.5 billion, respectively.*

 
| ** **                                          | ** ** | **At June 30,** | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|
| **(In  millions)**                                  | ** ** | **2004**        | ** ** | **2003** | ** ** |
|                                                |       |            |       |   |   |
| Pipeline *(1)*                                      |       | $               | 8,642      |   | $ | 12,136 |   |
|                                                |       |            |       |   |   |
| Interest rate lock commitments*(2)*                 |       | $               | 2,559      |   | $ | 4,418 |   |
|                                                |       |            |       |   |   |
| Fair value of interest rate lock  commitments *(3)* |       | $               | 5          |   | $ | (2 | ) |
|                                                |       |            |       |   |   |
| Loans held for sale                                 |       | $               | 5,241      |   | $ | 5,370 |   |

 

Thenet change in the fair value of interest rate lock commitments resulted in again of $7 million and a loss of $8 million for the quarters endedJune 30, 2004 and 2003, respectively. For the six months ended June 30, 2004and 2003 the net change in interest rate lock commitments resulted in a gain of$4 million and a loss of $12 million, respectively.

 

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*(1)** **The pipeline representsapplications received but not yet funded. Of this amount, at June 30, 2004approved applications totaled approximately $5.2 billion.*

*(2)** **Represents allcommitments to lend where the terms are guaranteed to the borrower for aspecific period of time.*

*(3)** **Amount represents thefair value of interest rate lock commitments on loans the Company does notintend to hold for investment at the end of the period and was estimated byassessing the impact of the change in interest rates on the commitment from thelock date to the valuation date.*

 

Total loan originations during the second quarter and six monthperiods, for the mortgage business were $11.2 billion and $19.4 billion,down from $11.3 billion and $20.7 billion a year ago. Specialty productoriginations were $3.5 billion and $6.2 billion, up versus the comparableperiod a year ago. Agency/Jumbo originations decreased from $7.8 billion and$13.8 billion to $6.5 billion and $11.0 billion in the second quarter and sixmonth periods versus a year ago. The change in loan origination product mix forthe quarter and six months ended June 30, 2004 versus a year ago, reflects thestrong demand for mortgage refinancing during the first half of 2003.

 

40

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**Non-Performing Assets**

Non-performingassets consist of non-accruing loans and other real estate owned. Totalnon-performing assets were $216 million at June 30, 2004 compared to $285million at December 31, 2003. The non-accrual loans held for sale primarilyrepresent loans that have been repurchased pursuant to representation andwarranty commitments. Estimated future losses on these loans are measured aspart of the representation and warranty liability (see Note 5).

GreenPoint attempts to convert non-performing assets tointerest-earning assets as quickly as possible, while minimizing potentiallosses on the conversion.

The following table sets forth information regarding all non-accrualloans, including loans in forbearance, loans which are 90 days or more delinquentbut on which the Company is accruing interest and other real estate owned atthe dates indicated.

 
| **(In  millions)**                                                            | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| Non-accrual mortgage loans held for  investment                               |       | $                  | 132        |               | $          | 158 |   |
| Non-accrual other loans*(1)*                                                  |       | ––       |       | ––       |       |
| Total non-accrual loans held for investment                                   |       | 132                |       | 158                |       |
| Non-accrual loans held for sale                                               |       | 63                 |       | 103                |       |
| Total non-performing loans                                                    |       | 195                |       | 261                |       |
| Other real estate owned, net *(2)*                                            |       | 21                 |       | 24                 |       |
| Total non-performing assets                                                   |       | $                  | 216        |               | $          | 285 |   |
|                                                                          |       |               |       |               |       |
| Total non-performing assets – discontinued  business                     |       | $                  | 5          |               | $          | 6 |   |
|                                                                          |       |               |       |               |       |
| Other loans 90 days or more delinquent and  still accruing                    |       | $                  | 2          |               | $          | 3 |   |
|                                                                          |       |               |       |               |       |
| Non-accruing loans held for investment to  mortgage loans held for investment |       | 1.13               | %          | 1.60               | %          |
| Non-accruing loans held for sale to  mortgage loans held for sale             |       | 1.20               | %          | 2.15               | %          |
| Non-performing assets to total assets                                         |       | 0.83               | %          | 1.24               | %          |

 

----

*(1)** **Excluding certain other loansdelinquent 90 days or more, such as guaranteed student loans, on which,principal and interest are guaranteed by the U.S. government and certain otherloans on which delinquent principal and interest may be deducted from theborrower’s deposit account balances.*

*(2)** **Net of related valuationallowance of $1 million for foreclosed real estate at both June 30, 2004 andDecember 31, 2003, respectively.*

 

**Loan Servicing Portfolio**

Thefollowing table summarizes the dollar amount of mortgage loans serviced forGreenPoint and for others:

 
| **(In  millions)**                  | ** ** | **June 30,  2004** | ** ** | **Dec. 31,  2003** | ** ** |
|-------------------------------------|------------|--------------------|------------|--------------------|------------|
| **Mortgage:**                       |       |               |       |               |       |
| Serviced for GreenPoint *(1)*       |       | $                  | 11,588     |               | $          | 12,113 |   |
| Serviced for others (third parties) |       | 26,105             |       | 19,836             |       |
| **Total loan servicing portfolio**  |       | $                  | 37,693     |               | $          | 31,949 |   |

 
|                                                                                                                                                |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| *(1)**         **Includes held for sale  and certain loans held for investment at end of period.* |   |   |   |   |

 

41

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**Allowance for Possible Loan Losses**

The Company has a policy for establishmentand review of the adequacy of the allowance for loan losses. Managementbelieves that the allowance for loan losses is adequate. However, suchdetermination is susceptible to the effect of future unanticipated changes ingeneral economic and market conditions that may affect the financialcircumstances of borrowers and/or residential real estate values within theCompany’s lending areas. The policy is further described in the Critical Accounting Policiessection of the Company’s Annual Report on Form 10-K.

 
| ** **                                                                                 | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                                                                         | ** ** | **2004**                    | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Balance at beginning of period**                                                         |       | $                           | 77.7       |                           | $          | 77.7 |   | $ | 77.7 |   | $ | 77.7 |   |
| Provision (benefit) charged to income:                                                     |       |                        |       |                           |       |   |   |   |   |
| Continuing                                                                                 |       | 1.1                         |       | 0.6                            |       | 2.4 |   | 0.9 |   |
| Discontinued                                                                               |       | 0.5                         |       | (0.4                           | )          | 0.4 |   | (0.3 | ) |
| Total provision charged to income                                                          |       | 1.6                         |       | 0.2                            |       | 2.8 |   | 0.6 |   |
| Loans charged-off:                                                                         |       |                        |       |                           |       |   |   |   |   |
| Mortgage loans held for investment                                                         |       | (1.2                        | )          | (0.7                           | )          | (2.5 | ) | (1.1 | ) |
| Manufactured housing loans held for  investment                                            |       | (1.6                        | )          | (1.0                           | )          | (2.8 | ) | (2.6 | ) |
| Total charge-offs                                                                          |       | (2.8                        | )          | (1.7                           | )          | (5.3 | ) | (3.7 | ) |
| Recoveries:                                                                                |       |                        |       |                           |       |   |   |   |   |
| Mortgage loans held for investment                                                         |       | 0.1                         |       | 0.1                            |       | 0.1 |   | 0.2 |   |
| Manufactured housing loans held for  investment                                            |       | 1.1                         |       | 1.4                            |       | 2.4 |   | 2.9 |   |
| Total recoveries                                                                           |       | 1.2                         |       | 1.5                            |       | 2.5 |   | 3.1 |   |
| Net charge-offs:                                                                           |       |                        |       |                           |       |   |   |   |   |
| Continuing                                                                                 |       | (1.1                        | )          | (0.6                           | )          | (2.4 | ) | (0.9 | ) |
| Discontinued                                                                               |       | (0.5                        | )          | 0.4                            |       | (0.4 | ) | 0.3 |   |
| Total net charge-offs                                                                      |       | (1.6                        | )          | (0.2                           | )          | (2.8 | ) | (0.6 | ) |
| Balance at end of period                                                                   |       | $                           | 77.7       |                           | $          | 77.7 |   | $ | 77.7 |   | $ | 77.7 |   |
|                                                                                       |       |                        |       |                           |       |   |   |   |   |
| **Asset Quality Ratios – Continuing  Operations**                                     |       |                        |       |                           |       |   |   |   |   |
| Net loan charge-off experience (annualized)  to average mortgage loans held for investment |       | 0.04                        | %          | 0.03                           | %          | 0.05 | % | 0.02 | % |
| Allowance for loan losses to mortgage loans  held for investment                           |       | 0.64                        | %          | 0.75                           | %          | 0.64 | % | 0.75 | % |
| Allowance for loan losses to non-performing  loans held for investment                     |       | 56.7                        | %          | 46.0                           | %          | 56.7 | % | 46.0 | % |

 

In determining the adequacy of the allowance for loan losses forGreenPoint’s mortgage loans held for investment, management completes ananalysis of the loan portfolio prior to the end of each quarterly reportingperiod. The analysis stratifies GreenPoint’s mortgage loans held for investmentportfolio into three categories: first mortgages, second mortgages and homeequity loans. The first mortgage and second mortgage categories are furtherstratified into one-to-four family, multi-family, and commercial loan strata.The analysis calculates the expected losses as a percentage of loansoutstanding in each loan stratum based upon the current delinquency statuswithin each stratum. A more complete discussion on the Company’s estimate forthe allowance for loan loss is included in the Critical Accounting Policiessection of the Company’s Annual Report on Form 10-K.

Due to inherent limitations in using modeling techniques and historicalloss percentages, GreenPoint also maintains an unallocated allowance for firstmortgage loans. This allowance addresses short-term changes in the firstmortgage loan’s historical real estate owned performance, delinquency trends,loan products, national real estate values and portfolio growth. The analysisalso encompasses an assessment of changes in the macro-economic environment. Atthe end of each quarter, management determines the adequacy of the unallocatedreserve to address these risks.

 

42

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**Capital Ratios**

TheCompany and the Bank are subject to various regulatory capital requirementsadministered by the federal and state banking agencies. The Board of Governorsof the Federal Reserve System establishes minimum capital requirements for theconsolidated bank holding company, as well as for the Bank.

Under capital adequacy guidelines and the regulatory framework forprompt corrective action, the Bank must meet specific capital guidelines thatinvolve quantitative measures of its assets, liabilities, and certain offbalance sheet items as calculated under regulatory accounting practices. Theseguidelines require minimum ratios of risk-based capital to risk adjusted assetsof 4% for Tier 1 capital and 8% for total capital. The Federal Reserve Boardalso has guidelines for a leverage ratio that is designed to complement therisk-based capital ratios in determining the overall capital adequacy of banksand bank holding companies. A minimum leverage ratio of Tier 1 capital toaverage total assets of 3% is required for banks and bank holding companies,with an additional 100 to 200 basis points required for all but the highestrated institutions. Management believes, as of June 30, 2004, that the Companyand the Bank meet all capital adequacy requirements to which it is subject.

FDICIA, among other things, identifies five capital categories forinsured depository institutions (well capitalized, adequately capitalized,undercapitalized, significantly undercapitalized and criticallyundercapitalized) and requires federal banking regulatory agencies to implementsystems for “prompt corrective action” for insured depository institutions thatdo not meet minimum capital requirements based on these categories. As ofJune 30, 2004 the Bank was well capitalized based on the prompt correctiveaction guidelines.

The most recent notification from the FDIC categorized the Bank as wellcapitalized under the regulatory framework for prompt corrective action. To becategorized as well capitalized, the Bank must maintain minimum Tier 1 capital,total capital and leverage ratios of 6%, 10% and 5%, respectively. There havebeen no conditions or events since that notification that management believeshave changed the Company’s or Bank’s category.

The Company’s Total Capital and Tier 1 Capital (to risk weightedassets) decreased from 12.81% and 11.26%, respectively, at December 31, 2003 to12.63% and 11.23%, respectively at June 30, 2004. The Company’s ratio ofperiod-end stockholders’ equity to ending total assets at June 30, 2004 was7.56% compared to 8.00% at December 31, 2003.

 
| ** **                                | ** ** | **Actual** | ** ** | **Required for Capital  Adequacy Purposes** | ** ** |
|-------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| **(In  millions)**                        | ** ** | **Amount** | ** ** | **Ratio**                                   | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| **As of June 30, 2004**                   |       |       |       |                                        |       |   |   |   |   |
| Total Capital (to Risk Weighted Assets):  |       |       |       |                                        |       |   |   |   |   |
| Company                                   |       | $          | 2,053      |                                        | 12.63      | % | $ | 1,300 |   | 8.00 | % |
| Bank                                      |       | 2,255      |       | 13.90                                       |       | 1,298 |   | 8.00 |   |
| Tier 1 Capital (to Risk Weighted Assets): |       |       |       |                                        |       |   |   |   |   |
| Company                                   |       | $          | 1,825      |                                        | 11.23      | % | $ | 650 |   | 4.00 | % |
| Bank                                      |       | 2,027      |       | 12.50                                       |       | 649 |   | 4.00 |   |
| Tier 1 Capital (to Average Assets):       |       |       |       |                                        |       |   |   |   |   |
| Company                                   |       | $          | 1,825      |                                        | 7.34       | % | $ | 994 |   | 4.00 | % |
| Bank                                      |       | 2,027      |       | 8.16                                        |       | 994 |   | 4.00 |   |
|                                      |       |       |       |                                        |       |   |   |   |   |
| **As of December 31, 2003**               |       |       |       |                                        |       |   |   |   |   |
| Total Capital (to Risk Weighted Assets):  |       |       |       |                                        |       |   |   |   |   |
| Company                                   |       | $          | 1,875      |                                        | 12.81      | % | $ | 1,171 |   | 8.00 | % |
| Bank                                      |       | 2,092      |       | 14.35                                       |       | 1,166 |   | 8.00 |   |
| Tier 1 Capital (to Risk Weighted Assets): |       |       |       |                                        |       |   |   |   |   |
| Company                                   |       | $          | 1,647      |                                        | 11.26      | % | $ | 585 |   | 4.00 | % |
| Bank                                      |       | 1,864      |       | 12.79                                       |       | 583 |   | 4.00 |   |
| Tier 1 Capital (to Average Assets):       |       |       |       |                                        |       |   |   |   |   |
| Company                                   |       | $          | 1,647      |                                        | 7.28       | % | $ | 905 |   | 4.00 | % |
| Bank                                      |       | 1,864      |       | 8.24                                        |       | 905 |   | 4.00 |   |

 

43

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**Stock Repurchase Program**

InSeptember 2003, the Company’s Board of Directors authorized a new sharerepurchase program of up to 5%, or approximately 6.8 million, of itsoutstanding shares. There are approximately 2.8 million shares remaining in thecurrent repurchase authorization. The repurchase will be at the Company’sdiscretion, based on ongoing assessments of the capital needs of the businessand the market valuation of its stock. The repurchased shares are being held intreasury.

Shares repurchased and cost for the quarter and six months ended June30, 2004 and 2003 are summarized as follows:

 
| ** **                   | ** ** | **Quarter Ended  June 30,** | ** **   | **Six Months Ended  June 30,** | ** ** |
|------------------------------|------------|-----------------------------|--------------|--------------------------------|------------|
| **(In  millions)**           | ** ** | **2004**                    | ** **   | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                         |       |                        |         |                           |       |   |   |   |   |
| Number of shares repurchased |       | ––                |         | 3,483,450                      |       | 540,000 |   | 7,777,650 |   |
| Cost of repurchases          |       | $                           | –– |                           | $          | 113 |   | $ | 20 |   | $ | 238 |   |
|                              |            |                             |              |                                |            |  |  |  |  |  |  |  |  |

 

**Supplemental Performance Measurements –Tangible****Earnings**

Tangible earnings is a non-GAAP measurement that GreenPointdefines as net income from continuing operations less a charge related to theEmployee Stock Ownership Plan (“ESOP”). The excluded expense, unlike otherexpenses incurred by the Company, does not reduce GreenPoint’s tangiblecapital, thereby enabling the Company to increase shareholder value through thegrowth of earning assets, increases in cash dividends and additionalrepurchases of the Company’s stock.

 
| ** **                                             | ** ** | **Quarter Ended**  | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **June 30,  2004** | ** ** | **March 31,  2004**  | ** ** | **Dec. 31,  2003** | ** ** | **Sept. 30,  2003** | ** ** | **June 30,  2003** | ** ** | **June 30,** | ** ** |
| **2004**                                               | ** ** | **2003**           |
| Net income from continuing operations                  |       | $                  | 123.0      |                 | $          | 112.5 |   | $ | 113.5 |   | $ | 101.1 |   | $ | 129.8 |   | $ | 235.5 |   | $ | 256.7 |   |
| Add back:                                              |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Employee Stock Ownership and stock plans  expense      |       | 8.4                |       | 8.9                  |       | 6.9 |   | 6.9 |   | 6.7 |   | 17.3 |   | 12.8 |   |
| Cash earnings from continuing operations               |       | $                  | 131.4      |                 | $          | 121.4 |   | $ | 120.4 |   | $ | 108.0 |   | $ | 136.5 |   | $ | 252.8 |   | $ | 269.5 |   |
|                                                   |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share from continuing  operations |       | $                  | 1.03       |                 | $          | 0.94 |   | $ | 0.95 |   | $ | 0.82 |   | $ | 1.03 |   | $ | 1.97 |   | $ | 2.01 |   |
| Effect of employee stock plans expense                 |       | 0.07               |       | 0.07                 |       | 0.05 |   | 0.06 |   | 0.05 |   | 0.14 |   | 0.10 |   |
| Cash earnings per share *(1)*                          |       | $                  | 1.10       |                 | $          | 1.01 |   | $ | 1.00 |   | $ | 0.88 |   | $ | 1.08 |   | $ | 2.11 |   | $ | 2.11 |   |
|                                                   |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Performance Ratios (Annualized)**                    |       |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Cash earnings return on average assets                 |       | 2.11               | %          | 2.13                 | %          | 2.12 | % | 1.88 | % | 2.46 | % | 2.12 | % | 2.48 | % |
| Cash earnings return on average equity                 |       | 27.18              |       | 25.84                |       | 26.57 |   | 23.36 |   | 28.87 |   | 26.52 |   | 28.34 |   |
| Cash earnings return on tangible equity                |       | 34.96              |       | 33.20                |       | 34.66 |   | 29.44 |   | 36.95 |   | 34.09 |   | 36.27 |   |

 

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*(1)** **Based on the weighted averageshares used to calculate diluted earnings per share.*

 

**Consolidated Statement of Financial Condition**

Totalassets of $26.0 billion at June 30, 2004 increased from $23.0 billion atDecember 31, 2003. The balance sheet reflects growth in the securitiesportfolio of $668 million and growth in the balance of loans held forinvestment and loans held for sale of $2.3 billion.

Core deposits and wholesale money market deposits increased $988million since year-end 2003, reflecting the continued success of a variety ofinitiatives to attract checking accounts. This growth was offset in part by adecline of $478 million in higher-cost term certificates of deposit. Marketborrowings increased $2.3 billion since year-end 2003, reflecting the netadditional funding needed.

 

44

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**Risk Management**

 

TheCompany has a Corporate Risk Oversight Committee, which monitors and supervisesthe wide variety of risks encountered in the course of business. The Committeeis chaired by the President and Chief Operating Officer and includes the headsof its two businesses, the Chief Financial Officer, the Head of Risk Managementand the General Counsel. The Committee meets periodically to review creditrisk, including both on-balance sheet and off-balance sheet exposure, marketrisk and operating and business risks which include, but are not limited to,legal and systems risks. These individual types of risks are also analyzed andmonitored by separate committees comprised of experts within the business unitsand on the corporate staff. Liquidity, Capital and Credit Risk Management aredescribed fully below. The Market Risk analysis is included in Part I – Item 3.

 

**Liquidity Risk Management**

TheBank’s primary sources of funding from financing activities include depositgathering, advances from the FHLB, short and long-term borrowings underrepurchase agreements and overnight and term Federal Funds purchases. Cashflows related to operating activities primarily consist of cash disbursed tofund loan originations and cash received from loan sales and securitizations.Cash flows related to investing activities include purchases of securities andloans receivable held for investment, funds received from loan and securitiesprincipal and interest payments, and sales and maturities of mortgage-backedand other investment securities. While maturities and scheduled amortization ofloans and securities are a predictable source of funds, the amount of principalprepayments on loans and mortgage-backed securities can only be estimated, asthey tend to fluctuate with various exogenous factors including the generallevel, and direction, of interest rates.

Funds provided from financing activities totaled $2.7 billion for thesix months ended June 30, 2004. At June 30, 2004, total borrowings were$10.2 billion, up $2.3 billion from $7.9 billion at December 31, 2003.Membership in the FHLB allows the Bank to secure advances in proportion to itsinvestment in FHLB stock. At June 30, 2004, the Bank had $4.8 billion inoutstanding FHLB term advances. The Bank’s ability to secure further advancesfrom the FHLB is based on the market value of the pledged loan portfolio. AtJune 30, 2004, based on the then current market value of the pledged portfolio,the Bank had additional FHLB borrowing capacity of $656 million. The Bankalso uses its mortgage-backed and other investment securities as collateralunder short and long-term repurchase agreements. As of June 30, 2004 the Bankhad $4.1 billion in outstanding repurchase agreements, which was a decrease of$776 million from December 31, 2003. At June 30, 2004 the Company hadun-pledged securities eligible as collateral for repurchase agreements of $1.2billion. The Bank also secures overnight and term funding in the Federal Fundsmarket. At June 30, 2004 the Bank had $635 million of overnight purchasedFederal Funds.

Deposits continue to be the primary funding source for the Company.Deposit balances experienced a net $510 million increase in the secondquarter of 2004. Lower-cost core deposits increased by $849 million offset by adecrease in higher cost certificates of deposit and wholesale money marketdeposits of $339 million. The decline in certificate of deposit balances resultedfrom management’s decision to utilize lower cost alternative funding sourcesrather than pay higher priced retail rates. Time deposits maturing within oneyear totaled $2.3 billion at June 30, 2004. Consistent with historical trends,a substantial portion of these deposits are expected to be renewed. To theextent these deposits are not renewed, funding is expected to be providedthrough continued growth in core deposits (checking, savings and money marketdeposits) and through alternative financing sources.

The Company and the Bank have received both short-term and long-termdebt ratings from three recognized credit rating firms. These ratings allow theCompany and the Bank to access the wholesale debt markets, thereby providingthe Company with additional flexibility in accessing and utilizing the mostcost effective and appropriate means for meeting its funding needs. As of June30, 2004 the Bank had a medium term note shelf with $2.8 billion inavailable capacity.

Funds used in investing activities totaled $2.6 billion at June 30,2004, primarily resulting from $3.3 billion of investment securitiespurchases. These investments were partially offset by cash flows frommaturities and sales of investment securities (primarily mortgage-backed securities),which totaled $2.6 billion.

 

45

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Funds used in operating activities totaled $167 million at June 30,2004. The significant loan origination and sale activity in 2003 reflects thecontinued strong market for mortgage originations and the continued high levelof demand for these assets in the secondary market. At June 30, 2004 theCompany had outstanding mortgage loan commitments of $8.6 billion. As ofJune 30, 2004 there were no outstanding mortgage-backed and other securitiescommitments. The Company anticipates that through the use of internallygenerated cash flow, the capital markets to securitize and sell its mortgageloan commitments, and other available financing alternatives that it will havesufficient funds available to meet its current loan and securities commitments.

TheCompany’s most liquid assets are cash and cash equivalents, including moneymarket investments. The level of these assets is dependent upon the Company’soperating, financing, lending, and investing activities during any givenperiod. Cash and cash equivalents, including money market investments, totaled$304 million at June 30, 2004 compared to $335 million at December 31,2003.

 

# **Credit Risk Management**

Duringthe second quarter of 2004, the Company originated mortgage loans for its ownportfolio and for disposition in the secondary markets in the form of wholeloan sales and securitizations. In the fourth quarter of 2002, GreenPoint beganto originate small business loans through its branch system, which are placedin its portfolio. Outstanding small business loans were $4 million at both June30, 2004 and December 31, 2003. As of December 31, 2001, the Companydiscontinued originating manufactured housing loans.

In general, whole loan mortgage sales transfer the credit risk to thepurchasers. Loans are sold without recourse to GreenPoint Mortgage, except forthe specified representations and warranties in the sales agreement. Theserepresentations and warranties state that if certain deficiencies exist in theloan documentation when the loan was sold, then the purchaser has the option ofreturning the purchased loan to the Company. Risk management monitors theCompany’s loss performance on repurchases and indemnifications on previouslysold loans.

In contrast, for loans placed in the portfolio, or for loanssecuritized, the Company retains all or much of the credit risk. The Companyhas a residual interest in its securitizations. If the loans perform worse thanexpected, then it could negatively impact the value of the Company’s retainedinterests. The initial value of these retained interests is determined at thetime that the securitization is closed using a net present value analysis offuture cash flows. These cash flows are based on assumptions related toprepayments and losses on the collateral, overcollateralization requirements,and the spread between the interest rates on the loans and on the certificates.Any difference between the actual cash flows and the assumptions used in theinitial net present value analysis could positively or negatively impact thevalue of the Company’s retained interests. The risk to the Company is that thevalue of the retained interests will be less than the initial value, resultingin a reduction of the value on the Company’s books, also known as impairment.Impairment in the value of the retained interests could reduce the Company’sincome in the period that it occurs.

GreenPoint Bank and GreenPoint Mortgage maintain underwriting policies,procedures and approval authorities appropriate to their businesses. The chiefcredit executive in GreenPoint Mortgage reports directly to the chief executiveof the business, outside of the production organization. The chief creditexecutive in the small business banking group within GreenPoint Bank reportsdirectly to the head of the small business banking group. With respect tomortgage loans originated for whole loan sale to the secondary markets, wherecredit risk is transferred, underwriting criteria are established to meet theinvestor requirements. An executive-level Risk Management Division determinesthe criteria required for loans, which will be transferred to GreenPoint’sportfolio or sold through securitizations. In GreenPoint Bank, a sophisticatedscoring system is one of the tools being utilized in the underwriting process.

Oversight of the appraiser approval and appraisal review process isconducted independent of the production organization. Appraisers are requiredto meet strict standards for approval by GreenPoint, and their performance ismonitored on a regular basis. With oversight by Risk Management, acomprehensive quality control process is in place to ensure that mortgage loansbeing originated meet the Company’s underwriting standards, and that requiredoperating procedures are followed. Loans are selected monthly on a pre and postfunding basis for review by quality control analysts and staff appraisers. Aquality control process has also been established for the small business loansbeing originated by GreenPoint with monthly reviews on a post-funding basis.

 

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Risk Management personnel monitor closely the performance of all loanson which the Company retains credit risk. On securitization or sale,expectations are set on the default, recovery and voluntary prepayment rates.Each pool of loans is reviewed monthly to ensure that performance is meetingthose expectations. In the event performance does not meet expectations, theassumptions are revised. Final responsibility for these judgments resides withexecutive management, independent of the business unit.

Risk Management reviews monthly the delinquency and loss trends for allof the mortgage, manufactured housing, and small business loans serviced by theCompany, whether or not it retains credit exposure. These reviews are intendedto identify significant changes in credit quality which may indicate changes tothe Company’s exposures or to the efficacy of its underwriting of loans sold toother investors. Such changes could prompt adjustments to the Company’sunderwriting criteria or servicing procedures. Risk Management also reviews thecharacteristics and performance of loans in GreenPoint’s owned portfolio thatare serviced by third parties on a monthly basis.

GreenPoint’s mortgage loan origination activity is geographicallydiversified throughout the United States. The Company tracks economic andhousing market trends to identify areas for expansion and as an early warningmechanism. The Company also closely monitors trends in delinquent andnon-performing loans through cycles in the economy and in the real estatemarket. These economic and performance trends are analyzed in the ongoingfine-tuning of lending practices.

The Company uses various collection strategies to maintain contact withthe borrowers in order to obtain repayment. Collection activities forGreenPoint Mortgage are centralized in a servicing unit in Columbus, Georgia.GreenPoint Credit’s collection activities were centralized during 2002 in aservicing center in Atlanta, Georgia in order to target delinquent accountsmore effectively utilizing more advanced technology. Remarketing activities forGreenPoint Credit remain decentralized among several regional offices in orderto repossess and liquidate collateral more effectively, thereby minimizing theloss severity. Collection efforts for GreenPoint Bank’s business banking loansare handled in a collaborative manner by the credit analysts in New York andthe servicing center in Columbus, Georgia.

The Company has set forth a policy for establishment and review of theadequacy of the allowance for loan losses in order to provide for estimatedcosts related to the problem loans. Management believes that the allowance forloan losses is adequate. However, such determination is susceptible to theeffect of future unanticipated changes in general economic and marketconditions that may affect the financial circumstances of borrowers and/orresidential real estate values within the Company’s lending areas. The Companyhas also established a liability to cover losses associated with repurchasesand indemnifications of sold loans due to representations and warranties. Thisliability was sized using historical loss data associated with loan sales andadditional reserves are set aside as the volume of sold loans increases.

 

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**GreenPoint Financial Corp. and Subsidiaries**

**Part I – Item 3. Quantitative and Qualitative Disclosures about MarketRisk**

 

 

**Overview**

TheCompany’s market risk exposure is limited solely to interest rate risk.Interest rate risk is defined as the sensitivity of the Company’s current andfuture earnings to changes in the level of market interest rates. Part of theCompany’s interest rate risk resides on the balance sheet, as the maturity andrepricing characteristics of its assets do not match those of its liabilities.Additionally, a significant source of the Company’s revenue, the proceeds fromthe sale of mortgage loans, depends on the volume of loan originations, whichis sensitive to the level and direction of market interest rates.

 

**Market Risk Management Process**

Managementof interest rate risk is conducted within policies and limits approved by theBoard of Directors. These policies and limits set forth the maximum risks toearnings and market value that the Board of Directors deems prudent. Inaddition, they govern permissible investments and off-balance sheettransactions, and maximum counterparty exposure limits. The formulation andimplementation of any Risk Management strategy involves numerous day-to-daydecisions involving the acquisition or divestiture of loans and investmentsecurities, reinvestment of cash flows, the selection of funding instrumentsand maturities and the use of off-balance sheet instruments. Together, theseincremental decisions result in a strategy that is represented by the interestrate risk position. The performance of the positions and strategies is formallyreviewed by the Asset and Liability Management Committee (“ALCO”) in thecontext of the outlook for interest rates and general business conditions, aswell as for compliance with established risk tolerances and policies. Thecommittee is chaired by the Chief Financial Officer and includes the Treasurer,the Head of Risk Management and the Company’s Senior Business Unit andFinancial Executives.

 

**Interest Rate Risk Management Strategies**

Interestrate risk inherent on the balance sheet is managed taking into account therisks to earnings in the Company’s main businesses. Most importantly, theCompany’s mortgage origination business is sensitive to the level of interestrates. In a low or declining interest rate environment mortgage volumes tend toincrease as demand for home purchases and mortgage refinancing increases,leading to growth in mortgage banking revenues. Conversely, high or risingrates subdue mortgage demand, leading to less revenue.

These dynamics tend to be partly offset by the sensitivity of retailbanking revenues to changes in the level of interest rates. Typically in a highrate environment, spreads earned on retail deposits increase, as rates paid onthose deposits increase more slowly than market rates in general. Additionally,the balance sheet is normally positioned to allow for higher net interestincome and wider net interest margins as rates rise. This is known as an assetsensitive balance sheet position, and provides a further offset to the interestrate cyclicality of mortgage banking revenue.

The interest rate sensitivity of the Company’s balance sheet originateswith the cash flow characteristics of its loan portfolios and deposit products.Management alters the overall balance sheet sensitivity through adjustments tothe securities investment portfolio and the maturities of market borrowings, aswell as various deposit pricing and derivatives strategies.

 

**Interest Rate Risk Measurement**

Theprincipal tool used to measure balance sheet sensitivity at any point in time,and to assess the impact of potential business and rate risk managementstrategies, is a simulation of net interest income. The simulation gives effectto management assumptions concerning the repricing of assets and liabilities,as well as business volumes under a variety of hypothetical interest rate scenarios.These hypothetical scenarios incorporate parallel yield curve shifts ininterest rates of plus or minus 100 and 200 basis points. In addition,non-parallel yield curve flattening and steepening scenarios are modeled.

Management also estimates the sensitivity of the market value of equityto supplement the net interest income simulations in the management of marketrisk. The market value sensitivity model measures the expected change in themarket value of the Company’s assets and liabilities resulting from a large,instantaneous change in the level of interest rates. The net impact of thechanging market values of assets and liabilities represents a measure of thechange in the market value of the Company’s equity.

 

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Management uses the net interest income simulations as the primary toolin assessing the impacts of business and investment decisions on the Company’smarket risk profile. The simulations reflect changes in net interest incomeonly during the period over which the simulations are conducted. By modelingthe cash flows over the entire lives of the assets and liabilities, the marketsensitivity model captures the longer-term consequences of balance sheetdecisions. As such, management views maintaining market sensitivity at prudentlevels, and within Board-approved limits, as a constraint on its businessdecisions and tactics.

The most crucial management assumptions in the net interest incomesimulation and the market value sensitivity model concern prepayments on theCompany’s mortgage loan portfolio and the pricing of retail deposits in variousinterest rate environments. As interest rates decline, mortgage prepaymentstend to increase, reducing loan portfolio growth and lowering the portfolio’saverage yield.  Management’s assumptionsare guided by analyzing the prepayment performance of the Company’s portfolioin past rate cycles as well as publicly available research on the prepaymentbehavior of similar mortgage assets.

Rates on non-maturity deposits rise and fall with market rates, buttend to move less than proportionately. Rates offered on retail certificates ofdeposit tend to move in close concert with market rates, though historysuggests they increase less rapidly as market rates rise. Extensive historicalanalysis shows that the Company’s deposit volumes are relatively insensitive tointerest rate movements within the range encompassed by the scenarios.

The following table presents the results of the net interest incomesimulations under a variety of hypothetical interest rate scenarios, based onthe Company’s balance sheet positions at June 30, 2004. The results areexpressed as the percentage change in pretax net interest income from the basescenario in which interest rates are unchanged. The change in income ismeasured over a period of twelve months.

 

**NetInterest Income Simulations**

 
| ** **        | *** *** | **Short-term Rate Changes:** | *** *** |
|-------------------|--------------|------------------------------|--------------|
| **Yield  Curve**  | ** **   | **-200 bps**                 | ** **   | **-100 bps** | ** ** | **+100 bps** | ** ** | **+200 bps** | ** ** |
| June 30, 2004     |         |                         |         |   |   |   |   |   |   |
| -150 bps          |         | (13.1                        | )%           | (8.9 | )% | (4.9 | )% | (6.5 | )% |
| Parallel          |         | (5.4                         | )            | (0.8 | ) | –– |   | (2.5 | ) |
| +150 bps          |         | (1.0                         | )            | 6.2 |   | 3.6 |   | 1.3 |   |
| December 31, 2003 |         |                         |         |   |   |   |   |   |   |
| -150 bps          |         | (13.3                        | )%           | (9.4 | )% | (0.8 | )% | 0.5 | % |
| Parallel          |         | (7.8                         | )            | (0.7 | ) | 2.8 |   | 2.9 |   |
| +150 bps          |         | (2.8                         | )            | 4.6 |   | 5.4 |   | 5.9 |   |

 

The columns represent 100 and 200 basis point changes–down and up–inthe level of interest rates over a twelve-month time span. The rows indicatechanges in the shape of the yield curve over the same time period. The parallelrow corresponds to changes in rate levels in which the yield curve retains itsshape. In the -150 basis point scenarios, the yield curve flattens, and in the+150 basis point simulations the curve steepens. For example, a paralleldownward shift of 200 basis points would reduce net interest income by 5.4% fromwhat would be earned if rates remained constant. However, a decline of 200basis points accompanied by a 150 basis point steeper curve, would reduce netinterest income by only 1.0% over the unchanged scenario. (As of June 30, 2004and December 31, 2003 not all rates could fall 200 basis points withoutreaching zero. In these scenarios rates are reduced until they reach zero.These scenarios are retained to allow for historical comparisons.)

The changes in the income simulations since December 2003 reflect theincrease in interest rates over the period. Higher rates extend the expectedaverage lives of the Company’s mortgage loans and mortgage-backed securities.This was partially offset by growth in core deposits that tend to reprice moreslowly than market rates. Risks to net interest income in the event ofdeclining rates and/or a flattening yield curve were deemed acceptable. Theseinterest rate scenarios would likely be accompanied by a strong market forresidential mortgage origination, and the revenues arising from greater levelsof mortgage banking activities would mitigate or exceed the pressures on netinterest income. In the event of rising rates and a steepening curve, implyinghigher long-term mortgage rates, the Company remains asset sensitive.

 

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Thetable below presents the results of the market value sensitivity model based onthe balance sheet positions at June 30, 2004 and December 31, 2003:

 
| **Market Value Sensitivity** |   |
|------------------------------|--------|

 
| ** **        | ** ** | **-200 bps** | ** ** | **-100 bps** | ** ** | **+100 bps** | ** ** | **+200 bps** | ** ** |
|-------------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|
|              |       |         |       |         |       |         |       |         |       |
| June 30, 2004     |       | (3.7         | )%         | 2.1          | %          | (5.9         | )%         | (13.0        | )%         |
| December 31, 2003 |       | (8.9         | )          | (2.0         | )          | (4.6         | )          | (11.1        | )          |

 

Theafter-tax value sensitivity to a 200 basis point instantaneous increase ininterest rates was (13.0)% at June 30, 2004, versus (11.1)% at December31, 2003. The change reflects the extension of the Company’s mortgage loans andmortgage-backed securities in response to the increase in interest rates sinceyear-end. The extension, implying longer durations, increases the pricesensitivity of those assets to further increases in rates.

The simulations and market value sensitivities measure the exposure ofnet interest income and market value to changes in interest rates at aparticular point of time. The risk position is always changing. Managementcontinuously monitors the Company’s risk profile as it changes, and alters therate sensitivity to ensure limits are adhered to, and that the resulting riskprofile is appropriate to its views on the likely course of interest rates anddevelopments in its core businesses.

Inaddition, the fair value of the mortgage company’s servicing assets andretained interests from securitizations are directly affected by the level ofprepayments associated with the underlying loans. As interest rates rise thevalue of these assets will increase. Conversely as interest rates decline, thevalue of these assets will fall.

 

**Derivative Financial Instruments**

Interestrate derivatives are periodically integrated into the Company’s interest ratepositions and, therefore, its simulations. The Company also utilizes derivativeinstruments to manage its exposure to interest rate risk associated withmortgage loans held for sale and mortgage loan commitments. Outstandingbalances are described further in Note 6.

 

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**GreenPoint Financial Corp. and Subsidiaries**

**Part I – Item 4. Controls and Procedures**

 

TheCompany’s management, including its Chief Executive Officer and Chief FinancialOfficer, has evaluated the effectiveness of the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the SecuritiesExchange Act of 1934) as of June 30, 2004 and, based on its evaluation, hasconcluded that the Company’s disclosure controls and procedures were effectiveas of June 30, 2004. In addition, there has been no change in the Company’sinternal control over financial reporting that occurred during the Company’smost recent fiscal quarter that has materially affected, or is reasonably likelyto materially affect, the Company’s internal control over financial reporting.

 

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**GreenPoint Financial Corp. and Subsidiaries**

**PartII****– Item 1. Legal Proceedings**

 

 

In the ordinary course ofbusiness, the Corporation and its subsidiaries are defendants in or parties toa number of pending and threatened legal actions and proceedings, and are alsoinvolved from time to time in investigations and administrative proceedings bygovernmental agencies. Certain of such actions and proceedings involve allegedviolations of consumer protection laws, including claims relating to theCorporation’s loan origination and collection efforts, and other federal andstate banking laws. Certain of such actions and proceedings include claims forbreach of contract, restitution, compensatory damages, punitive damages andother forms of relief. Due to the difficulty of predicting the outcome of suchmatters, the Corporation can give no assurance that it will prevail on all claimsmade against it; however, management believes, based on current knowledge andafter consultation with counsel, that these legal matters and administrativeproceedings and the losses, if any, resulting from the final outcome thereof,will not have a material adverse effect on the Corporation and itssubsidiaries’ financial position, results of operations or liquidity, but cangive no assurance that they will not have such an effect.

 

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**GreenPoint Financial Corp. and Subsidiaries**

**Part II – Item 2. Changes in Securities and Use of Proceeds**

 

 
| **Period**                                | ** ** | **Total  Number of   Shares  Purchased** | ** ** | **Average  Price  Paid Per  Share** | ** ** | **Total  Number of   Shares  Purchased  as Part of  Publicly  Announced  Programs** | ** ** | **Maximum  Number of  Shares  That May  Yet Be  Purchased  Under the  Program** | ** ** |
|-------------------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
|                                      |       |                                     |       |                                |       |                                                                                |       |                                                                            |       |
| January 1, 2004 – January 31, 2004   |       | 540,000                                  |       | $                                   | 37.32      |                                                                                | 540,000    |                                                                            | 2,796,630  |   |
| February 1, 2004 – February 29, 2004 |       | ––                             |       | ––                        |       | ––                                                                        |       | 2,796,630                                                                       |       |
| March 1, 2004 – March 31, 2004       |       | ––                             |       | ––                        |       | ––                                                                        |       | 2,796,630                                                                       |       |
| April 1, 2004 – April 30, 2004       |       | ––                             |       | ––                        |       | ––                                                                        |       | 2,796,630                                                                       |       |
| May 1, 2004 – May 31, 2004           |       | ––                             |       | ––                        |       | ––                                                                        |       | 2,796,630                                                                       |       |
| June 1, 2004 – June 30, 2004         |       | ––                             |       | ––                        |       | ––                                                                        |       | 2,796,630                                                                       |       |
| Total                                     |       | 540,000                                  |       | $                                   | 37.32      |                                                                                | 540,000    |                                                                            |       |   |

 

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(1)       On September 9, 2003, the Company announced that its Board of Directorshad authorized management to purchase up to 5%, or approximately 6.8 million ofGreenPoint’s common stock through open market transactions. This repurchaseprogram does not have an expiration date.

 

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**GreenPoint Financial Corp. and Subsidiaries**

**Part II – Item 4. Submission of Matters to a Vote of SecurityHolders**

 

 

Atthe Company’s annual meeting of shareholders held on April 30, 2004, thefollowing matters were voted upon with the results of the voting on suchmatters indicated:

 

1.     Election of the following three Directors of the Company to three-yearterms:

 
| ** **       | ** ** | **For**     | ** ** | **Withheld** | ** ** |
|------------------|------------|-------------|------------|--------------|------------|
| Bharat B. Bhatt  |       | 115,732,571 |       | 1,202,204    |       |
| J. Thomas Presby |       | 114,112,992 |       | 2,821,783    |       |
| Robert F. Vizza  |       | 112,898,952 |       | 4,035,823    |       |

 

The following sets forth the names of Directors continuing in officeafter the annual meeting:

 
| Karen M. Garrison  |   |
|--------------------|--------|
| William M. Jackson |   |
| Thomas S. Johnson  |   |
| Roman Martinez, IV |   |
| Charles B. McQuade |   |
| Alvin N. Puryear   |   |
| Robert P. Quinn    |   |

 

2.     Ratification of the appointment of PricewaterhouseCoopers LLP as theCorporation’s independent auditor for the year ending December 31, 2004:

 
| For     |   | 114,565,150 |   |
|---------|--------|-------------|--------|
| Against |   | 1,691,544   |   |
| Abstain |   | 678,081     |   |

 

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**GreenPoint Financial Corp. and Subsidiaries**

**Part II – Item 6. Exhibits and Reports on Form 8-K**

 

 

**(a)****  ****Exhibits**

 
| **Exhibit  Number:** |   |                                                                                                                                                                                              |
|----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 12.1                 |   | Ratios of Earnings to Combined Fixed Charges                                                                                                                                                      |
|                 |   |                                                                                                                                                                                              |
| 31.1                 |   | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 of Thomas S. Johnson, Chairman and Chief Executive Officer                                                               |
|                 |   |                                                                                                                                                                                              |
| 31.2                 |   | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 of Jeffrey R. Leeds, Executive Vice President and Chief Financial Officer                                                |
|                 |   |                                                                                                                                                                                              |
| 32.1                 |   | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 of Thomas S. Johnson,  Chairman and Chief Executive Officer                |
|                 |   |                                                                                                                                                                                              |
| 32.2                 |   | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 of Jeffrey R. Leeds,  Executive Vice President and Chief Financial Officer |

 

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**(b)****          ****Reportson Form 8-K**

 

On April 12, 2004,GreenPoint Mortgage Securities Inc. (the “Company”) filed a current report onForm 8-K in connection with a previously registered offer and sale of theGreenPoint Mortgage-Backed Pass-Through Certificates, Series 2003-1 (“Series2003-1 Certificates”).

OnApril 12, 2004, GreenPoint Mortgage Securities Inc. (the “Company”) filed acurrent report on Form 8-K in connection with a previously registered offer andsale of the GreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2003-1(“Series 2003-1 Notes”).

OnApril 12, 2004, GreenPoint Mortgage Securities LLC (the “Company”) filed acurrent report on Form 8-K in connection with a previously registered offer andsale of the GreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2004-1(“Series 2004-1 Notes”).

OnApril 20, 2004. GreenPoint Financial Corp., a Delaware corporation (the“Company”), filed a current report on Form 8-K in connectionwith the issuance of a press release announcing first quarter results for theperiod ended March 31, 2004.

OnApril 26, 2004, GreenPoint Mortgage Securities LLC (the “Registrant”) filed acurrent report on Form 8-K in connection with the consent to the incorporationby reference in the registration statement (No. 333-108405) of the Registrant,and in the Prospectus Supplement of the Registrant (the “ProspectusSupplement”) of the KPMG LLP report dated February 27, 2004 on the consolidatedfinancial statements of Ambac Assurance Corporation and subsidiaries as ofDecember 31, 2003 and 2002, and for each of the years in the three-year periodended December 31, 2003.

OnApril 26, 2004, GreenPoint Mortgage Securities LLC (the “Company”) filed acurrent report on Form 8-K pursuant to Rule 424(b) under the Securities Act of1933, concurrently with, or subsequent to, the filing of this Form 8-K inconnection with the filing of a prospectus and prospectus supplement with theSecurities and Exchange Commission relating to its GreenPoint Home Equity LoanTrust 2004-2, Home Equity Loan Asset-Backed Notes, Series 2004-2.

OnMay 10, 2004, GreenPoint Mortgage Securities LLC (the “Company”) filed acurrent report on Form 8-K in connection with a previously registered offer andsale of the GreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2004-1(“Series 2004-1 Notes”).

OnMay 26, 2004, GreenPoint Mortgage Securities LLC (the “Registrant”) filed acurrent report on Form 8-K related to theissuance of up to $2,276,908,549 in principal amount of asset-backed securitieson a delayed or continuous basis pursuant to Rule 415 under the Securities Actof 1933, as amended, by the registration statement on Form S-3/A (File No.333-108405) (the “Registration Statement”). The current report on Form 8-K isbeing filed to satisfy an undertaking to file copies of certain agreementsexecuted in connection with the issuance of the Notes.

OnJune 8, 2004, GreenPoint Mortgage Securities LLC (the “Company”) filed acurrent report on Form 8-K in connection with a previously registered offer andsale of the GreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2004-1(“Series 2004-1 Notes”).

OnJune 16, 2004, GreenPoint Mortgage Securities LLC (the “Company”) filed acurrent report on Form 8-K pursuant to Rule 424(b) under the Securities Act of1933, concurrently with, or subsequent to, the filing of this Form 8-K inconnection with the filing of a prospectus and prospectus supplement with theSecurities and Exchange Commission relating to its GreenPoint Home Equity LoanTrust 2004-3, Home Equity Loan Asset-Backed Notes, Series 2004-3.

OnJune 24, 2004, GreenPoint Mortgage Securities LLC (the “Registrant”) filed acurrent report on Form 8-K in connection with the consent to the incorporationby reference in the registration statement (No. 333-108405) of the Registrant,Prospectus and in the Prospectus Supplement of the Registrant (the “ProspectusSupplement”) of the KPMG LLP report dated February 27, 2004 on the consolidatedfinancial statements of Ambac Assurance Corporation and subsidiaries as ofDecember 31, 2003 and 2002, and for each of the years in the three-year periodended December 31, 2003.

OnJune 29, 2004, GreenPoint Mortgage Securities LLC filed a current report onForm 8-K related to a scheduled distribution from the Trust to holders of theCertificates.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                 | GreenPoint Financial Corp. |
|----------------------|----------------------------|
|                 |                       |   |
|                 |                       |   |
|                 | By:                        |  /s/ Thomas S. Johnson |   |
|                 |                       | Thomas S. Johnson |   |
|                 |                       | Chairman of the Board and |   |
|                 |                       | Chief Executive Officer |   |
|                 |                       |   |   |
|                 |                       |   |   |
|                 | By:                        |  /s/ Jeffrey R. Leeds |   |
|                 |                       | Jeffrey R. Leeds |   |
|                 |                       | Executive Vice President and |   |
|                 |                       | Chief Financial Officer |   |
|                 |                       |   |   |
|                 |                       |   |   |
|                 | By:                        |  /s/ Joseph D. Perillo |   |
|                 |                       | Joseph D. Perillo |
|                 |                       | Senior Vice President and |
|                 |                       | Controller |
|                 |                       |   |
| Dated August 9, 2004 |                       |   |

 

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