** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

| **ý********Quarterly Report Pursuant to Section 13 or 15(d) of the   Securities Exchange Act of 1934** |
|-------------------------------------------------------------------------------------------------------------|
|                                                                                                        |   |   |
|                                                                                                             |
|                                                                                                        |   |   |
| **For the Quarterly Period Ended**                                                                          |
| **June  30, 2003**                                                                                          |
|                                                                                                        |   |   |
| **OR**                                                                                                      |
|                                                                                                        |   |   |
| **o****Transition Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934**          |

 

**0-22516**

**Commission File Number**

 

**GreenPoint Financial Corp.**

(Exact name of registrant as specified 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) |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.  ý  **Yes**  o  **No**

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).  ý  **Yes**  o  **No**

 

Asof July 31, 2003, there were 91,551,498 shares of common stock outstanding.

 

 

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**GreenPointFinancial Corp.**

**FORM 10-Q**

**For theQuarterly Period Ended**

**June 30,2003**

 

**TABLE OFCONTENTS**

 
| **PART I – FINANCIAL INFORMATION**                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                             |
| Item 1  -Financial Statements                                                                                                    |
|                                                                                                                             |
| Consolidated  Statements of Financial Condition (unaudited) as of June 30, 2003 and  December 31, 2002                           |
|                                                                                                                             |
| Consolidated  Statements of Income (unaudited) for the quarter and six month periods ended  June 30, 2003 and 2002               |
|                                                                                                                             |
| Consolidated  Statements of Comprehensive Income (unaudited) for the quarter and six month  periods ended June 30, 2003 and 2002 |
|                                                                                                                             |
| Consolidated  Statements of Changes in Stockholders’ Equity (unaudited) for the six months  ended June 30, 2003 and 2002    |
|                                                                                                                             |
| Consolidated  Statements of Cash Flows (unaudited) for the six months ended June 30,  2003 and 2002                         |
|                                                                                                                             |
| 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 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)**

 
|                                                                                       |   | **June 30,** |       | **Dec. 31,** |       |
|--------------------------------------------------------------------------------------------|--------|--------------|------------|--------------|------------|
| **(In millions, except share  amounts)**                                                   |   | **2003**     | ** ** | **2002**     | ** ** |
| **ASSETS**                                                                                 |   |         |       |         |       |
| Cash and due from banks                                                                    |   | $            | 420        |         | $          | 277 |   |
| Money market investments:                                                                  |   |         |       |         |       |
| Interest-bearing deposits in other banks                                                   |   | 1            |       | 21           |       |
| Federal funds sold and securities purchased  under agreements to resell                    |   | 13           |       | 71           |       |
| Total cash and cash equivalents                                                            |   | 434          |       | 369          |       |
| Securities:                                                                                |   |         |       |         |       |
| Securities available for sale                                                              |   | 3,007        |       | 2,006        |       |
| Securities available for sale-pledged to  creditors                                        |   | 2,095        |       | 2,087        |       |
| Retained interests in securitizations available  for sale                                  |   | 84           |       | 108          |       |
| Federal Home Loan Bank of New York stock                                                   |   | 255          |       | 300          |       |
| Securities held to maturity (fair value of $3  and $3, respectively)                       |   | 3            |       | 3            |       |
| Total securities                                                                           |   | 5,444        |       | 4,504        |       |
| Loans receivable held for sale                                                             |   | 5,370        |       | 5,595        |       |
| Loans receivable held for investment (net of  allowance for loan losses of $78)            |   | 9,962        |       | 9,901        |       |
| Other interest-earning assets                                                              |   | 145          |       | 141          |       |
| Accrued interest receivable                                                                |   | 78           |       | 87           |       |
| Banking premises and equipment, net                                                        |   | 177          |       | 168          |       |
| Servicing assets                                                                           |   | 120          |       | 117          |       |
| Goodwill (net of accumulated amortization and  impairment of $788)                         |   | 395          |       | 395          |       |
| Other assets                                                                               |   | 551          |       | 537          |       |
| Total assets                                                                               |   | $            | 22,676     |         | $          | 21,814 |   |
|                                                                                       |   |         |       |         |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                              |   |         |       |         |       |
| **Liabilities:**                                                                           |   |         |       |         |       |
| Deposits:                                                                                  |   |         |       |         |       |
| N.O.W. and checking                                                                        |   | $            | 2,555      |         | $          | 1,877 |   |
| Savings                                                                                    |   | 1,489        |       | 1,323        |       |
| Variable rate savings                                                                      |   | 2,267        |       | 2,296        |       |
| Money market                                                                               |   | 1,328        |       | 991          |       |
| Total core deposits                                                                        |   | 7,639        |       | 6,487        |       |
| Term certificates of deposit                                                               |   | 4,686        |       | 5,309        |       |
| Total deposits                                                                             |   | 12,325       |       | 11,796       |       |
| Borrowings:                                                                                |   |         |       |         |       |
| Securities sold under agreements to repurchase                                             |   | 2,100        |       | 2,000        |       |
| Other short term borrowings                                                                |   | 215          |       | 285          |       |
| Federal Home Loan Bank of New York advances                                                |   | 4,500        |       | 4,600        |       |
| Senior notes                                                                               |   | 349          |       | —       |       |
| Subordinated bank notes                                                                    |   | 150          |       | 150          |       |
| Guaranteed preferred beneficial interest in  Company’s junior subordinated debentures |   | 200          |       | 200          |       |
| Total borrowings                                                                           |   | 7,514        |       | 7,235        |       |
| Mortgagors’ escrow                                                                    |   | 67           |       | 68           |       |
| Liability under recourse exposure                                                          |   | 280          |       | 301          |       |
| Other liabilities                                                                          |   | 571          |       | 490          |       |
| Total liabilities                                                                          |   | 20,757       |       | 19,890       |       |
| 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; 110,261,164 shares issued)  |   | 1            |       | 1            |       |
| Additional paid-in capital                                                                 |   | 926          |       | 907          |       |
| Unallocated Employee Stock Ownership Plan (ESOP)  shares                                   |   | (87          | )          | (89          | )          |
| Unearned stock plans shares                                                                |   | —       |       | —       |       |
| Retained earnings                                                                          |   | 1,768        |       | 1,563        |       |
| Accumulated other comprehensive income, net                                                |   | 7            |       | 24           |       |
| Treasury stock, at cost (18,188,021 shares and  13,953,333 shares, respectively)           |   | (696         | )          | (482         | )          |
| Total stockholders’ equity                                                            |   | 1,919        |       | 1,924        |       |
| Total liabilities and stockholders’ equity                                            |   | $            | 22,676     |         | $          | 21,814 |   |

 

*(See accompanying notes to theunaudited consolidated 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)**                 |   | **2003**                    | ** ** | **2002**                       | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Interest income:**                                         |   |                        |       |                           |       |   |   |   |   |
| Mortgage loans held for investment                           |   | $                           | 157.1      |                           | $          | 186.0 |   | $ | 323.8 |   | $ | 380.8 |   |
| Loans held for sale                                          |   | 70.6                        |       | 67.1                           |       | 146.5 |   | 126.4 |   |
| Securities                                                   |   | 59.6                        |       | 67.9                           |       | 111.7 |   | 123.9 |   |
| Other                                                        |   | 4.5                         |       | 7.8                            |       | 8.1 |   | 15.3 |   |
| Total interest income                                        |   | 291.8                       |       | 328.8                          |       | 590.1 |   | 646.4 |   |
| **Interest expense:**                                        |   |                        |       |                           |       |   |   |   |   |
| Deposits                                                     |   | 60.4                        |       | 72.4                           |       | 123.1 |   | 150.9 |   |
| Other borrowed funds                                         |   | 54.6                        |       | 54.9                           |       | 107.3 |   | 104.2 |   |
| Long-term debt                                               |   | 8.9                         |       | 10.4                           |       | 17.0 |   | 20.8 |   |
| Total interest expense                                       |   | 123.9                       |       | 137.7                          |       | 247.4 |   | 275.9 |   |
| Net interest income                                          |   | 167.9                       |       | 191.1                          |       | 342.7 |   | 370.5 |   |
| Provision for loan losses                                    |   | (0.6                        | )          | (0.3                           | )          | (0.9 | ) | (0.7 | ) |
| Net interest income after provision for loan  losses         |   | 167.3                       |       | 190.8                          |       | 341.8 |   | 369.8 |   |
| **Non-interest income:**                                     |   |                        |       |                           |       |   |   |   |   |
| Income from fees and commissions:                            |   |                        |       |                           |       |   |   |   |   |
| Loan servicing fees                                          |   | (0.4                        | )          | 5.9                            |       | 5.4 |   | 11.1 |   |
| Banking services fees and commissions                        |   | 17.2                        |       | 14.4                           |       | 31.7 |   | 27.0 |   |
| Fees, commissions and other income                           |   | 3.1                         |       | 4.4                            |       | 6.5 |   | 7.0 |   |
| Total income from fees and commissions                       |   | 19.9                        |       | 24.7                           |       | 43.6 |   | 45.1 |   |
| Net gain on sales of loans                                   |   | 145.7                       |       | 86.0                           |       | 270.0 |   | 176.0 |   |
| Change in valuation of retained interests                    |   | (0.7                        | )          | (7.1                           | )          | (1.4 | ) | (7.1 | ) |
| Net (loss) gain on sale of securities                        |   | (0.6                        | )          | 2.0                            |       | 0.6 |   | 3.8 |   |
| Total non-interest income                                    |   | 164.3                       |       | 105.6                          |       | 312.8 |   | 217.8 |   |
| **Non-interest expense:**                                    |   |                        |       |                           |       |   |   |   |   |
| General and administrative expenses:                         |   |                        |       |                           |       |   |   |   |   |
| Salaries and benefits                                        |   | 66.5                        |       | 47.4                           |       | 128.1 |   | 96.7 |   |
| Employee Stock Ownership and stock plans expense             |   | 6.7                         |       | 7.0                            |       | 12.8 |   | 13.0 |   |
| Net expense of premises and equipment                        |   | 20.9                        |       | 17.5                           |       | 41.8 |   | 35.5 |   |
| Federal deposit insurance premiums                           |   | 0.5                         |       | 0.5                            |       | 1.0 |   | 1.0 |   |
| Other administrative expenses                                |   | 31.8                        |       | 30.3                           |       | 63.3 |   | 57.2 |   |
| Total general and administrative expenses                    |   | 126.4                       |       | 102.7                          |       | 247.0 |   | 203.4 |   |
| Other real estate owned operating income                     |   | (1.7                        | )          | (0.6                           | )          | (1.5 | ) | (1.1 | ) |
| Total non-interest expense                                   |   | 124.7                       |       | 102.1                          |       | 245.5 |   | 202.3 |   |
| Income from continuing operations before income  taxes       |   | 206.9                       |       | 194.3                          |       | 409.1 |   | 385.3 |   |
| Income taxes related to earnings from continuing  operations |   | 77.1                        |       | 71.7                           |       | 152.4 |   | 142.2 |   |
| Net income from continuing operations                        |   | 129.8                       |       | 122.6                          |       | 256.7 |   | 243.1 |   |
| **Discontinued operations:**                                 |   |                        |       |                           |       |   |   |   |   |
| Net income from disposal of discontinued  business           |   | 0.1                         |       | 0.2                            |       | 0.4 |   | 1.7 |   |
| **Net income**                                               |   | $                           | 129.9      |                           | $          | 122.8 |   | $ | 257.1 |   | $ | 244.8 |   |
|                                                         |   |                        |       |                           |       |   |   |   |   |
| **Basic earnings per share:**                                |   |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                        |   | $                           | 1.58       |                           | $          | 1.39 |   | $ | 3.08 |   | $ | 2.74 |   |
| Net income from discontinued operations                      |   | —                      |       | —                         |       | — |   | 0.02 |   |
| Net income                                                   |   | $                           | 1.58       |                           | $          | 1.39 |   | $ | 3.08 |   | $ | 2.76 |   |
| **Diluted earnings per share:**                              |   |                        |       |                           |       |   |   |   |   |
| Net income from continuing operations                        |   | $                           | 1.54       |                           | $          | 1.35 |   | $ | 3.02 |   | $ | 2.67 |   |
| Net income from discontinued operations                      |   | —                      |       | —                         |       | — |   | 0.02 |   |
| Net income                                                   |   | $                           | 1.54       |                           | $          | 1.35 |   | $ | 3.02 |   | $ | 2.69 |   |
| **Dividends declared per share**                             |   | $                           | 0.31       |                           | $          | 0.25 |   | $ | 0.62 |   | $ | 0.50 |   |

 

*(See accompanying notes to the unaudited consolidatedfinancial statements.)*

 

4

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**Consolidated Statements of Comprehensive Income**

**(Unaudited)**

 
|                                                                         |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|------------------------------------------------------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In  millions)**                                                           |   | **2003**                    | ** ** | **2002**                       | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                         |   |                        |       |                           |       |   |   |   |   |
| Net income                                                                   |   | $                           | 129.9      |                           | $          | 122.8 |   | $ | 257.1 |   | $ | 244.8 |   |
| Other comprehensive income, before tax:                                      |   |                        |       |                           |       |   |   |   |   |
| Unrealized (losses) gains on securities:                                     |   |                        |       |                           |       |   |   |   |   |
| Unrealized holding (losses) gains arising during  period                     |   | (15.2                       | )          | 71.9                           |       | (28.9 | ) | 39.2 |   |
| Less: reclassification adjustment for losses (gains) included in net  income |   | 0.6                         |       | (2.0                           | )          | (0.6 | ) | (3.8 | ) |
| Other comprehensive (loss) income, before tax                                |   | (14.6                       | )          | 69.9                           |       | (29.5 | ) | 35.4 |   |
| Income tax benefit (expense) related to items of other comprehensive  income |   | 6.3                         |       | (29.7                          | )          | 12.6 |   | (15.1 | ) |
| Other comprehensive (loss) income, net of tax                                |   | (8.3                        | )          | 40.2                           |       | (16.9 | ) | 20.3 |   |
| **Total comprehensive income, net  of tax**                                  |   | $                           | 121.6      |                           | $          | 163.0 |   | $ | 240.2 |   | $ | 265.1 |   |

 

*(See accompanying notes to the unaudited consolidatedfinancial statements.)*

 

5

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

**(Unaudited)**

 
|                                                       |   | **Six Months Ended  June 30,** |       |
|------------------------------------------------------------|--------|--------------------------------|------------|
| **(In millions)**                                          |   | **2003**                       | ** ** | **2002** | ** ** |
| **Common stock**                                           |   |                           |       |   |   |
| Balance at beginning of period                             |   | $                              | 1          |   | $ | 1 |   |
| Balance at end of period                                   |   | 1                              |       | 1 |   |
| **Additional paid-in capital**                             |   |                           |       |   |   |
| Balance at beginning of period                             |   | 907                            |       | 877 |   |
| Reissuance of treasury stock                               |   | (1                             | )          | (2 | ) |
| Amortization of ESOP shares committed to be  released      |   | 13                             |       | 12 |   |
| Amortization of stock plans shares                         |   | —                         |       | 1 |   |
| Tax benefit for vested stock plans shares                  |   | 7                              |       | 9 |   |
| Balance at end of period                                   |   | 926                            |       | 897 |   |
| **Unallocated ESOP shares**                                |   |                           |       |   |   |
| Balance at beginning of period                             |   | (89                            | )          | (95 | ) |
| Amortization of ESOP shares committed to be  released      |   | 2                              |       | 3 |   |
| Balance at end of period                                   |   | (87                            | )          | (92 | ) |
| **Unearned stock plans shares**                            |   |                           |       |   |   |
| Balance at beginning of period                             |   | —                         |       | (1 | ) |
| Amortization of stock plans shares                         |   | —                         |       | — |   |
| Balance at end of period                                   |   | —                         |       | (1 | ) |
| **Retained earnings**                                      |   |                           |       |   |   |
| Balance at beginning of period                             |   | 1,563                          |       | 1,148 |   |
| Net income                                                 |   | 257                            |       | 245 |   |
| Dividends declared                                         |   | (52                            | )          | (44 | ) |
| Balance at end of period                                   |   | 1,768                          |       | 1,349 |   |
| **Accumulated other comprehensive income, net**            |   |                           |       |   |   |
| Balance at beginning of period                             |   | 24                             |       | 11 |   |
| Net change in accumulated other comprehensive  income, net |   | (17                            | )          | 20 |   |
| Balance at end of period                                   |   | 7                              |       | 31 |   |
| **Treasury stock, at cost**                                |   |                           |       |   |   |
| Balance at beginning of period                             |   | (482                           | )          | (285 | ) |
| Reissuance of treasury stock                               |   | 24                             |       | 38 |   |
| Purchase of treasury stock                                 |   | (238                           | )          | (85 | ) |
| Balance at end of period                                   |   | (696                           | )          | (332 | ) |
| **Total stockholders’ equity**                        |   | $                              | 1,919      |   | $ | 1,853 |   |

 

*(Seeaccompanying notes to the unaudited consolidated financial statements)*

 

6

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**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                               |   | **Six Months Ended  June 30,** |       |
|------------------------------------------------------------------------------------|--------|--------------------------------|------------|
| **(In millions)**                                                                  |   | **2003**                       | ** ** | **2002** | ** ** |
| **Cash flows from operating activities:**                                          |   |                           |       |   |   |
| Net income                                                                         |   | $                              | 257        |   | $ | 245 |   |
| Adjustments to reconcile net income to net cash  used in operating activities:     |   |                           |       |   |   |
| Provision for loan losses                                                          |   | 1                              |       | 1 |   |
| Depreciation and amortization                                                      |   | 17                             |       | 16 |   |
| Gain of sales of loans                                                             |   | (270                           | )          | (176 | ) |
| Gain on sale of securities                                                         |   | (1                             | )          | (4 | ) |
| ESOP and stock plans expense                                                       |   | 16                             |       | 16 |   |
| Capitalization of servicing assets                                                 |   | (27                            | )          | (22 | ) |
| Amortization and impairment of servicing assets                                    |   | 24                             |       | 33 |   |
| (Increase) decrease in assets associated with  operating activities:               |   |                           |       |   |   |
| Loans receivable held for sale:                                                    |   |                           |       |   |   |
| Loan originations                                                                  |   | (20,675                        | )          | (13,578 | ) |
| Proceeds from loan sales                                                           |   | 20,948                         |       | 14,292 |   |
| Other                                                                              |   | 222                            |       | 39 |   |
| Retained interests in securitizations                                              |   | 21                             |       | 19 |   |
| Accrued interest receivable                                                        |   | 9                              |       | 5 |   |
| Other assets                                                                       |   | 4                              |       | 1 |   |
| Increase (decrease) in liabilities associated  with operating activities:          |   |                           |       |   |   |
| Liabilities under recourse exposure                                                |   | (21                            | )          | (124 | ) |
| Other liabilities                                                                  |   | (19                            | )          | (68 | ) |
| Other, net                                                                         |   | 10                             |       | (5 | ) |
| Net cash provided by operating activities                                          |   | 516                            |       | 690 |   |
| **Cash flows from investing activities:**                                          |   |                           |       |   |   |
| Net change in:                                                                     |   |                           |       |   |   |
| Loans receivable held for investment                                               |   | (85                            | )          | 164 |   |
| Premises and equipment                                                             |   | (26                            | )          | (20 | ) |
| Available for sale securities:                                                     |   |                           |       |   |   |
| Proceeds from maturities                                                           |   | 1,626                          |       | 76 |   |
| Proceeds from sales                                                                |   | 1,946                          |       | 1,193 |   |
| Purchase of securities                                                             |   | (6,360                         | )          | (3,003 | ) |
| Principal repayments                                                               |   | 1,834                          |       | 940 |   |
| Proceeds from sales of Federal Home Loan Bank  Stock                               |   | 45                             |       | 13 |   |
| Other, net                                                                         |   | 29                             |       | 15 |   |
| Net cash used in investing activities                                              |   | (991                           | )          | (622 | ) |
| **Cash flows from financing activities:**                                          |   |                           |       |   |   |
| Net change in:                                                                     |   |                           |       |   |   |
| Domestic deposits                                                                  |   | 529                            |       | 349 |   |
| Mortgagors’ escrow accounts                                                   |   | (1                             | )          | (6 | ) |
| Proceeds from Securities sold under agreements  to repurchase and other borrowings |   | 29,222                         |       | 54,157 |   |
| Repayments of Securities sold under agreements  to repurchase and other borrowings |   | (29,192                        | )          | (54,238 | ) |
| Proceeds from advances from Federal Home Loan  Bank                                |   | 125,230                        |       | 120,710 |   |
| Repayments of advances from Federal Home Loan  Bank                                |   | (125,330                       | )          | (121,060 | ) |
| Proceeds from Senior notes                                                         |   | 348                            |       | — |   |
| Cash dividends paid                                                                |   | (52                            | )          | (44 | ) |
| Treasury stock purchased                                                           |   | (238                           | )          | (85 | ) |
| Exercise of stock options                                                          |   | 24                             |       | 37 |   |
| Net cash provided by (used in) financing  activities                               |   | 540                            |       | (180 | ) |
| Net decrease in cash and cash equivalents                                          |   | 65                             |       | (112 | ) |
| Cash and cash equivalents at beginning of period                                   |   | 369                            |       | 357 |   |
| Cash and cash equivalents at end of period                                         |   | $                              | 434        |   | $ | 245 |   |
| **Non-cash activities:**                                                           |   |                           |       |   |   |
| Additions to other real estate owned, net                                          |   | $                              | (24        | ) | $ | (11 | ) |
| Unsettled trades                                                                   |   | $                              | (96        | ) | $ | — |   |
| **Supplemental disclosure of cash flow information:**                              |   |                           |       |   |   |
| Cash paid for income taxes                                                         |   | $                              | 172        |   | $ | 112 |   |
| Interest paid                                                                      |   | $                              | 257        |   | $ | 294 |   |

 

*(See accompanying notes to theunaudited consolidated financial statements)*

 

7

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**Notes To The Unaudited ConsolidatedFinancial Statements**

 

**NOTE 1                 Summary of SignificantAccounting Policies**

 

**Basis of Presentation**

Theunaudited consolidated financial statements of GreenPoint Financial Corp. andSubsidiaries (“GreenPoint” or the “Company”) are prepared in accordance withgenerally accepted accounting principles for interim financial information. Inthe opinion of management, all adjustments (consisting only of normal recurringaccruals) necessary for a fair presentation of the Company’s interim financialcondition as of the dates indicated and the results of operations for theperiods presented have been included. Certain reclassifications have been madeto the prior period financial statements to conform to the current periodpresentation. The results of operations for the interim periods shown are notnecessarily indicative of results that may be expected for the entire year.

TheCompany adopted a plan to exit the manufactured housing lending business inDecember 2001. Current and comparative prior period consolidated statements ofincome present the results of continuing operations and discontinued operationsseparately.

Theseunaudited consolidated interim financial statements presented should be read inconjunction with the consolidated financial statements and notes included in theCompany’s Annual Report to shareholders for the year ended December 31, 2002.

 

**Accounting for Loan Sales**

GreenPoint sells loans both in the wholeloan market and through various securitization vehicles.

When GreenPoint has soldmortgages on a whole loan basis, in some cases it has retained the servicingrights related to the loans. In instances where GreenPoint does not retain theservicing rights to the loans, the gain or loss on the sale is equal to thedifference between the proceeds received and the book basis of the loans sold.In instances where GreenPoint does retain the servicing rights, the gain orloss also depends in part on the fair value attributed to the servicing rights.

GreenPoint has soldmortgages subject to various representations and warranties. Upon loan sale,GreenPoint establishes a loss reserve for estimated losses to be incurred underthese agreements. Additions to the representation and warranty reserve arereported as reduction to gain on sale of loans.

When GreenPoint hassecuritized certain mortgages, in some cases it has retained the servicingrights and one or more retained interests. In calculating the gain or loss onthe sale, GreenPoint allocates the cost basis of the loans sold between theassets sold, and the retained interests and servicing rights based on theirrelative fair values at the date of sale. A gain or loss is recognized as thedifference between the cash proceeds from the sale and the allocated cost basisof the assets sold.

 

**RetainedInterests**

Retained interests include interest-onlystrips, subordinated certificates, transferor interests, demand notes and therecorded liabilities for limited recourse provided on mortgage loans andrecourse provided on manufactured housing loans securitized and sold.

GreenPoint classifies itsretained interest assets as available for sale and carries these securities atfair value. Generally, if the fair value of retained interests declines belowits amortized cost basis, the change in valuation is recognized in theconsolidated statement of income and is classified as a change in valuation ofretained interests. Unrealized gains are reported, net of applicable taxes, inaccumulated other comprehensive income, as a separate component ofstockholders’ equity.

GreenPoint reviews theadequacy of the liability under recourse exposure based on management’s bestestimate of future cash flows associated with the recourse arrangement. Thechange in valuation is recognized in the consolidated statement of income andis classified as discontinued operations.

To obtain fair values,quoted market prices are used, if available. Because market quotes aregenerally not available for retained interests, GreenPoint generally estimatesfair value based upon the present value of estimated future cash flows usingassumptions of prepayments, defaults, loss severity rates, and discount ratesthat GreenPoint believes market participants would use for similar assets andliabilities.

 

8

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**ServicingAssets**

Servicing assets are carried at the lowerof cost or fair value based on defined risk strata and are amortized inproportion to and over the expected servicing period.

GreenPoint stratifies itsservicing assets based on the risk characteristics of the underlying loan poolsand the assets are evaluated for impairment based on the risk characteristics.A valuation allowance is recognized through a charge to current earnings forservicing assets that have an amortized balance in excess of the current fairvalue.

The fair value ofservicing assets is determined by calculating the present value of estimatedfuture net servicing cash flows, using assumptions of prepayments, defaults,servicing costs and discount rates that GreenPoint believes market participantswould use for similar assets.

 

**GoodwillAmortization**

Goodwill, which is attributable to theretail banking segment, is carried at its January 1, 2002 book value and istested, at least annually, for impairment.

 

# **Stock-Based Compensation Plans**

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 – Transitionand Disclosure”. Under these standards the Company discloses in the notes tothe financial statements the pro forma effects on net income and earnings pershare, determined as if the fair value-based method had been applied inmeasuring compensation cost. The Company continues to apply APB Opinion No. 25,“Accounting for Stock Issued to Employees” (“APB 25”) in accounting for itsplans. Accordingly, no compensation cost has been recognized for the Company’sstock option plans.

The following table illustratesthe effect on net income and earnings per share if the Company had applied thefair value recognition provisions of FASB Statement No. 123, “Accounting forStock-Based Compensation”, to stock-based employee compensation.

 
|                                                                                                                         |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In millions)**                                                                                                            |   | **2003**                    | ** ** | **2002**                       | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                         |   |                        |       |                           |       |   |   |   |   |
| Net income as reported                                                                                                       |   | $                           | 129.9      |                           | $          | 122.8 |   | $ | 257.1 |   | $ | 244.8 |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method net of related tax effects |   | (2.5                        | )          | (2.2                           | )          | (4.8 | ) | (4.3 | ) |
| Proforma net income                                                                                                          |   | $                           | 127.4      |                           | $          | 120.6 |   | $ | 252.3 |   | $ | 240.5 |   |
|                                                                                                                         |   |                        |       |                           |       |   |   |   |   |
| Earnings per share:                                                                                                          |   |                        |       |                           |       |   |   |   |   |
| Basic – as reported                                                                                                     |   | $                           | 1.58       |                           | $          | 1.39 |   | $ | 3.08 |   | $ | 2.76 |   |
| Basic – pro forma                                                                                                       |   | $                           | 1.55       |                           | $          | 1.36 |   | $ | 3.02 |   | $ | 2.71 |   |
| Diluted – as reported                                                                                                   |   | $                           | 1.54       |                           | $          | 1.35 |   | $ | 3.02 |   | $ | 2.69 |   |
| Diluted – pro forma                                                                                                     |   | $                           | 1.52       |                           | $          | 1.33 |   | $ | 2.96 |   | $ | 2.64 |   |

 

9

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**NOTE 2                 LoansReceivable**

 

TheCompany’s loans receivable held for sale balances are summarized as follows:

 
|                                  |   | **June 30,** |       | **Dec. 31,** |       |
|---------------------------------------|--------|--------------|------------|--------------|------------|
| **(In millions)**                     |   | **2003**     | ** ** | **2002**     | ** ** |
| Conventional first  mortgage loans:   |   |         | ** ** |         | ** ** |
| Residential one-to four-family        |   | $            | 4,427      |         | $          | 5,062 |   |
| Commercial property                   |   | 71           |       | 78           |       |
| Second mortgage and home equity loans |   | 811          |       | 404          |       |
| Other                                 |   | 1            |       | 1            |       |
| Total loans receivable held for sale  |   | 5,310        |       | 5,545        |       |
| Net deferred loan origination costs   |   | 60           |       | 50           |       |
| Loans receivable held for sale, net   |   | $            | 5,370      |         | $          | 5,595 |   |

 

TheCompany’s loans receivable held for investment balances are summarized asfollows:

 
|                                                      |   | **June 30,** |       | **Dec. 31,** |       |
|-----------------------------------------------------------|--------|--------------|------------|--------------|------------|
| **(In millions)**                                         |   | **2003**     | ** ** | **2002**     | ** ** |
| Conventional first  mortgage loans:                       |   |         |       |         |       |
| Residential one-to four-family                            |   | $            | 8,460      |         | $          | 8,666 |   |
| Residential multi-family                                  |   | 270          |       | 319          |       |
| Commercial property                                       |   | 832          |       | 620          |       |
| Second mortgage and home equity loans                     |   | 348          |       | 267          |       |
| Other                                                     |   | 72           |       | 69           |       |
| Total loans receivable held for investment                |   | 9,982        |       | 9,941        |       |
| Net deferred loan origination costs and purchase  premium |   | 58           |       | 38           |       |
| Allowance for loan losses                                 |   | (78          | )          | (78          | )          |
| Loans receivable held for investment, net                 |   | $            | 9,962      |         | $          | 9,901 |   |

 

10

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**NOTE 3                 SecuritiesAvailable for Sale**

 

The amortized cost and estimated fair value ofsecurities available for sale at June 30, 2003 and December 31, 2002 are summarizedas follows:

 
|                                                  |   | **June 30, 2003** |       |
|-------------------------------------------------------|--------|-------------------|------------|
|                                                  |   |              | ** ** | **Gross** | ** ** | **Gross** | ** ** |   | ** ** |
|                                                  |   | **Amortized**     |       | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair** | ** ** |
| **(In millions)**                                     |   | **Cost**          | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Value** | ** ** |
| U.S. Government and  Federal Agency Obligations:      |   |              |       |   |   |   |   |   |   |
| U.S. Treasury  notes/bills                            |   | $                 | 6          |   | $ | — |   | $ | — |   | $ | 6 |   |
| Agency notes                                          |   | 97                |       | — |   | — |   | 97 |   |
| Mortgage-backed  securities                           |   | 355               |       | 12 |   | — |   | 367 |   |
| Collateralized  mortgage obligations                  |   | 4,170             |       | 16 |   | (13 | ) | 4,173 |   |
| Trust certificates  collateralized by GNMA securities |   | 3                 |       | — |   | — |   | 3 |   |
| Corporate bonds                                       |   | 137               |       | — |   | (3 | ) | 134 |   |
| Municipal bonds                                       |   | 76                |       | 3 |   | — |   | 79 |   |
| Equity securities                                     |   | 250               |       | 2 |   | (9 | ) | 243 |   |
| Total securities  available for sale                  |   | $                 | 5,094      |   | $ | 33 |   | $ | (25 | ) | $ | 5,102 |   |

 
|                                                  |   | **December 31, 2002** | ** ** |
|-------------------------------------------------------|--------|-----------------------|------------|
|                                                  |   |                  |       | **Gross** |   | **Gross** |   |   | * * |
|                                                  |   | **Amortized**         |       | **Unrealized** |   | **Unrealized** |   | **Fair** | * * |
| **(In millions)**                                     |   | **Cost**              |       | **Gains** |   | **Losses** |   | **Value** | * * |
| U.S. Government and  Federal Agency Obligations:      |   |                  |       |   |   |   |   |   |   |
| U.S. Treasury  notes/bills                            |   | $                     | 6          |   | $ | — |   | $ | — |   | $ | 6 |   |
| Agency notes                                          |   | 107                   |       | — |   | — |   | 107 |   |
| Mortgage-backed  securities                           |   | 388                   |       | 18 |   | — |   | 406 |   |
| Collateralized  mortgage obligations                  |   | 3,197                 |       | 29 |   | (7 | ) | 3,219 |   |
| Trust certificates  collateralized by GNMA securities |   | 4                     |       | — |   | — |   | 4 |   |
| Corporate bonds                                       |   | 122                   |       | — |   | (4 | ) | 118 |   |
| Municipal bonds                                       |   | 56                    |       | 4 |   | — |   | 60 |   |
| Equity securities                                     |   | 177                   |       | 3 |   | (7 | ) | 173 |   |
| Total securities  available for sale                  |   | $                     | 4,057      |   | $ | 54 |   | $ | (18 | ) | $ | 4,093 |   |

 

**NOTE 4****                                                   ****Recourse Arrangements,Retained Interests in Securitizations and Servicing Assets**

 

Thefollowing describes the balances associated with recourse arrangements, thebalances and activity in the corresponding retained interests, the balances andactivity in servicing assets and the economic assumptions used in valuing theretained interests and servicing assets.

 

**Recourse Arrangements**

GreenPoint has established liabilities forlimited recourse provided on mortgage loans and recourse provided onmanufactured housing loans that have been securitized or sold. The investorsand the securitization trusts have no recourse to GreenPoint’s other assets forfailure of debtors to pay when due, except for the retained interests relatedto both mortgage and manufactured housing securitizations and the liabilitiesunder the mortgage demand notes and the corporate guarantees related tomanufactured housing securitizations.

 

11

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GreenPoint has loans soldwith recourse with the following principal balances, maximum recourse exposuresand recorded liabilities.

 
|                                  |   | **June  30, 2003** |       |
|---------------------------------------|--------|--------------------|------------|
|                                  |   |               | ** ** | **Maximum** | ** ** |   | ** ** |
|                                  |   | **Principal**      |       | **Recourse** | ** ** | **Recorded** | ** ** |
| **(In millions)**                     |   | **Balance**        | ** ** | **Exposure  (1)** |   | **Liability** | ** ** |
| Manufactured housing  securitizations |   | $                  | 3,901      |   | $ | 576 |   | $ | 268 |   |
| Manufactured housing  sales           |   | 239                |       | 239 |   | 11 |   |
| Mortgage securitizations  *(2)*       |   | 782                |       | 86 |   | — |   |
| Mortgage sales *(3)*                  |   | 231                |       | 226 |   | 1 |   |
|                                       |        |                    |            |  |  |  |  |  |  |  |

 
|                                  |   | **December  31, 2002** |       |
|---------------------------------------|--------|------------------------|------------|
|                                  |   |                   | ** ** | **Maximum** | ** ** |   | ** ** |
|                                  |   | **Principal**          |       | **Recourse** | ** ** | **Recorded** | ** ** |
| **(In millions)**                     |   | **Balance**            | ** ** | **Exposure  (1)** |   | **Liability** | ** ** |
| Manufactured housing  securitizations |   | $                      | 4,202      |   | $ | 621 |   | $ | 295 |   |
| Manufactured housing  sales           |   | 258                    |       | 258 |   | 5 |   |
| Mortgage securitizations  *(2)*       |   | 829                    |       | 108 |   | — |   |
| Mortgage sales *(3)*                  |   | 323                    |       | 317 |   | 1 |   |
|                                       |        |                        |            |  |  |  |  |  |  |  |

 

----

*(1)    Represents themaximum recourse exposure relating to recourse arrangements in the form of theretention of subordinated interests, the issuance of a corporate guarantee, ora demand note.*

*(2)    The net presentvalue of expected cash outflows on the mortgage securitization recoursearrangements is reflected in the valuation of the mortgage retained interests.*

*(3)    The recoursearrangements under the mortgage sale transactions represent a risk sharingarrangement in which GreenPoint has transferred the first 2% of losses to thepurchaser.*

 

Manufacturedhousing securitization letter of credit exposure is as follows:

 
|                                 |   | **June 30,** |       | **Dec. 31,** |       |
|--------------------------------------|--------|--------------|------------|--------------|------------|
| **(In millions)**                    |   | **2003**     | ** ** | **2002**     | ** ** |
| Letters of credit  outstanding       |   | $            | 575        |         | $          | 617 |   |
| Projected letter of  credit draws    |   | (295         | )          | (326         | )          |
| Remaining letter of  credit exposure |   | $            | 280        |         | $          | 291 |   |

 

AtJune 30, 2003, GreenPoint has six manufactured housing securitizations withprincipal balances of $1.6 billion, which have cumulative (actual plusprojected) letter of credit draws equal to the maximum recourse exposure forthose securitizations. GreenPoint records a liability based on the net presentvalue of the projected letter of credit draws. At June 30, 2003, the projecteddraws exceed the recorded liability by $28 million, representing futureinterest expense.

In the third quarter of2002, GreenPoint agreed to issue additional letters of credit totaling $52million in favor of a surety provider on four of its outstandingsecuritizations. Additionally, GreenPoint agreed to exercise its optionaltermination right and retire each transaction insured by the surety providerwhen the underlying loans in each securitization total 10% of the original loanbalance. The exercise of this option is a standard and expected operatingprocedure in the securitization markets, and its projected financial statementimpact is included in the projected operating results of the discontinuedbusiness. In exchange, the surety provider agreed to amend servicer terminationprovisions, which, prior to their amendment, would have enabled the suretyprovider to transfer the servicing of certain loans to a third party.

Consistent with thisagreement, an additional liability under recourse exposure was recorded torecognize the additional draws that could arise from the new letters of credit.The balances and corresponding liability relating to manufactured housingsecuritizations included in this note reflect the impact of the agreement.Additionally, the servicing asset valuation and the projected operating resultshave been adjusted to reflect the amended servicing termination provisions.

 

12

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The following presentsquantitative information about delinquencies on loans sold with recourse:

 
|                                                      |   | **June 30,**             |       | **Dec. 31,** |       | **June 30,** |       | **Dec. 31,** |       |
|-----------------------------------------------------------|--------|--------------------------|------------|--------------|------------|--------------|------------|--------------|------------|
|                                                      |   | **2003**                 |       | **2002**     | ** ** | **2003**     | ** ** | **2002**     | ** ** |
| **(In  millions)**                                        |   | **Manufactured Housing** | ** ** | **Mortgage** | ** ** |
| Principal balance of loans                                |   | $                        | 4,140      |         | $          | 4,460        |       | $            | 1,013      |   | $ | 1,152 |   |
| Principal balance of loans 90 days or more past due *(1)* |   | 170                      |       | 220          |       | 51           |       | 62           |       |
|                                                           |        |                          |            |              |            |              |            |              |            |  |  |  |  |

 

----

*(1)**  **Manufactured housing past due loans include repossessed inventory.*

 

In addition to therecourse arrangements described in the tables above, GreenPoint has establishedliabilities related to representations and warranties for mortgage loans of $38million and $29 million, at June 30, 2003 and December 31, 2002, respectively.

 

## **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)**                        |   | **2003**                                    | ** ** | **2002**                                       | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Liability for Recourse Exposure**       |   |                                        |       |                                           |       |   |   |   |   |
| Balance at beginning of period            |   | $                                           | 289        |                                           | $          | 399 |   | $ | 300 |   | $ | 467 |   |
| Interest expense                          |   | 4                                           |       | 7                                              |       | 9 |   | 14 |   |
| Letter of credit draws and other charges  |   | (25                                         | )          | (59                                            | )          | (42 | ) | (137 | ) |
| Change in valuation of retained interests |   | 11                                          |       | (4                                             | )          | 12 |   | (1 | ) |
| Balance at end of period                  |   | $                                           | 279        |                                           | $          | 343 |   | $ | 279 |   | $ | 343 |   |

 

The$11 million change in valuation of retained interests recorded during thequarter ended June 30, 2003 was due to slower prepayment speeds on thesecuritized portfolio and an increase to the liability relating to manufacturedhousing sales.

Theassets recognized as retained interests in securitizations includeinterest-only strips, transferor interests, demand notes and subordinatedcertificates. The activity in retained interests in securitizations issummarized as follows:

 
|                                      |   | **At and for the Quarter Ended  June 30,** |       | **At and for the Six Months Ended  June 30,** |       |
|-------------------------------------------|--------|--------------------------------------------|------------|-----------------------------------------------|------------|
|                                      |   | **2003**                                   |       | **2002**                                      | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **(In  millions)**                        |   | **Manufactured  Housing**                  | ** ** | **Mortgage**                                  | ** ** | **Manufactured  Housing** | ** ** | **Mortgage** | ** ** |
| **Retained Interests in Securitizations** |   |                                       |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period            |   | $                                          | 3          |                                          | $          | — |   | $ | 75 |   | $ | 126 |   | $ | 4 |   | $ | 1 |   | $ | 104 |   | $ | 130 |   |
| Additions from securitizations            |   | —                                     |       | —                                        |       | 8 |   | 1 |   | — |   | — |   | 8 |   | 7 |   |
| Interest and other income                 |   | —                                     |       | —                                        |       | 3 |   | 6 |   | — |   | 2 |   | 5 |   | 11 |   |
| Cash received                             |   | —                                     |       | —                                        |       | (3 | ) | (16 | ) | — |   | (3 | ) | (32 | ) | (29 | ) |
| Change in unrealized gain                 |   | —                                     |       | —                                        |       | — |   | (4 | ) | — |   | — |   | (1 | ) | (6 | ) |
| Change in valuation of retained interests |   | (2                                         | )          | —                                        |       | — |   | (7 | ) | (3 | ) | — |   | (1 | ) | (7 | ) |
| Balance at end of period                  |   | $                                          | 1          |                                          | $          | — |   | $ | 83 |   | $ | 106 |   | $ | 1 |   | $ | — |   | $ | 83 |   | $ | 106 |   |

 

On a quarterly basis,GreenPoint reviews retained interests for impairment based on management’s bestestimate of the fair value of future cash flows associated with the retainedinterests. GreenPoint also reviews the adequacy of the value of the recordedliability on a quarterly basis, based on management’s best estimate of futurecash flows associated with the corporate guarantee.

 

13

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**Valuation Assumptions**

The key economicassumptions used in estimating the fair value of retained interests capitalizedduring the quarter ended June 30, 2003 and assumptions used in estimating thefair value of the entire portfolio of retained interests at June 30, 2003 andDecember 31, 2002 were as follows:

 
|                                            |   | **Capitalized During  the Quarter Ended** |   | **Estimate of Fair Value at** |       |
|-------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------|------------|
|                                            |   | **June 30,**                              |   | **June 30,**                  | ** ** | **Dec. 31,** | ** ** | **June 30,** | ** ** | **Dec. 31,** | ** ** |
|                                            |   | **2003**                                  |   | **2003**                      | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                            |   | **Mortgage**                              |   | **Manufactured  Housing**     | ** ** | **Mortgage** | ** ** |
| Weighted average life (in years)                |   | 1.2                                       |   | 5.7                           |       | 4.9 |   | 0.9 |   | 0.9 |   |
| Weighted average prepayment rate *(1)*          |   | 53.4                                      | %      | 5.9                           | %          | 8.2 | % | 55.7 | % | 52.6 | % |
| Weighted average default rate                   |   | N/A                                       |   | 5.8                           | %          | 6.3 | % | N/A |   | N/A |   |
| Loss severity rate                              |   | N/A                                       |   | 92.3                          | %          | 86.6 | % | N/A |   | N/A |   |
| Weighted average loss rate                      |   | 1.25                                      | %      | 5.3                           | %          | 5.5 | % | 2.5 | % | 3.3 | % |
| Cumulative loss *(2)*                           |   | 1.5                                       | %      | 30.2                          | %          | 27.0 | % | 2.3 | % | 3.0 | % |
| Weighted average discount rate – asset     |   | 7.3                                       | %      | 14.0                          | %          | 14.0 | % | 8.3 | % | 9.3 | % |
| Weighted average discount rate – liability |   | —                                    |   | 6.6                           | %          | 6.6 | % | — |   | — |   |

 

----

*(1)          Excludes weighted average defaultrate.*

*(2)          Remaining net losses divided byoutstanding principal balance.*

 

**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. For mortgage loans, the predominant risk characteristics are loantype and interest rate. The asset pools underlying certain mortgage andmanufactured housing servicing assets, at times do not meet agreed-uponservicing covenants. Management evaluates the impact of these covenants on thevalue of the servicing assets and incorporates the assessment in theirquarterly impairment review.

The activity in servicingassets is summarized as follows:

 
|                                           |   | **At and for the  Quarter Ended**June 30, |       | **At and for the  Six Months Ended**June 30, |       |
|------------------------------------------------|--------|-------------------------------------------|------------|----------------------------------------------|------------|
|                                           |   | **2003**                                  |       | **2002**                                     | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **(In  millions)**                             |   | **Manufactured  Housing**                 | ** ** | **Mortgage**                                 | ** ** | **Manufactured  Housing** | ** ** | **Mortgage** | ** ** |
| **Servicing Assets**                           |   |                                      |       |                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                 |   | $                                         | 99         |                                         | $          | 123 |   | $ | 105 |   | $ | 83 |   | $ | 101 |   | $ | 127 |   | $ | 112 |   | $ | 86 |   |
| Additions                                      |   | —                                    |       | —                                       |       | 27 |   | 15 |   | — |   | 3 |   | 47 |   | 27 |   |
| Sales                                          |   | —                                    |       | —                                       |       | — |   | (1 | ) | — |   | — |   | (20 | ) | (8 | ) |
| Amortization                                   |   | (2                                        | )          | (8                                           | )          | (10 | ) | (7 | ) | (4 | ) | (15 | ) | (17 | ) | (15 | ) |
| Balance at end of period                       |   | 97                                        |       | 115                                          |       | 122 |   | 90 |   | 97 |   | 115 |   | 122 |   | 90 |   |
| **Reserve for impairment of servicing assets** |   |                                      |       |                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                 |   | (69                                       | )          | (71                                          | )          | (26 | ) | (23 | ) | (69 | ) | (67 | ) | (27 | ) | (23 | ) |
| Recoveries (additions)                         |   | (1                                        | )          | 1                                            |       | (3 | ) | — |   | (1 | ) | (3 | ) | (2 | ) | — |   |
| Balance at end of period                       |   | (70                                       | )          | (70                                          | )          | (29 | ) | (23 | ) | (70 | ) | (70 | ) | (29 | ) | (23 | ) |
| Servicing assets, net                          |   | $                                         | 27         |                                         | $          | 45 |   | $ | 93 |   | $ | 67 |   | $ | 27 |   | $ | 45 |   | $ | 93 |   | $ | 67 |   |

 

14

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The estimated fair valuesof manufactured housing servicing assets were $37 million and $45 million atJune 30, 2003 and 2002, respectively, and $38 million at December 31,2002.

The estimated fair valuesof mortgage servicing assets were $94 million and $71 million at June 30, 2003and 2002, respectively, and $90 million at December 31, 2002.

Servicer advancesreceivable totaled $96 million and $85 million at June 30, 2003 and December31, 2002, respectively.

The significant assumptionsused in estimating the fair value of the servicing assets at June 30, 2003 andDecember 31, 2002 were as follows:

 
|                             |   | **June 30,**              |   | **Dec. 31,** |   | **June 30,** |   | **Dec. 31,** |   |
|----------------------------------|--------|---------------------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                             |   | **2003**                  |   | **2002**     |   | **2003**     |   | **2002**     |   |
|                             |   | **Manufactured  Housing** |   | **Mortgage** |   |
| Weighted average prepayment rate |   | 6.5                       | %*(1)* | 7.4          | %*(1)* | 31.8         | %*(2)* | 25.4         | %*(2)* |
| Weighted average life (in years) |   | 5.4                       |   | 5.1          |   | 3.9          |   | 4.6          |   |
| Weighted average default rate    |   | 5.0                       | %      | 5.2          | %      | N/A          |   | N/A          |   |
| Cash flows discounted at         |   | 14.0                      | %      | 14.0         | %      | 10.1         | %      | 10.2         | %      |

 

----

*(1)  Excludes weighted average default rate.*

*(2)  Includes weighted average default rate.*

 

**NOTE 5                 Derivative FinancialInstruments**

 

GreenPoint enters into mandatorycommitments to deliver mortgage whole loans to various investors and to issueprivate securities and Fannie and Freddie Mac securities (“forward deliverycommitments”). The forward delivery commitments are used to manage the interestrate risk associated with mortgage loans and interest rate lock commitmentsmade by GreenPoint to mortgage borrowers. The notional amounts of these contractswere $4.1 billion and $3.2 billion at June 30, 2003 and December 31, 2002,respectively. The forward delivery commitments designated as fair value hedgesassociated with mortgage loans had notional values of $2.9 billion and $2.4billion at June 30, 2003 and December 31, 2002, respectively. The notionalamounts of forward delivery commitments used to manage the interest rate riskassociated with interest rate lock commitments on mortgage loans were $1.9billion and $833 million at June 30, 2003 and December 31, 2002, respectively.The amount of hedge ineffectiveness for the three months ended June 30, 2003and 2002 was a gain of $5 million and $2 million, respectively, and isincluded in gain on sale of loans.

The notional amounts ofderivatives do not represent amounts exchanged by the parties and, thus, arenot a measure of the Company’s exposure through its use of derivatives. Theamounts exchanged are determined by reference to the notional amounts and theother terms of the derivatives.

The risks inherent inderivatives are the potential inability of a counterpart to meet the terms ofits contract and the risk associated with changes in the fair values of thecontracts due to movements in the underlying interest rates. The current creditexposure of derivatives is represented by the fair value of contracts with apositive fair value at the reporting date. At March 31, 2003 and December 31,2002, the receivable on contracts with a positive fair value was $8 million and$1 million, respectively. To reduce credit risk, management may deem itnecessary to obtain collateral.

 

**NOTE 6                 Stock Incentive Plans**

 

For the six months ended June 30, 2003, theCompany granted options to purchase 1,395,200 shares of the Company’s commonstock to certain officers and directors, at an exercise price range of between$45.78 and $51.39. These awards vest at various intervals over three years, onthe anniversary dates of the awards.

 

15

----

 

**NOTE 7                 DiscontinuedOperations**

 

The assets and liabilities fromdiscontinued operations at June 30, 2003 and December 31, 2002 were as follows:

 
|                                    |   | **June 30,** |   | **Dec. 31,** |       |
|-----------------------------------------|--------|--------------|--------|--------------|------------|
| **(In  millions)**                      |   | **2003**     |   | **2002**     | ** ** |
| **Assets:**                             |   |         |   |         |       |
| Cash, cash equivalents and securities   |   | $            | 33     |         | $          | 34 |   |
| Retained interests in securitizations   |   | 1            |   | 4            |       |
| Loans receivable held for investment    |   | 45           |   | 44           |       |
| Servicing assets                        |   | 27           |   | 32           |       |
| Other assets                            |   | 246          |   | 243          |       |
| Total assets                            |   | $            | 352    |         | $          | 357 |   |
| Liabilities:                            |   |         |   |         |       |
| Liability under recourse exposure       |   | $            | 279    |         | $          | 300 |   |
| Other liabilities and allocated capital |   | 73           |   | 57           |       |
| Total liabilities and equity            |   | $            | 352    |         | $          | 357 |   |

 

Net income fromdiscontinued operations was $0.1 million and $0.4 million for the quarter andsix months ended June 30, 2003 versus $0.2 million and $1.7 million in the yearago periods of 2002, respectively.

The notional value ofswaps related to specific manufactured housing securitizations was $595 millionand $639 million at June 30, 2003 and December 31, 2002, respectively.

During the quarter and sixmonths ended June 30, 2002, GreenPoint originated manufactured housing loanstotaling $12 million and $103 million. These loans related to commitmentsoutstanding at December 31, 2001 and were recorded at their estimated fairvalue. These loans were sold during the second and third quarters of 2002 at asales price, which approximated their previously estimated fair value.

 

**NOTE 8                 Business Segments**

 

TheCompany consists of three domestic business segments offering unique productsand services. The Mortgage Banking segment specializes in “A” quality loans,including agency qualifying loans and Jumbo A loans and specializes inAlternative A mortgage loan products, which are primarily obtained from theCompany’s network of registered mortgage brokers. The Retail Banking segmentconsists of 85 full service banking offices offering a variety of financialservices to the Greater New York area. The Balance Sheet Management segmentincludes earnings from the held for investment mortgage portfolios and othercorporate investment activities.

Theaccounting policies of the segments are the same as described in Note 1“Summary of Significant Accounting Policies”. The Company evaluates theperformance of its business segments based on income before income taxes.Expenses under the direct control of each business segment and the expense ofpremises and equipment incurred to support business operations are allocatedaccordingly, by segment. Credit losses are charged to the asset managementsegment in an amount equal to net charge-offs. The expenses relating toadministrative units of the Company such as executive, finance and audit arenot allocated to individual operating segments.

 

16

----

 
|                                                 |   | **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 loss on 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 | * * |

 
|                                                 |   | **Quarter Ended June 30,  2002**   |       |
|------------------------------------------------------|--------|------------------------------------|------------|
| **(In  millions)**                                   |   | **Balance  Sheet  Management (1)** | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** |   | **Segment  Totals** | ** ** | **Other (4)** |   | **Consolidated  Continuing  Operations** |   |
| Net interest income                                  |   | $                                  | 85.3       |   | $ | 61.4 |   | $ | 146.7 |   | $ | 44.4 |   | $ | 191.1 |   | $ | — |   | $ | 191.1 |   |
| Provision for loan losses                            |   | (0.3                               | )          | — |   | (0.3 | ) | — |   | (0.3 | ) | — |   | (0.3 | ) |
| Net interest income after provision for loan  losses |   | 85.0                               |       | 61.4 |   | 146.4 |   | 44.4 |   | 190.8 |   | — |   | 190.8 |   |
| Non-interest income:                                 |   |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                  |   | —                             |       | — |   | — |   | 5.3 |   | 5.3 |   | 0.6 |   | 5.9 |   |
| Banking fees and commissions                         |   | —                             |       | 14.4 |   | 14.4 |   | — |   | 14.4 |   | — |   | 14.4 |   |
| Other income                                         |   | 2.9                                |       | 0.2 |   | 3.1 |   | 1.3 |   | 4.4 |   | — |   | 4.4 |   |
| Net gain on sale of loans                            |   | —                             |       | — |   | — |   | 99.9 |   | 99.9 |   | (13.9 | ) | 86.0 |   |
| Change in valuation of retained interests            |   | —                             |       | — |   | — |   | (7.1 | ) | (7.1 | ) | — |   | (7.1 | ) |
| Net gain on securities                               |   | 2.0                                |       | — |   | 2.0 |   | — |   | 2.0 |   | — |   | 2.0 |   |
| Total non-interest income                            |   | 4.9                                |       | 14.6 |   | 19.5 |   | 99.4 |   | 118.9 |   | (13.3 | ) | 105.6 |   |
| Non-interest expense:                                |   |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                         |   | —                             |       | 2.3 |   | 2.3 |   | 3.4 |   | 5.7 |   | 1.6 |   | 7.3 |   |
| ESOP and stock plans expense                         |   | 0.1                                |       | 1.1 |   | 1.2 |   | 3.5 |   | 4.7 |   | 2.3 |   | 7.0 |   |
| Other expenses                                       |   | 0.4                                |       | 27.6 |   | 28.0 |   | 42.4 |   | 70.4 |   | 17.4 |   | 87.8 |   |
| Total non-interest expense                           |   | 0.5                                |       | 31.0 |   | 31.5 |   | 49.3 |   | 80.8 |   | 21.3 |   | 102.1 |   |
| Segment income (loss) before taxes                   |   | $                                  | 89.4       |   | $ | 45.0 |   | $ | 134.4 |   | $ | 94.5 |   | $ | 228.9 |   | $ | (34.6 | ) | $ | 194.3 |   |
| Total Assets                                         |   | $                                  | 14,589     |   | $ | 476 | *(2)* | $ | 15,065 |   | $ | 4,587 |   | $ | 19,652 |   | $ | 451 | *(3) * | $ | 20,103 |   |

 

----

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

*(2)    Retail Banking segment excludes intercompanyfunds transfers. Intersegment assets and liabilities eliminated forconsolidation purposes were $12.3 billion and $11.0 billion for the quarterended June 30, 2003 and 2002, respectively.*

*(3)    Includes the assets of the discontinuedbusiness segment.*

*(4)    Other includes intercompany eliminations andunallocated administrative expenses.*

*(5)    Intersegment revenues, in the mortgagebanking segment, for the quarter ended June 30, 2003 and 2002 were $16.6million and $13.3 million.*

 

17

----

 
|                                                 |   | **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 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 |   |

 
|                                                 |   | **Six Months Ended June  30, 2002** |       |
|------------------------------------------------------|--------|-------------------------------------|------------|
| **(In  millions)**                                   |   | **Balance  Sheet  Management (1)**  | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** |   | **Segment  Totals** | ** ** | **Other (4)** |   | **Consolidated  Continuing  Operations** |   |
| Net interest income                                  |   | $                                   | 167.3      |   | $ | 118.4 |   | $ | 285.7 |   | $ | 84.8 |   | $ | 370.5 |   | $ | — |   | $ | 370.5 |   |
| Provision for loan losses                            |   | (0.7                                | )          | — |   | (0.7 | ) | — |   | (0.7 | ) | — |   | (0.7 | ) |
| Net interest income after provision for loan  losses |   | 166.6                               |       | 118.4 |   | 285.0 |   | 84.8 |   | 369.8 |   | — |   | 369.8 |   |
| Non-interest income:                                 |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                  |   | —                              |       | — |   | — |   | 10.8 |   | 10.8 |   | 0.3 |   | 11.1 |   |
| Banking fees and commissions                         |   | —                              |       | 27.0 |   | 27.0 |   | — |   | 27.0 |   | — |   | 27.0 |   |
| Other income                                         |   | 6.0                                 |       | 0.5 |   | 6.5 |   | 0.5 |   | 7.0 |   | — |   | 7.0 |   |
| Net gain on sale of loans                            |   | —                              |       | — |   | — |   | 201.8 |   | 201.8 |   | (25.8 | ) | 176.0 |   |
| Change in valuation of retained interests            |   | —                              |       | — |   | — |   | (7.1 | ) | (7.1 | ) | — |   | (7.1 | ) |
| Net gain on securities                               |   | 3.8                                 |       | — |   | 3.8 |   | — |   | 3.8 |   | — |   | 3.8 |   |
| Total non-interest income                            |   | 9.8                                 |       | 27.5 |   | 37.3 |   | 206.0 |   | 243.3 |   | (25.5 | ) | 217.8 |   |
| Non-interest expense:                                |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                         |   | —                              |       | 4.6 |   | 4.6 |   | 6.9 |   | 11.5 |   | 2.7 |   | 14.2 |   |
| ESOP and stock plans expense                         |   | 0.1                                 |       | 2.2 |   | 2.3 |   | 7.0 |   | 9.3 |   | 3.7 |   | 13.0 |   |
| Other expenses                                       |   | 0.8                                 |       | 50.4 |   | 51.2 |   | 90.3 |   | 141.5 |   | 33.6 |   | 175.1 |   |
| Total non-interest expense                           |   | 0.9                                 |       | 57.2 |   | 58.1 |   | 104.2 |   | 162.3 |   | 40.0 |   | 202.3 |   |
| Segment income (loss) before taxes                   |   | $                                   | 175.5      |   | $ | 88.7 |   | $ | 264.2 |   | $ | 186.6 |   | $ | 450.8 |   | $ | (65.5 | ) | $ | 385.3 |   |
| Total Assets                                         |   | $                                   | 14,589     |   | $ | 476 | *(2)* | $ | 15,065 |   | $ | 4,587 |   | $ | 19,652 |   | $ | 451 | *(3)* | $ | 20,103 |   |

 

----

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

*(2)    Retail Banking segment excludes intercompanyfunds transfers. Intersegment assets and liabilities eliminated forconsolidation purposes were $12.3 billion and $11.0 billion for the six monthsended June 30, 2003 and 2002, respectively.*

*(3)    Includes the assets of the discontinuedbusiness segment.*

*(4)    Other includes intercompany eliminations andunallocated administrative expenses.*

*(5)    Intersegment revenues, in the mortgage bankingsegment, for the six months ended June 30, 2003 and 2002 were $27.0 million and$25.5 million.*

 

18

----

 

**NOTE 9               Earnings Per Share**

 
|                                                                                                                 |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
|                                                                                                                 |   |                        |   |
| **(In millions, except per share  amounts)**                                                                         |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
|                                                                                                                 |   |                        |   |                           |   |   |   |   |   |
| Net income from continuing operations                                                                                |   | $                           | 129.8  |                           | $      | 122.6 |   | $ | 256.7 |   | $ | 243.1 |   |
| Net income from discontinued operations                                                                              |   | 0.1                         |   | 0.2                            |   | 0.4 |   | 1.7 |   |
| Net income                                                                                                           |   | $                           | 129.9  |                           | $      | 122.8 |   | $ | 257.1 |   | $ | 244.8 |   |
|                                                                                                                 |   |                        |   |                           |   |   |   |   |   |
| Weighted average number of common shares  outstanding during each period – basic                                |   | 82,292,000                  |   | 88,611,000                     |   | 83,481,000 |   | 88,696,000 |   |
| Effect of dilutive securities – stock options                                                                   |   | 1,731,000                   |   | 2,357,000                      |   | 1,665,000 |   | 2,485,000 |   |
| Weighted average number of common shares and  common stock equivalents outstanding during each period – diluted |   | 84,023,000                  |   | 90,968,000                     |   | 85,146,000 |   | 91,181,000 |   |
|                                                                                                                 |   |                        |   |                           |   |   |   |   |   |
| **Basic earnings per share:**                                                                                        |   |                        |   |                           |   |   |   |   |   |
| Net income from continuing operations                                                                                |   | $                           | 1.58   |                           | $      | 1.39 |   | $ | 3.08 |   | $ | 2.74 |   |
| Net income from discontinued operations                                                                              |   | —                      |   | —                         |   | — |   | 0.02 |   |
| Net income                                                                                                           |   | $                           | 1.58   |                           | $      | 1.39 |   | $ | 3.08 |   | $ | 2.76 |   |
|                                                                                                                 |   |                        |   |                           |   |   |   |   |   |
| **Diluted earnings per share:**                                                                                      |   |                        |   |                           |   |   |   |   |   |
| Net income from continuing operations                                                                                |   | $                           | 1.54   |                           | $      | 1.35 |   | $ | 3.02 |   | $ | 2.67 |   |
| Net income from discontinued operations                                                                              |   | —                      |   | —                         |   | — |   | 0.02 |   |
| Net income                                                                                                           |   | $                           | 1.54   |                           | $      | 1.35 |   | $ | 3.02 |   | $ | 2.69 |   |

 

----

*(1)    Options to purchase 42,500 shares of commonstock at prices between $49.45 and $51.39 per share were outstanding atJune 30, 2003, but were not included in the computation of dilutedearnings per share because the options’ exercise prices were greater than theaverage market price of the common shares for the quarter ended June 30, 2003.For the six months ended June 30, 2003, options to purchase 95,000 shares ofcommon stock at prices between $47.13 and $51.39 where not included in thecomputation of diluted earnings per share because the options’ exercise priceswere greater than the average market price of common shares.*

*(2)    Options to purchase 37,500 shares of commonstock at prices between $49.45 and $50.10 per share were outstanding atJune 30, 2002, but were not included in the computation of dilutedearnings per share because the options’ exercise prices were greater than theaverage market price of the common shares for both the quarter and six monthsended June 30, 2002.*

 

19

----

 

**NOTE 10            Subsequent Events**

 

On July 8, 2003, GreenPoint approved athree-for-two stock split to be distributed on August 20, 2003 to shareholdersof record on August 8, 2003. The stock split will require retroactiverestatement of all historical per share data in the third quarter endedSeptember 30, 2003. Presented below is the proforma per share data for thesecond quarter and six months ended June 30, 2003 and 2002 as well as thequarterly results for the previous five quarters and the annual results for thefive years ended December 31, 2002.

 
|                                                |     | **Quarter Ended**  |     | **Six Months Ended** |   |
|-----------------------------------------------------|----------|--------------------|----------|----------------------|--------|
| **(In millions, except per share  amounts)**        |     | **June 30,  2003** |     | **June 30,  2002**   |   | **June 30,** |   |
|                                                | **2003** |               | **2002** |                 |
|                                                |     |               |     |                 |   |   |   |   |   |
| **Share Data:**                                     |     |               |     |                 |   |   |   |   |   |
| Diluted earnings per share:                         |     |               |     |                 |   |   |   |   |   |
| Net income – continuing operations as reported |     | $                  | 1.54     |                 | $      | 1.35 |   | $ | 3.02 |   | $ | 2.67 |   |
| Net income – continuing operations as adjusted |     | $                  | 1.03     |                 | $      | 0.90 |   | $ | 2.01 |   | $ | 1.78 |   |
| Dividends declared per share:                       |     |               |     |                 |   |   |   |   |   |
| As reported                                         |     | $                  | 0.31     |                 | $      | 0.25 |   | $ | 0.62 |   | $ | 0.50 |   |
| As adjusted                                         |     | $                  | 0.21     |                 | $      | 0.17 |   | $ | 0.41 |   | $ | 0.33 |   |

 
|                                                |   | **Quarter Ended**   |   |
|-----------------------------------------------------|--------|---------------------|--------|
| **(In millions, except per share  amounts)**        |   | **March 31,  2003** |   | **Dec. 31,  2002** |   | **Sept. 30,  2002** |   | **June 30,  2002** |   | **March 31,  2002** |   |
|                                                |   |                |   |   |   |   |   |   |   |   |   |
| **Share Data:**                                     |   |                |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share:                         |   |                |   |   |   |   |   |   |   |   |   |
| Net income – continuing operations as reported |   | $                   | 1.47   |   | $ | 1.46 |   | $ | 1.41 |   | $ | 1.35 |   | $ | 1.32 |   |
| Net income – continuing operations as adjusted |   | $                   | 0.98   |   | $ | 0.97 |   | $ | 0.94 |   | $ | 0.90 |   | $ | 0.88 |   |
| Dividends declared per share:                       |   |                |   |   |   |   |   |   |   |   |   |
| As reported                                         |   | $                   | 0.31   |   | $ | 0.25 |   | $ | 0.25 |   | $ | 0.25 |   | $ | 0.25 |   |
| As adjusted                                         |   | $                   | 0.21   |   | $ | 0.17 |   | $ | 0.17 |   | $ | 0.17 |   | $ | 0.17 |   |

 
|                                                |   | **Year Ended  December 31,** |   |
|-----------------------------------------------------|--------|------------------------------|--------|
| **(In millions, except per share  amounts)**        |   | **2002**                     |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                                |   |                         |   |   |   |   |   |   |   |   |   |
| **Share Data:**                                     |   |                         |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share:                         |   |                         |   |   |   |   |   |   |   |   |   |
| Net income – continuing operations as reported |   | $                            | 5.53   |   | $ | 4.50 |   | $ | 2.80 |   | $ | 2.19 |   | $ | 1.85 |   |
| Net income – continuing operations as adjusted |   | $                            | 3.69   |   | $ | 3.00 |   | $ | 1.87 |   | $ | 1.46 |   | $ | 1.23 |   |
| Dividends declared per share:                       |   |                         |   |   |   |   |   |   |   |   |   |
| As reported                                         |   | $                            | 1.00   |   | $ | 1.00 |   | $ | 1.00 |   | $ | 0.88 |   | $ | 0.64 |   |
| As adjusted                                         |   | $                            | 0.67   |   | $ | 0.67 |   | $ | 0.67 |   | $ | 0.59 |   | $ | 0.43 |   |

 

20

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**GreenPoint Financial Corp. and Subsidiaries**

**Part I – Item 2.Management’s Discussion and Analysis of**

**FinancialCondition and Results of Operations**

 
|                                                                                       |   | **Quarter Ended**  |   | **Six Months Ended** |   |
|--------------------------------------------------------------------------------------------|--------|--------------------|--------|----------------------|--------|
| **(Dollars  in millions, except per share data)**                                          |   | **June 30,  2003** |   | **March 31,  2003**  |   | **Dec. 31,  2002** |   | **Sept. 30,  2002** |   | **June 30,  2002** |   | **June 30** |   |
| **2003**                                                                                   |   | **2002**           |   |
| **Performance Ratios –Continuing  Operations (Annualized):**                          |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Return on average  assets                                                                  |   | 2.34               | %      | 2.40                 | %      | 2.28 | % | 2.38 | % | 2.45 | % | 2.37 | % | 2.48 | % |
| Return on average  equity                                                                  |   | 27.46              |   | 26.52                |   | 27.05 |   | 27.32 |   | 27.53 |   | 26.99 |   | 27.52 |   |
| Net interest margin                                                                        |   | 3.23               |   | 3.51                 |   | 3.64 |   | 3.85 |   | 4.06 |   | 3.37 |   | 4.05 |   |
| Net interest spread                                                                        |   | 3.11               |   | 3.37                 |   | 3.52 |   | 3.72 |   | 3.91 |   | 3.25 |   | 3.90 |   |
| Operating expense to  average assets                                                       |   | 2.24               |   | 2.28                 |   | 2.17 |   | 1.91 |   | 2.05 |   | 2.28 |   | 2.07 |   |
| Total non-interest  expense to operating revenue                                           |   | 27.3               |   | 27.0                 |   | 26.4 |   | 23.2 |   | 23.5 |   | 27.2 |   | 23.4 |   |
| Efficiency ratio *(1)*                                                                     |   | 37.5               |   | 37.3                 |   | 37.6 |   | 33.8 |   | 34.6 |   | 37.7 |   | 34.6 |   |
| Average  interest-earning assets to average interest-bearing liabilities                   |   | 1.05               | x      | 1.06                 | x      | 1.05 | x | 1.05 | x | 1.06 | x | 1.05 | x | 1.05 | x |
|                                                                                       |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Per Share Data:**                                                                        |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per  share – continuing operations                                     |   | $                  | 1.58   |                 | $      | 1.50 |   | $ | 1.49 |   | $ | 1.44 |   | $ | 1.39 |   | $ | 3.08 |   | $ | 2.74 |   |
| Diluted earnings per  share – continuing operations                                   |   | 1.54               |   | 1.47                 |   | 1.46 |   | 1.41 |   | 1.35 |   | 3.02 |   | 2.67 |   |
| Book value per common  share                                                               |   | 23.02              |   | 22.50                |   | 22.07 |   | 21.35 |   | 20.45 |   | N/A |   | N/A |   |
| Tangible book value  per common share                                                      |   | 18.28              |   | 17.83                |   | 17.53 |   | 16.94 |   | 16.09 |   | N/A |   | N/A |   |
| Dividends per share                                                                        |   | 0.31               |   | 0.31                 |   | 0.25 |   | 0.25 |   | 0.25 |   | 0.62 |   | 0.50 |   |
| Shares used in calculations  (in thousands):                                               |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Average *(2)*                                                                              |   | 84,023             |   | 86,218               |   | 88,158 |   | 89,905 |   | 90,968 |   | 85,146 |   | 91,181 |   |
| Period-end *(3)*                                                                           |   | 83,341             |   | 84,586               |   | 87,177 |   | 89,415 |   | 90,609 |   | N/A |   | N/A |   |
| Total shares  outstanding (shares issued less treasury stock purchased)                    |   | 92,073             |   | 93,694               |   | 96,308 |   | 98,362 |   | 99,402 |   | N/A |   | N/A |   |
|                                                                                       |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Asset Quality Ratios –  continuing operations:**                                    |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Non-accruing loans  held for investment to mortgage loans held for investment              |   | 1.62               | %      | 1.67                 | %      | 1.61 | % | 1.57 | % | 1.60 | % |   |   |   |   |
| Non-accruing loans  held for sale to mortgage loans held for sale                          |   | 1.60               |   | 1.87                 |   | 1.18 |   | 0.99 |   | 0.95 |   |   |   |   |   |
| Non-performing assets  to total assets                                                     |   | 1.18               |   | 1.23                 |   | 1.12 |   | 1.02 |   | 1.02 |   |   |   |   |   |
| Allowance for loan  losses to non-performing loans held for investment                     |   | 46.0               |   | 46.4                 |   | 46.6 |   | 48.4 |   | 47.5 |   |   |   |   |   |
| Allowance for loan  losses to mortgage loans held for investment                           |   | 0.75               |   | 0.78                 |   | 0.75 |   | 0.76 |   | 0.76 |   |   |   |   |   |
| Net loan charge-off  experience (annualized) to average mortgage loans held for investment |   | 0.03               |   | 0.01                 |   | 0.04 |   | 0.02 |   | 0.01 |   |   |   |   |   |
| Ratio of allowance for  loan losses to annualized net charge-offs                          |   | 30.13              | x      | 64.4                 | x      | 20.8 | x | 42.8 | x | 57.3 | x |   |   |   |   |
|                                                                                       |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Capital Data:**                                                                          |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to  risk weighted assets)                                                  |   | 11.28              | %      | 11.53                | %      | 11.43 | % | 11.66 | % | 12.07 | % |   |   |   |   |
| Total Risk Based  Capital (to risk weighted assets)                                        |   | 12.79              |   | 13.08                |   | 12.96 |   | 13.25 |   | 13.77 |   |   |   |   |   |
| Tier I Capital to  average assets                                                          |   | 7.68               |   | 7.97                 |   | 7.51 |   | 7.86 |   | 8.05 |   |   |   |   |   |
| Tangible equity to tangible  managed assets                                                |   | 5.89               |   | 5.87                 |   | 5.98 |   | 5.68 |   | 5.90 |   |   |   |   |   |
| Tangible equity to  managed receivables                                                    |   | 7.96               |   | 8.13                 |   | 7.69 |   | 7.27 |   | 7.51 |   |   |   |   |   |
| Purchase of treasury  stock                                                                |   | $                  | 113    |                 | $      | 125 |   | $ | 93 |   | $ | 72 |   | $ | 72 |   | $ | 238 |   | $ | 85 |   |
|                                                                                       |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Other  Data:**                                                                           |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage loan  originations                                                                |   | $                  | 11,343 |                 | $      | 9,328 |   | $ | 9,985 |   | $ | 9,730 |   | $ | 7,041 |   | $ | 20,671 |   | $ | 13,475 |   |
| Total managed assets *(4)*                                                                 |   | 26,135             |   | 25,856               |   | 25,595 |   | 26,456 |   | 24,620 |   | N/A |   | N/A |   |
| Total managed  receivables *(5)*                                                           |   | 19,053             |   | 18,354               |   | 19,555 |   | 20,338 |   | 18,990 |   | N/A |   | N/A |   |
| Earnings to combined fixed charges: *(6)*                                                  |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Excluding interest on deposits                                                             |   | 19.66              | x      | 20.67                | x      | 20.61 | x | 19.09 | x | 15.92 | x | 20.15 | x | 16.40 | x |
| Including interest on deposits                                                             |   | 3.89               | x      | 3.77                 | x      | 3.58 | x | 3.49 | x | 3.28 | x | 3.83 | x | 3.19 | x |
| Full-service consumer  bank offices                                                        |   | 85                 |   | 84                   |   | 81 |   | 75 |   | 74 |   | 85 |   | 74 |   |

 

----

*(1)  The efficiencyratio is calculated by dividing general and administrative expenses by the sumof net interest income and non-interest income.*

*(2)  Used in thecalculation of fully diluted earnings per share.*

*(3)  Used in thecalculation of common book value and tangible common book value ratios.*

*(4)  Managed assets arethe sum of total assets and off-balance sheet managed receivables.*

*(5)  Managed receivablesare the sum of on-balance sheet loans and off-balance sheet managedreceivables.*

*(6)  For purposes ofcomputing the ratio of earnings to combined fixed charges, earnings representnet income plus applicable income taxes and fixed charges of a consolidatedsubsidiary. Fixed charges represent interest expense on long-term debt andone-third (the portion deemed to be representative of the interest factor) ofrents.*

 

21

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**Forward Looking Statements**

 

This Quarterly Reporton Form 10-Q contains certain forward-looking statements, which are based onmanagement’s current expectations. These forward-looking statements includeinformation concerning possible or assumed future results of operations,trends, financial results and business plans, including those relating toearnings growth; revenue growth; origination volume in the Company’s mortgagebusiness; non-interest income levels, including fees from product sales; creditperformance on loans made by the Company; tangible capital generation; marginson sales or securitizations of loans; market share; expense levels; resultsfrom new business initiatives in the retail banking business; and otherbusiness operations and strategies. For these statements, GreenPoint claims theprotection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995 to the extent provided byapplicable law. Forward-looking statements involve inherent risks anduncertainties. We caution you that a number of important factors could causeactual results to differ materially from those contained in any forward-lookingstatement. Such factors include, but are not limited to: risks anduncertainties related to acquisitions, divestitures and terminating businesssegments, including related integration and restructuring activities;prevailing economic conditions; changes in interest rates, loan demand, realestate values, and competition, which can materially affect origination levelsand gain on sale results in the Company’s mortgage business, as well as otheraspects of our financial performance; the level of defaults, losses andprepayments on loans made by the Company, whether held in portfolio, sold inthe whole loan secondary markets or securitized, which can materially affectcharge-off levels, required loan loss reserve levels and the Company’s periodicvaluation of its retained interests from securitizations; changes in accountingprinciples, policies, and guidelines; adverse changes or conditions in capitalor financial markets, which can adversely affect the ability of the Company tosell or securitize loan originations on a timely basis or at prices which areacceptable to the Company, as well as other aspects of our financial performance;actions by rating agencies and the affects of these actions on the Company’sbusinesses, operations and funding requirements; changes in any applicable law,rule, regulation or practice with respect to tax or legal issues, whether ofgeneral applicability or specific to the Company and its subsidiaries; othereconomic, competitive, governmental, regulatory, and technological factorsaffecting the Company’s operations, pricing, products and services; and therisk factors or other uncertainties described from time to time in theCompany’s filings with the Securities and Exchange Commission, including theRisk Factors section included in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2002 filed with the Securities and Exchange Commissionon March 28, 2003. The forward-looking statements are made as of the date ofthis Report, and the Company assumes no obligation to update theforward-looking statements or to update the reasons why actual results coulddiffer from those projected in the forward-looking statements.

TheCompany regularly explores opportunities for acquisitions of and holdsdiscussions with financial institutions and related businesses, and alsoregularly explores opportunities for acquisitions of liabilities and assets offinancial institutions and other financial services providers. The Companyroutinely analyzes its lines of business and from time to time may increase,decrease or terminate one or more activities.

 

**General**

 

GreenPoint Financial Corp. (the“Corporation”, “Company” or “GreenPoint”), a $22 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 $12 billion in deposits in 85 branches serving more than 450,000households. GreenPoint Mortgage (“GPM”), headquartered in Novato, California,originates a wide variety of exclusively “A” quality loans. This includesagency qualifying loans and Jumbo A loans, and GreenPoint’s specialtyAlternative A mortgages.

 

22

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**Overview Of Second Quarter 2003 Financial Results**

 

•                        Net income from continuing operations forthe second quarter of 2003 was $1.54 per diluted share, or $130 million,an increase of 14% over the second quarter of 2002. The results reflect thestrength and complementary nature of the Company’s mortgage and retail bankingbusinesses.

 

•                        Core deposits grew to $7.6 billion, up 31%from $5.8 billion a year ago, as the Company continued to benefit from aneffective sales culture, free checking programs, small business bankinginitiative and the *de novo*branching program. The Company opened seven new branches in 2002 and fouradditional branches in the first half of 2003.

 

•                        The mortgage banking business achievedrecord levels of applications, originations and higher sale margins resultingin a substantial increase in mortgage banking revenues, all while maintainingvery high credit quality. Total mortgage loan originations for the secondquarter of 2003 were $11.3 billion, an increase of 61% over the $7.0 billionoriginated during the second quarter of 2002.

 

•                        Mortgage sales and securitizations totaled$9.0 billion resulting in realized gains of $146 million, compared with salesand securitizations of $6.0 billion and a gain of $86 million in thecomparative quarter a year ago.

 

•                        The gain on sale of specialty loans was 306basis points, up from 289 basis points in the first quarter of 2003 and 295basis points in the year ago quarter.

 

•                        Net interest income from continuingoperations totaled $168 million, a decrease of 12% from the $191 millionin the second quarter of 2002. The net interest margin was 3.23%, decreasingfrom 4.06% in the second quarter of 2002.

 

•                        Asset quality in the mortgage portfolioremained strong. Non-accruing loans held for investment were 1.62% of mortgageloans held for investment, compared with 1.61% at the end of 2002 and 1.60% inthe second quarter a year ago.

 

•                        GreenPoint continues to maintain a strongcapital position with a leverage ratio of 7.68%, a Tier 1 risk-based ratio of11.28% and a total risk-based capital ratio of 12.79% at June 30, 2003.

 

•                        On July 8, 2003 GreenPoint announced a 3for 2 stock split payable on August 20, 2003 to shareholders of record onAugust 8, 2003 and increased the quarterly dividend distribution per share anadditional 15% from $0.3125 to $0.36, which represents an annualizeddistribution of $1.44 per share on a pre-split basis. Since the beginning of2003, GreenPoint has increased the annualized distribution rate 44%.

 

•                        Net income from the discontinuedmanufactured housing business was $0.1 million, reflecting a performanceconsistent with management’s most recent projections.

 

**Business Segment Results**

 

The Company consists of two primarycontinuing businesses – a banking business and a mortgage business. The bankingbusiness includes the results of the retail banking segment and the balancesheet management segment. The retail banking segment represents the results ofthe activities of 85 full service banking offices operating in the greater NewYork area and the balance sheet management segment includes earnings from theheld for investment mortgage portfolio and other corporate investmentactivities. The sub-total defined as the total banking business represents theresults of the Company’s traditional banking operations as distinguished fromits mortgage banking operations. Following is an analysis of the results of thetwo primary businesses.

 

23

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**BankingBusiness**

** **
|                                                 |   | **Quarter Ended  June 30,** |   |
|------------------------------------------------------|--------|-----------------------------|--------|
| **(In millions)**                                    |   | **2003**                    |   | **2002** |   |
| Net interest income                                  |   | $                           | 121.3  |   | $ | 146.7 |   |
| Provision for loan losses                            |   | (0.6                        | )      | (0.3 | ) |
| Net interest income after provision for loan  losses |   | 120.7                       |   | 146.4 |   |
| Non-interest income:                                 |   |                        |   |   |   |
| Banking fees and commissions                         |   | 17.2                        |   | 14.4 |   |
| Other income                                         |   | 5.1                         |   | 3.1 |   |
| Net (loss) gain on securities                        |   | (0.6                        | )      | 2.0 |   |
| Total non-interest income                            |   | 21.7                        |   | 19.5 |   |
| Non-interest expense                                 |   | 35.2                        |   | 31.5 |   |
| Income before income taxes                           |   | $                           | 107.2  |   | $ | 134.4 |   |
| Total Assets                                         |   | $                           | 16,317 |   | $ | 15,065 |   |

 

The banking business reported pre-taxincome of $107 million for the second quarter of 2003, a decrease of 20% fromthe $134 million reported for the second quarter a year ago. The resultsincluded pre-tax income of $43 million from the retail banking segment, a5% decrease from a year ago, and $65 million from the balance sheet managementsegment, a decrease of 28% from a year ago. The decrease from a year agoquarter was primarily the result of lower interest rates, which reduced the netinterest income in the balance sheet management segment. The Companydeliberately maintains an asset-sensitive balance sheet (see Market RiskManagement, page 37). Since mortgage banking revenues strengthen in periods oflow interest rates, and weaken when rates rise, the asset-sensitive position isdesigned to offset mortgage banking cyclicality, thereby adding stability tooverall revenues and net income.

The increase innon-interest income reflected higher banking fees associated with the growth indeposit accounts and higher non-interest expense reflects the cost ofadditional branches associated with the *denovo* branching program.

 

**MortgageBanking**

** **
|                                      |   | **Quarter Ended  June 30,** |   |
|-------------------------------------------|--------|-----------------------------|--------|
| **(In millions)**                         |   | **2003**                    |   | **2002** |   |
| Net interest income                       |   | $                           | 46.6   |   | $ | 44.4 |   |
| Non-interest income:                      |   |                        |   |   |   |
| Loan servicing fees                       |   | (0.7                        | )      | 5.3 |   |
| Other income                              |   | (2.0                        | )      | 1.3 |   |
| Net gain on sale of loans                 |   | 162.6                       |   | 99.9 |   |
| Change in valuation of retained interests |   | (0.7                        | )      | (7.1 | ) |
| Total non-interest income                 |   | 159.2                       |   | 99.4 |   |
| Non-interest expense                      |   | 67.9                        |   | 49.3 |   |
| Net income before income taxes            |   | $                           | 137.9  |   | $ | 94.5 |   |
| Total Assets                              |   | $                           | 5,987  |   | $ | 4,587 |   |

 

The mortgage banking business reportedpre-tax income of $138 million, an increase of 46% from the $95 millionreported in the second quarter of 2002. Net interest income increased $2million, or 5% due to a higher average balance of loans held for sale. Net gainon sale of mortgage loans increased $63 million or 63% from the year agoperiod, due to an increase in origination volume and higher gain on salemargin. Non-interest expense increased $19 million to $68 million versus thesecond quarter a year ago, reflecting the higher level of mortgage originations.

 

24

----

 

**Net Interest Income**

Net interest income on a fullytaxable-equivalent basis, decreased by $23 million and $30 million, or 12% and8%, to $170 million and $346 million for the quarter and six months ended June30, 2003. Net interest margin declined to 3.23% and 3.37% from 4.06% and 4.05%in the comparable quarter and six months periods a year ago, primarily due tothe low interest rate environment.

Averageearning assets increased by $2.0 billion for both the quarter and six monthperiods, or 11% to $21.1 billion and $20.6 billion from $19.1 billion and $18.6billion in the year ago periods. The increase from the prior year secondquarter and six month periods reflected growth in loans held for sale due tohigher origination volume, and higher investment securities. The yield oninterest-earning assets and rates paid on interest-bearing liabilities, in bothperiods, decreased due to declining market interest rates from a year ago.

Thegrowth in average earning assets was funded in part by a substantial growth incore deposits as the average balance increased 36% and 35% over the comparablequarter and six month periods a year ago. The growth resulted from thecontinued success of the Company’s sales culture, checking programs, *de novo* branching program and smallbusiness banking initiative.

Thenet interest margin decline resulted from the accelerated reduction in assetyields associated with the high level of mortgage prepayments, which negativelyaffected the yield on the held for investment mortgage portfolio and themortgage-backed securities portfolio. While the rates paid on deposits andmarket borrowings also declined, this reduction did not fully offset thedeclining asset yields due to the accelerated prepayment activity and aflattening of the yield curve during the second quarter.

 

25

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**Average Consolidated BalanceSheet, Interest and Rates**

The following table sets forth certaininformation relating to the continuing operations of the Company’s averagestatements of financial condition (unaudited) and statements of income(unaudited) for the quarter and six months ended June 30, 2003 and 2002,and reflects the average yield on assets and average cost of liabilities forthe periods indicated. Such annualized yields and costs are derived by dividingincome or expense by the average balance of assets or liabilities,respectively, for the periods shown. Average balances are derived from average dailybalances. Average balances and yields include non-accrual loans. The yields andcosts include fees that are considered adjustments to yields. Interest andyields are presented on a taxable-equivalent yield basis.

 
|                                                                                       |   | **Quarter Ended**    |   |
|--------------------------------------------------------------------------------------------|--------|----------------------|--------|
|                                                                                       |   | **June 30, 2003**    |   | **June 30, 2002** |   |
| **(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)*                                                  |   | $                    | 9,809  |   | $ | 156.7 |   | 6.39 | % | $ | 9,936 |   | $ | 186.4 |   | 7.50 | % |
| Other loans *(2)*                                                                          |   | 22                   |   | 0.4 |   | 7.62 |   | 19 |   | 0.4 |   | 8.80 |   |
| Loans held for sale                                                                        |   | 5,089                |   | 70.6 |   | 5.55 |   | 4,136 |   | 67.1 |   | 6.51 |   |
| Securities *(3)*                                                                           |   | 5,883                |   | 61.0 |   | 4.15 |   | 4,688 |   | 69.2 |   | 5.90 |   |
| Other interest-earning  assets                                                             |   | 276                  |   | 5.0 |   | 7.22 |   | 281 |   | 7.7 |   | 11.00 |   |
| Total interest-earning  assets                                                             |   | 21,079               |   | 293.7 |   | 5.57 |   | 19,060 |   | 330.8 |   | 6.95 |   |
| Non-interest earning  assets *(4)*                                                         |   | 1,154                |   |   |   |   |   | 957 |   |   |   |   |   |
| Total assets                                                                               |   | $                    | 22,233 |   |   |   |   |   | $ | 20,017 |   |   |   |   |   |
|                                                                                       |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholders’ Equity:**                                            |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                    |   | $                    | 1,465  |   | 2.5 |   | 0.68 |   | $ | 1,297 |   | 4.3 |   | 1.32 |   |
| Demand deposits and  N.O.W.                                                                |   | 2,462                |   | 9.3 |   | 1.51 |   | 1,004 |   | 3.0 |   | 1.20 |   |
| Money market and  variable rate savings                                                    |   | 3,500                |   | 12.0 |   | 1.38 |   | 3,178 |   | 14.7 |   | 1.86 |   |
| Total core deposits                                                                        |   | 7,427                |   | 23.8 |   | 1.28 |   | 5,479 |   | 22.0 |   | 1.61 |   |
| Term certificates of  deposit                                                              |   | 4,852                |   | 36.6 |   | 3.02 |   | 5,459 |   | 50.4 |   | 3.70 |   |
| Total deposits                                                                             |   | 12,279               |   | 60.4 |   | 1.97 |   | 10,938 |   | 72.4 |   | 2.65 |   |
| Mortgagors’ escrow                                                                    |   | 66                   |   | 0.3 |   | 2.12 |   | 84 |   | 0.3 |   | 1.69 |   |
| Borrowed funds                                                                             |   | 7,322                |   | 54.3 |   | 2.94 |   | 6,555 |   | 54.6 |   | 3.30 |   |
| Senior notes                                                                               |   | 96                   |   | 0.8 |   | 3.27 |   | — |   | — |   | — |   |
| Senior bank notes                                                                          |   | —               |   | — |   | — |   | 134 |   | 2.3 |   | 6.72 |   |
| Subordinated bank notes                                                                    |   | 150                  |   | 3.5 |   | 9.36 |   | 150 |   | 3.5 |   | 9.36 |   |
| Guaranteed preferred  beneficial interest in Company’s junior subordinated debentures |   | 200                  |   | 4.6 |   | 9.16 |   | 200 |   | 4.6 |   | 9.16 |   |
| Total interest-bearing  liabilities                                                        |   | 20,113               |   | 123.9 |   | 2.46 |   | 18,061 |   | 137.7 |   | 3.04 |   |
| Other liabilities *(5)*                                                                    |   | 229                  |   |   |   |   |   | 173 |   |   |   |   |   |
| Total liabilities                                                                          |   | 20,342               |   |   |   |   |   | 18,234 |   |   |   |   |   |
| Stockholders’ equity                                                                  |   | 1,891                |   |   |   |   |   | 1,783 |   |   |   |   |   |
| Total liabilities and  stockholders’ equity                                           |   | $                    | 22,233 |   |   |   |   |   | $ | 20,017 |   |   |   |   |   |
| Net interest  income/interest rate spread***(6)*                                           |   |                 |   | $ | 169.8 |   | 3.11 | % |   |   | $ | 193.1 |   | 3.91 | % |
| Net interest-earning  assets/net interest margin *(7)*                                     |   | $                    | 966    |   |   |   | 3.23 | % | $ | 999 |   |   |   | 4.06 | % |
| Ratio of  interest-earning assets to interest-earning liabilities                          |   | 1.05                 | x      |   |   |   |   | 1.05 | x |   |   |   |   |

 

26

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|                                                                                       |   | **Six Months Ended** |   |
|--------------------------------------------------------------------------------------------|--------|----------------------|--------|
|                                                                                       |   | **June 30, 2003**    |   | **June 30, 2002** |   |
| **(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)*                                                  |   | $                    | 9,779  |   | $ | 323.0 |   | 6.61 | % | $ | 10,057 |   | $ | 380.8 |   | 7.57 | % |
| Other loans *(2)*                                                                          |   | 21                   |   | 0.8 |   | 7.66 |   | 19 |   | 0.8 |   | 8.64 |   |
| Loans held for sale                                                                        |   | 5,091                |   | 146.5 |   | 5.80 |   | 3,847 |   | 126.4 |   | 6.63 |   |
| Securities *(3)*                                                                           |   | 5,362                |   | 114.3 |   | 4.27 |   | 4,363 |   | 126.7 |   | 5.81 |   |
| Other interest-earning  assets                                                             |   | 308                  |   | 9.0 |   | 5.86 |   | 297 |   | 16.9 |   | 11.45 |   |
| Total interest-earning  assets                                                             |   | 20,561               |   | 593.6 |   | 5.79 |   | 18,583 |   | 651.6 |   | 7.03 |   |
| Non-interest earning  assets *(4)*                                                         |   | 1,143                |   |   |   |   |   | 1,021 |   |   |   |   |   |
| Total assets                                                                               |   | $                    | 21,704 |   |   |   |   |   | $ | 19,604 |   |   |   |   |   |
|                                                                                       |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholders’ Equity:**                                            |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                    |   | $                    | 1,412  |   | 5.5 |   | 0.79 |   | $ | 1,270 |   | 8.8 |   | 1.39 |   |
| Demand deposits and  N.O.W.                                                                |   | 2,240                |   | 17.0 |   | 1.53 |   | 842 |   | 3.7 |   | 0.91 |   |
| Money market and  variable rate savings                                                    |   | 3,440                |   | 24.9 |   | 1.46 |   | 3,137 |   | 29.9 |   | 1.92 |   |
| Total core deposits                                                                        |   | 7,092                |   | 47.4 |   | 1.35 |   | 5,249 |   | 42.4 |   | 1.63 |   |
| Term certificates of  deposit                                                              |   | 4,999                |   | 75.7 |   | 3.05 |   | 5,593 |   | 108.5 |   | 3.91 |   |
| Total deposits                                                                             |   | 12,091               |   | 123.1 |   | 2.05 |   | 10,842 |   | 150.9 |   | 2.81 |   |
| Mortgagors’ escrow                                                                    |   | 65                   |   | 0.6 |   | 1.93 |   | 84 |   | 0.7 |   | 1.74 |   |
| Borrowed funds                                                                             |   | 6,996                |   | 106.7 |   | 3.04 |   | 6,252 |   | 103.5 |   | 3.34 |   |
| Senior notes                                                                               |   | 48                   |   | 0.8 |   | 3.25 |   | — |   | — |   | — |   |
| Senior bank notes                                                                          |   | —               |   | — |   | — |   | 134 |   | 4.6 |   | 6.72 |   |
| Subordinated bank notes                                                                    |   | 150                  |   | 7.0 |   | 9.36 |   | 150 |   | 7.0 |   | 9.36 |   |
| Guaranteed preferred beneficial  interest in Company’s junior subordinated debentures |   | 200                  |   | 9.2 |   | 9.16 |   | 200 |   | 9.2 |   | 9.16 |   |
| Total interest-bearing  liabilities                                                        |   | 19,550               |   | 247.4 |   | 2.54 |   | 17,662 |   | 275.9 |   | 3.13 |   |
| Other liabilities *(5)*                                                                    |   | 252                  |   |   |   |   |   | 175 |   |   |   |   |   |
| Total liabilities                                                                          |   | 19,802               |   |   |   |   |   | 17,837 |   |   |   |   |   |
| Stockholders’ equity                                                                  |   | 1,902                |   |   |   |   |   | 1,767 |   |   |   |   |   |
| Total liabilities and  stockholders’ equity                                           |   | $                    | 21,704 |   |   |   |   |   | $ | 19,604 |   |   |   |   |   |
| Net interest  income/interest rate spread *(6)*                                            |   |                 |   | $ | 346.2 |   | 3.25 | % |   |   | $ | 375.7 |   | 3.90 | % |
| Net interest-earning  assets/net interest margin *(7)*                                     |   | $                    | 1,011  |   |   |   | 3.37 | % | $ | 921 |   |   |   | 4.05 | % |
| Ratio of  interest-earning assets to interest-earning liabilities                          |   | 1.05                 | x      |   |   |   |   | 1.05 | x |   |   |   |   |

 

----

*(1)**      **Net interest income is calculated on a taxable-equivalentbasis.*

*(2)**      **In computing the average balances and average yield onloans, non-accruing loans have been included.*

*(3)**      **The average yield does not give effect to changes in fairvalue that are reflected as a component of stockholders’ equity.*

*(4)**      **Includes goodwill, banking premises and equipment, servicingassets, deferred tax assets, accrued interest receivable, and othermiscellaneous non-interest earning assets.*

*(5)**      **Includes accrued interest payable, accounts payable andother miscellaneous non-interest bearing obligations of the Company.*

*(6)**      **Net interest rate spread represents the difference betweenthe average yield on interest-earning assets and the average cost ofinterest-bearing liabilities.*

*(7)**      **Net interest margin represents net interest income dividedby average interest-earning assets.*

 

27

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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. Information is provided in each category on changes (i)attributable to changes in volume (changes in volume multiplied by prior rate),(ii) changes attributable to changes in rate (changes in rate multiplied byprior volume), and (iii) the net change. The changes attributable to thecombined impact of volume and rate have been allocated proportionately tovolume and rate.

 
|                                                                                       |   | **Quarter Ended June 30,  2003  Compared to  Quarter Ended June 30, 2002  Increase/(Decrease)** |   | **Six Months Ended June  30, 2003  Compared to  Six Months Ended June 30, 2002  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)*                                                   |   | $                                                                                               | (2.3   | )                                                                                                     | $      | (27.4 | ) | $ | (29.7 | ) | $ | (10.3 | ) | $ | (47.5 | ) | $ | (57.8 | ) |
| Other loans *(1)*                                                                          |   | 0.1                                                                                             |   | (0.1                                                                                                  | )      | — |   | 0.1 |   | (0.1 | ) | — |   |
| Loans held for sale                                                                        |   | 14.1                                                                                            |   | (10.6                                                                                                 | )      | 3.5 |   | 37.2 |   | (17.1 | ) | 20.1 |   |
| Securities                                                                                 |   | 15.2                                                                                            |   | (23.4                                                                                                 | )      | (8.2 | ) | 25.4 |   | (37.8 | ) | (12.4 | ) |
| Other interest-earning assets                                                              |   | (0.1                                                                                            | )      | (2.6                                                                                                  | )      | (2.7 | ) | 0.6 |   | (8.5 | ) | (7.9 | ) |
| Total interest earned on assets                                                            |   | 27.0                                                                                            |   | (64.1                                                                                                 | )      | (37.1 | ) | 53.0 |   | (111.0 | ) | (58.0 | ) |
| Savings                                                                                    |   | 0.5                                                                                             |   | (2.3                                                                                                  | )      | (1.8 | ) | 0.9 |   | (4.2 | ) | (3.3 | ) |
| Demand deposits and N.O.W.                                                                 |   | 5.3                                                                                             |   | 1.0                                                                                                   |   | 6.3 |   | 9.2 |   | 4.1 |   | 13.3 |   |
| Money market and variable rate savings                                                     |   | 1.4                                                                                             |   | (4.1                                                                                                  | )      | (2.7 | ) | 2.7 |   | (7.7 | ) | (5.0 | ) |
| Term certificates of deposit                                                               |   | (5.2                                                                                            | )      | (8.6                                                                                                  | )      | (13.8 | ) | (10.7 | ) | (22.1 | ) | (32.8 | ) |
| Mortgagors’ escrow                                                                    |   | (0.1                                                                                            | )      | 0.1                                                                                                   |   | — |   | (0.2 | ) | 0.1 |   | (0.1 | ) |
| Borrowed funds                                                                             |   | 6.0                                                                                             |   | (6.3                                                                                                  | )      | (0.3 | ) | 11.7 |   | (8.5 | ) | 3.2 |   |
| Senior notes                                                                               |   | 0.8                                                                                             |   | —                                                                                                |   | 0.8 |   | 0.8 |   | — |   | 0.8 |   |
| Senior bank notes                                                                          |   | (2.3                                                                                            | )      | —                                                                                                |   | (2.3 | ) | (4.6 | ) | — |   | (4.6 | ) |
| Subordinated bank notes                                                                    |   | —                                                                                          |   | —                                                                                                |   | — |   | — |   | — |   | — |   |
| Guaranteed preferred beneficial interest in  Company’s junior subordinated debentures |   | —                                                                                          |   | —                                                                                                |   | — |   | — |   | — |   | — |   |
| Total interest paid on liabilities                                                         |   | 6.4                                                                                             |   | (20.2                                                                                                 | )      | (13.8 | ) | 9.8 |   | (38.3 | ) | (28.5 | ) |
| Net change in net interest income                                                          |   | $                                                                                               | 20.6   |                                                                                                  | $      | (43.9 | ) | $ | (23.3 | ) | $ | 43.2 |   | $ | (72.7 | ) | $ | (29.5 | ) |

 

----

*(1)**      **In computing the volume and rate components of net interestincome for loans, non-accrual loans have been included.*

 

**Provision for loan losses**

The provision for loan losses was $0.6million and $0.9 million for the second quarter and six months periods ended June30, 2003, an increase of $0.3 million $0.2 million from the year ago quarterand six month periods. The provision equaled net charge-offs for all periods.

 

28

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**Non-Interest Income**

Thefollowing table summarizes the components of non-interest income:

 
|                                      |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|-------------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In millions)**                         |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
| Income from fees and commissions:         |   |                        |   |                           |   |   |   |   |   |
| Loan servicing fees                       |   | $                           | (0.4   | )                              | $      | 5.9 |   | $ | 5.4 |   | $ | 11.1 |   |
| Banking services fees and commissions     |   | 17.2                        |   | 14.4                           |   | 31.7 |   | 27.0 |   |
| Fees, commissions and other income        |   | 3.1                         |   | 4.4                            |   | 6.5 |   | 7.0 |   |
| Total income from fees and commissions    |   | 19.9                        |   | 24.7                           |   | 43.6 |   | 45.1 |   |
| Net gain on sales of mortgage loans       |   | 145.7                       |   | 86.0                           |   | 270.0 |   | 176.0 |   |
| Change in valuation of retained interests |   | (0.7                        | )      | (7.1                           | )      | (1.4 | ) | (7.1 | ) |
| Net (loss) gain on securities             |   | (0.6                        | )      | 2.0                            |   | 0.6 |   | 3.8 |   |
| Total non-interest income                 |   | $                           | 164.3  |                           | $      | 105.6 |   | $ | 312.8 |   | $ | 217.8 |   |

 

Non-interestincome in the second quarter and six months ended June 30, 2003 was $164million and $313 million, up 56% and 44% from the comparable periods a yearago. The increase versus the year ago period was due to a substantial increasein net gain on sale of mortgage loans. The gain on sale of loans is describedin further detail in the following paragraphs.

Incomefrom fees and commissions was $20 million and $44 million for the quarter andsix months ended June 30, 2003, versus $25 million and $45 million in the sameperiods a year ago. Loan servicing fees decreased for both the current quarterand six month periods versus the year ago periods primarily due to a $3 millionimpairment charge recorded on the mortgage loan servicing asset due toincreased prepayment speeds as a result of the low interest rate environment.The $3 million and $5 million increase in banking fees for the quarter and sixmonths periods, versus a year ago, was due to an increase in the number ofchecking accounts as a result of *de novo*branch expansion along with consumer bank marketing initiatives that increasedcore deposit balances.

 

**Gain on sale of loans**

Thefollowing table summarizes loans sold and average margins earned:

 
|                                 |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|--------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In millions)**                    |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
| **Whole loan – Mortgage:**      |   |                        |   |                           |   |   |   |   |   |
| Sales                                |   | $                           | 8,686  |                           | $      | 5,943 |   | $ | 17,488 |   | $ | 11,397 |   |
| Gain on sale                         |   | $                           | 141    |                           | $      | 84 |   | $ | 264 |   | $ | 170 |   |
| Average margin                       |   | 1.62                        | %      | 1.41                           | %      | 1.51 | % | 1.49 | % |
| Average margin by product type:      |   |                        |   |                           |   |   |   |   |   |
| Specialty products *(1)*             |   | 3.06                        | %      | 2.95                           | %      | 2.97 | % | 2.96 | % |
| Home equity / Seconds                |   | 1.19                        | %      | 1.59                           | %      | 1.22 | % | 1.66 | % |
| Agency / Jumbo                       |   | 1.02                        | %      | 0.57                           | %      | 0.86 | % | 0.63 | % |
| **Securitizations – Mortgage:** |   |                        |   |                           |   |   |   |   |   |
| Sales                                |   | $                           | 319    |                           | $      | 63 |   | $ | 353 |   | $ | 226 |   |
| Gain on sale *(2)*                   |   | $                           | 5      |                           | $      | 2 |   | $ | 6 |   | $ | 6 |   |
| Average margin                       |   | 1.57                        | %      | 3.26                           | %      | 1.58 | % | 2.59 | % |

 

----

*(1)Specialtyproducts include: Alt A, No Doc and A minus programs.*

*(2)Includesdraws from prior period securitizations.*

 

29

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Gainon sale of mortgage loans increased for the quarter and six months ended June30, 2003, versus the comparable periods a year ago, principally due to a highervolume of loans sold along with higher yields earned on the sales. The averagesale margin was 162 basis points compared to 141 basis points for the secondquarter of 2002. The higher margin in the second quarter was the result ofhigher margins earned on both specialty and agency / jumbo products, whichincreased to 306 basis points and 102 basis points from 295 basis points and 57basis points, respectively.

Inthe second quarter of 2003, the Company recognized a gain of $4 million relatedto a new securitization of home equity lines of credit. The year ago periodgain represented gains on previously securitized home equity lines.

 

**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)**                                |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
| Salaries and benefits                            |   | $                           | 66.5   |                           | $      | 47.4 |   | $ | 128.1 |   | $ | 96.7 |   |
| Employee Stock Ownership and stock plans expense |   | 6.7                         |   | 7.0                            |   | 12.8 |   | 13.0 |   |
| Net expense of premises and equipment            |   | 20.9                        |   | 17.5                           |   | 41.8 |   | 35.5 |   |
| Advertising                                      |   | 4.5                         |   | 5.7                            |   | 8.9 |   | 8.6 |   |
| Federal deposit insurance premiums               |   | 0.5                         |   | 0.5                            |   | 1.0 |   | 1.0 |   |
| Other administrative expenses                    |   | 27.3                        |   | 24.6                           |   | 54.4 |   | 48.6 |   |
| Total general and administrative expenses        |   | 126.4                       |   | 102.7                          |   | 247.0 |   | 203.4 |   |
| Other real estate owned operating income, net    |   | (1.7                        | )      | (0.6                           | )      | (1.5 | ) | (1.1 | ) |
| Total non-interest expense                       |   | $                           | 124.7  |                           | $      | 102.1 |   | $ | 245.5 |   | $ | 202.3 |   |

 

Total general and administrativeexpense increased $23 million to $126 million from $103 million for thequarter ended June 30, 2002 and increased $44 million to $247 million from $203million for the six month periods. The non-interest expense increase versus ayear ago reflected the increased mortgage origination volume and higher costsassociated with the *de novo*branching program. The salaries and benefits expense increase of $19 millionand $31 million for the quarter and six months ended June 30, 2003 versus ayear ago related to the significant increase in mortgage production and thestrong performance of both businesses.

 

**Income Tax Expense**

Incometax expense increased $5 million, or 8%, to $77 million for the second quarterof 2003 and increased $10 million, or 7%, to $152 million for the first sixmonths of 2003, versus the comparable periods a year ago. The rise in thecurrent quarter and six month period, compared to 2002, is due to higherpre-tax income and an increase in the effective tax rate from 36.9% to 37.3%.

 

30

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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)**                              |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
| **Mortgage:**                                  |   |                        |   |                           |   |   |   |   |   |
| Total applications received                    |   | $                           | 23,189 |                           | $      | 15,038 |   | $ | 41,578 |   | $ | 27,074 |   |
| Loans originated:                              |   |                        |   |                           |   |   |   |   |   |
| Specialty products *(1)*                       |   | $                           | 2,921  |                           | $      | 2,455 |   | $ | 5,681 |   | $ | 4,646 |   |
| Home equity / Seconds                          |   | 614                         |   | 694                            |   | 1,142 |   | 1,312 |   |
| Agency / Jumbo                                 |   | 7,808                       |   | 3,892                          |   | 13,848 |   | 7,517 |   |
| Total loans originated *(2)*                   |   | $                           | 11,343 |                           | $      | 7,041 |   | $ | 20,671 |   | $ | 13,475 |   |
| Commitments to originate loans (end of period) |   | $                           | 12,136 |                           | $      | 7,049 |   | $ | 12,136 |   | $ | 7,049 |   |
| Loans held for sale (end of period)            |   | $                           | 5,370  |                           | $      | 4,251 |   | $ | 5,370 |   | $ | 4,251 |   |

 

----

*(1)**      **Specialty products include: Alt A, No Doc and A minusprograms*

*(2)**      **Total loans originated include, correspondent purchases forthe held for investment portfolio, which totaled $1.1 billion and $1.5 billionthe quarter and six months ended June 30, 2003.*

 

Totalloan originations during the quarter and six month periods for the mortgagebusiness were $11.3 billion and $20.7 billion, up from $7.0 billion and $13.5billion during the second quarter and first six months of 2002. Specialtyproduct originations were $2.9 billion and $5.7 billion for the quarter and sixmonth periods, up from $2.5 billion and $4.6 billion in the comparable periodsa year ago. Agency / Jumbo originations increased from $3.9 billion to $7.8billion and from $7.5 billion to $13.8 billion for the quarter and six monthsended June 30, 2003 versus the same periods a year ago. The change in loanorigination product mix reflects the declining interest rate environment andthe continued strong demand for mortgage refinancing.

 

**Non-Performing Assets:**

Non-performingassets consist of non-accruing loans and other real estate owned. GreenPointreports non-accruing loans separately for the held for investment and held forsale portfolios. The ratio of non-accruing loans held for investment tomortgage loans held for investment increased to 1.62% at June 30, 2003 from1.61% at December 31, 2002 and the ratio of non-performing assets to totalassets increased to 1.18% at June 30, 2003 from 1.12% at December 31, 2002.GreenPoint attempts to convert these assets to interest-earning assets asquickly as possible, while minimizing potential losses on conversion.

Non-performingloans held for sale represent delinquent loans in the mortgage warehouse thatmostly have been acquired as repurchases against representations andwarranties. These loans increased to $86 million at the end of the secondquarter from $66 million at December 31, 2002. This increase has resulted fromthe substantial growth in loans sold over the past two years. GreenPointmaintains a valuation reserve through which the value of these loans isadjusted to the estimated fair value.

Non-performingassets, were as follows:

 
| **(In millions)**                                          |   | **June 30,  2003** |   | **Dec. 31,  2002** |   |
|------------------------------------------------------------|--------|--------------------|--------|--------------------|--------|
| Non-accrual loans receivable held for investment  *(1)*    |   | $                  | 162    |               | $      | 160 |   |
| Non-accrual loans receivable held for sale                 |   | 86                 |   | 66                 |   |
| Total non-performing loans                                 |   | 248                |   | 226                |   |
| Total other real estate owned, net                         |   | 20                 |   | 17                 |   |
| Total non-performing assets                                |   | $                  | 268    |               | $      | 243 |   |
|                                                       |   |               |   |               |   |
| Other loans 90 days or more delinquent and still  accruing |   | $                  | 1      |               | $      | 1 |   |

 

----

*(1)**      **Includes $3 million $5 million of non-accrual mortgage loansunder 90 days past due at June 30, 2003 and December 31, 2002.*

 

31

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**Loan Servicing Portfolio**

Thefollowing table summarizes the dollar amount of loans serviced for GreenPointand for others:

 
| **(In millions)**                   |   | **June 30,  2003** |   | **Dec. 31,  2002** |   |
|-------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Mortgage:**                       |   |               |   |               |   |
| Serviced for GreenPoint *(1)*       |   | $                  | 12,998 |               | $      | 14,936 |   |
| Serviced for others (third parties) |   | 15,718             |   | 14,647             |   |
| **Total loan servicing portfolio**  |   | $                  | 28,716 |               | $      | 29,583 |   |

* *

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*(1)          Includesloans held for sale and loans held for investment at end of period.*

 

**Allowance for Possible LoanLosses:**

Thefollowing is a summary of the provision and allowance for possible loan losses:

 
|                                                                    |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|-------------------------------------------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In millions)**                                                       |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
| Balance at beginning of period                                          |   | $                           | 77.7   |                           | $      | 77.7 |   | $ | 77.7 |   | $ | 80.6 |   |
| Provision charged to income:                                            |   |                        |   |                           |   |   |   |   |   |
| Continuing                                                              |   | 0.6                         |   | 0.3                            |   | 0.9 |   | 0.7 |   |
| Discontinued                                                            |   | (0.4                        | )      | (0.1                           | )      | (0.3 | ) | (0.1 | ) |
| Charge-offs:                                                            |   |                        |   |                           |   |   |   |   |   |
| Mortgage                                                                |   | (0.7                        | )      | (0.4                           | )      | (1.1 | ) | (0.8 | ) |
| Manufactured housing                                                    |   | (1.0                        | )      | (0.3                           | )      | (2.6 | ) | (0.3 | ) |
| Manufactured housing – transfer to loans  receivable held for sale |   | —                      |   | —                         |   | — |   | (2.9 | ) |
| Recoveries:                                                             |   |                        |   |                           |   |   |   |   |   |
| Mortgage                                                                |   | 0.1                         |   | 0.1                            |   | 0.2 |   | 0.1 |   |
| Manufactured housing                                                    |   | 1.4                         |   | 0.4                            |   | 2.9 |   | 0.4 |   |
| Balance at end of period                                                |   | $                           | 77.7   |                           | $      | 77.7 |   | $ | 77.7 |   | $ | 77.7 |   |

 

Net mortgage loan charge-offs were $0.6 million and $0.9 million forthe quarter and six months ended June 30, 2003, up from $0.3 millionand $0.7 million in the year ago periods.

 

**CapitalRatios**

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, 2003, that the Companyand the Bank meet all capital adequacy requirements to which it is subject.

FDICIA,among other things, identifies five capital categories for insured depositoryinstitutions (well capitalized, adequately capitalized, undercapitalized,significantly undercapitalized and critically undercapitalized) and requiresfederal banking regulatory agencies to implement systems for “prompt correctiveaction” for insured depository institutions that do not meet minimum capitalrequirements based on these categories. As of June 30, 2003, the Bank was wellcapitalized based on the prompt corrective action guidelines.

 

32

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Themost recent notification from the FDIC categorized the Bank as well capitalizedunder the regulatory framework for prompt corrective action. To be categorizedas well capitalized, the Bank must maintain minimum Tier 1 capital, totalcapital and leverage ratios of 6%, 10% and 5%, respectively. There have been noconditions or events since that notification that management believes havechanged the Company’s or Bank’s category.

The Company’s Total Capital and Tier 1 Capital (to risk weightedassets) declined from 12.96% and 11.43%, respectively, at December 31, 2002 to12.79% and 11.28%, respectively at June 30, 2003. The Company’s ratio ofperiod-end stockholders’ equity to ending total assets at June 30, 2003 was8.46% compared to 8.82% at December 31, 2002.

 
|                                      |   | **Actual** |   | **Required for Capital  Adequacy Purposes** |   |
|-------------------------------------------|--------|------------|--------|---------------------------------------------|--------|
| **(In millions)**                         |   | **Amount** |   | **Ratio**                                   |   | **Amount** |   | **Ratio** |   |
| **As of June 30, 2003**                   |   |       |   |                                        |   |   |   |   |   |
| Total Capital (to Risk Weighted Assets):  |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,931  |                                        | 12.79  | % | $ | 1,208 |   | 8.00 | % |
| Bank                                      |   | 1,865      |   | 12.33                                       |   | 1,210 |   | 8.00 |   |
| Tier 1 Capital (to Risk Weighted Assets): |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,704  |                                        | 11.28  | % | $ | 604 |   | 4.00 | % |
| Bank                                      |   | 1,638      |   | 10.83                                       |   | 605 |   | 4.00 |   |
| Tier 1 Capital (to Average Assets):       |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,704  |                                        | 7.68   | % | $ | 888 |   | 4.00 | % |
| Bank                                      |   | 1,638      |   | 7.38                                        |   | 888 |   | 4.00 |   |
|                                      |   |       |   |                                        |   |   |   |   |   |
| **As of December 31, 2002**               |   |       |   |                                        |   |   |   |   |   |
| Total Capital (to Risk Weighted Assets):  |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,924  |                                        | 12.96  | % | $ | 1,188 |   | 8.00 | % |
| Bank                                      |   | 1,905      |   | 12.83                                       |   | 1,188 |   | 8.00 |   |
| Tier 1 Capital (to Risk Weighted Assets): |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,696  |                                        | 11.43  | % | $ | 594 |   | 4.00 | % |
| Bank                                      |   | 1,678      |   | 11.30                                       |   | 594 |   | 4.00 |   |
| Tier 1 Capital (to Average Assets):       |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,696  |                                        | 7.51   | % | $ | 904 |   | 4.00 | % |
| Bank                                      |   | 1,678      |   | 7.42                                        |   | 904 |   | 4.00 |   |

 

**Stock Repurchase Program**

InFebruary 2003, the Company’s Board of Directors authorized a new sharerepurchase program of up to 5%, or approximately 4.8 million, of itsoutstanding shares. The repurchase will be at the Company’s discretion, basedon ongoing assessments of the capital needs of the business and the marketvaluation of its stock.

TheCompany’s previous share repurchase program was completed during the firstquarter. Under this program, the Company repurchased 5 million shares, at acost of approximately $218 million. The repurchased shares are being heldin treasury.

Sharesrepurchased and cost for the quarters and six months ended June 30, 2003 and2002 are summarized as follows:

 
|                         |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(Dollars in millions)**    |   | **2003**                    |   | **2002**                       |   | **2003** |   | **2002** |   |
|                         |   |                        |   |                           |   |   |   |   |   |
| Number of shares repurchased |   | 2,322,300                   |   | 1,476,800                      |   | 5,185,100 |   | 1,771,200 |   |
| Cost of repurchases          |   | $                           | 113    |                           | $      | 72 |   | $ | 238 |   | $ | 85 |   |
|                              |        |                             |        |                                |        |  |  |  |  |  |  |  |  |

 

33

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**SupplementalPerformance Measurements – C****ash Earnings**

Cash earnings is a non-GAAP measurement that GreenPointdefines as net income from continuing operations less a non-cash charge relatedto the Employee Stock Ownership Plan (“ESOP”). This non-cash expense, unlikeother expenses 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,  2003** |   | **March 31,  2003**  |   | **Dec. 31,  2002** |   | **Sept. 30,  2002** |   | **June 30,  2002** |   | **June 30,** |   |
| **2003**                                               |   | **2002**           |
| Net income from  continuing operations                 |   | $                  | 129.8  |                 | $      | 126.9 |   | $ | 128.6 |   | $ | 126.5 |   | $ | 122.6 |   | $ | 256.7 |   | $ | 243.1 |   |
| Add back:                                              |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Employee Stock  Ownership and stock plans expense      |   | 6.7                |   | 6.1                  |   | 6.9 |   | 6.3 |   | 7.0 |   | 12.8 |   | 13.0 |   |
| Cash earnings from  continuing operations              |   | $                  | 136.5  |                 | $      | 133.0 |   | $ | 135.5 |   | $ | 132.8 |   | $ | 129.6 |   | $ | 269.5 |   | $ | 256.1 |   |
|                                                   |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per  share from continuing operations |   | $                  | 1.54   |                 | $      | 1.47 |   | $ | 1.46 |   | $ | 1.41 |   | $ | 1.35 |   | $ | 3.02 |   | $ | 2.67 |   |
| Effect of employee  stock plans expense                |   | 0.08               |   | 0.07                 |   | 0.08 |   | 0.07 |   | 0.08 |   | 0.15 |   | 0.14 |   |
| Cash earnings per  share *(1)*                         |   | $                  | 1.62   |                 | $      | 1.54 |   | $ | 1.54 |   | $ | 1.48 |   | $ | 1.43 |   | $ | 3.17 |   | $ | 2.81 |   |
|                                                   |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Performance Ratios (Annualized)**                    |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Cash earnings return on average assets                 |   | 2.46               | %      | 2.51                 | %      | 2.40 | % | 2.50 | % | 2.59 | % | 2.48 | % | 2.61 | % |
| Cash earnings return on average equity                 |   | 28.87              |   | 27.80                |   | 28.50 |   | 28.67 |   | 29.11 |   | 28.34 |   | 28.99 |   |
| Cash earnings return on tangible equity                |   | 36.95              |   | 35.58                |   | 36.89 |   | 37.43 |   | 37.75 |   | 36.27 |   | 37.70 |   |

 

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*(1)**      **Based on the weighted average shares used to calculatediluted earnings per share.*

 

**Consolidated Statement of Financial Condition**

Totalassets of $22.7 billion at June 30, 2003 increased from $21.8 billion atDecember 31, 2002. The balance sheet reflects growth in the securitiesportfolio of $940 million. This was partially offset by a decrease in bothloans receivable held for sale and held for investment of $164 million.

Thebalance of core deposits increased $1.2 billion since year-end 2002, reflectingthe continued success of a variety of initiatives to attract checking accounts.This growth was offset in part by a decline of $623 million in higher-costcertificates of deposit. Market borrowings increased $279 million sinceyear-end 2002, reflecting the net additional funding needed.

 

**Risk Management**

 

The Company has a Corporate Risk OversightCommittee which monitors and supervises the wide variety of risks encountered inthe course of business. The Committee is chaired by the President and ChiefOperating Officer and includes the heads of its two businesses, the ChiefFinancial Officer, the Head of Risk Management and the General Counsel. TheCommittee meets periodically to review credit risk, including both on-balancesheet and off-balance sheet exposure, market risk and operating and businessrisks which include, but are not limited to, legal and systems risks. Theseindividual types of risks are also analyzed and monitored by separatecommittees comprised of experts within the business units and on the corporatestaff. Liquidity and Credit Risk Management are described fully below. TheMarket Risk analysis is included in Part I – Item 3 (page 37).

 

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**Liquidity Risk Management**

The Bank’s primary sources of funding fromfinancing activities include deposit gathering, advances from the FHLB, shortand long-term borrowings under repurchase agreements and overnight and term FederalFunds purchases. Cash flows related to operating activities primarily consistof cash disbursed to fund loan originations and cash received from loan salesand securitizations. Cash flows related to investing activities includepurchases of securities and loans receivable held for investment, fundsreceived from loan and securities principal repayments, and sales andmaturities of mortgage-backed and other investment securities. While maturitiesand scheduled amortization of loans and securities are a predictable source offunds, the amount of prepayments on loans and mortgage-backed securities canonly be estimated, as they tend to fluctuate with various exogenous factorsincluding the general level, and direction, of interest rates.

Fundsprovided from financing activities totaled $540 million for the six monthsended June 30, 2003. At June 30, 2003 total borrowings were $7.5 billion,up $279 million from $7.2 billion at December 31, 2002. Membership in the FHLBallows the Bank to secure advances in proportion to its investment in FHLBstock. At June 30, 2003 the Bank had $4.5 billion in outstanding FHLB termadvances. The Bank’s ability to secure further advances from the FHLB is basedon the market value of the pledged loan portfolio. At June 30, 2003, based onthe then current market value of the pledged portfolio, the Bank had additionalFHLB borrowing capacity of $259 million. The Bank also uses itsmortgage-backed and other investment securities as collateral under short andlong-term repurchase agreements. As of June 30, 2003 the Bank had $2.1 billionin outstanding repurchase agreements, which was an increase of $100 millionfrom December 31, 2002. At June 30, 2003 the company had un-pledged securitieseligible as collateral for repurchase agreements of $2.1 billion. The Bank alsosecures overnight and term funding in the Federal Funds market. At June 30,2003 the Bank had $215 million of overnight purchased Federal Funds.

Depositscontinue to be the primary funding source for the Company. Deposit balancesexperienced a net $529 million increase in the first six of 2003.Lower-cost core deposits increased by $1.2 billion offset by a decrease inhigher cost certificates of deposit of $623 million. The decline in certificateof deposit balances resulted from management’s decision to utilize lower costalternative funding sources rather than pay higher priced retail rates. Timedeposits maturing within one year totaled $3.0 billion at June 30, 2003.Consistent with historical trends, a substantial portion of these deposits areexpected to be renewed. To the extent these deposits are not renewed, fundingis expected to be provided through continued growth in core deposits (checking,savings and money market deposits) and through alternative financing sources.

 

# **Credit Risk Management**

During the second quarter of 2003, theCompany originated mortgage loans for its own portfolio and for disposition inthe secondary markets in the form of whole loan sales and securitizations. Ingeneral, whole loan sales transfer the credit risk to the purchasers. Incontrast, for loans placed in the portfolio, or for loans securitized, theCompany retains all or much of the credit risk. As of December 31, 2001, theCompany discontinued the origination of manufactured housing loans. However, itcontinues to service its manufactured housing loan portfolio, including itssecuritized loan pools. During the fourth quarter of 2002, GreenPoint Bankbegan to originate small business loans through its branch system to itsbusiness banking customers for the Bank’s portfolio.

GreenPoint Bank andGreenPoint Mortgage maintain underwriting policies, procedures and approvalauthorities appropriate to their businesses. The chief credit executive inGreenPoint Mortgage reports directly to the chief executive of the business,outside of the production organization. The chief credit executive in the smallbusiness banking group within GreenPoint Bank reports directly to the head ofthe small business banking group. With respect to mortgage loans originated forwhole loan sale to the secondary markets, where credit risk is transferred,underwriting criteria are established to meet the investor requirements. Anexecutive-level Risk Management Division determines the criteria required forloans which will be transferred to GreenPoint’s portfolio or sold throughsecuritizations. With respect to business loans at GreenPoint Bank, asophisticated scoring system is one of the tools being utilized in theunderwriting process.

 

35

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Oversight of the appraiserapproval and appraisal review process is conducted independent of theproduction organization. Appraisers are required to meet strict standards forapproval by GreenPoint, and their performance is monitored on a regular basis.With oversight by Risk Management, a comprehensive quality control process isin place to ensure that mortgage loans being originated meet the Company’sunderwriting standards, and that required operating procedures are followed. Loansare selected monthly on a pre and post funding basis for review by qualitycontrol analysts and staff appraisers. A quality control process has also beenestablished for the small business loans being originated by GreenPoint withmonthly reviews on a post-funding basis.

Risk Management personnelmonitor closely the performance of all loans on which the Company retainscredit risk. On securitization or sale, expectations are set on the default,recovery and voluntary prepayment rates. Each pool of loans is reviewed monthlyto ensure that performance is meeting those expectations. In the eventperformance does not meet expectations, the assumptions are revised. Finalresponsibility for these judgments resides with executive management,independent of the business unit.

Risk Management reviewsmonthly the delinquency and loss trends for all of the mortgage, manufacturedhousing, and small business loans serviced by the Company, whether or not itretains credit exposure. These reviews are intended to identify significantchanges in credit quality which may indicate changes to the Company’s exposuresor to the efficacy of its underwriting of loans sold to other investors. Suchchanges could prompt adjustments to the Company’s underwriting criteria orservicing procedures.

GreenPoint’s mortgage loanorigination activity is geographically diversified throughout the UnitedStates. The Company tracks economic and housing market trends to identify areasfor expansion and as an early warning mechanism. The Company also closelymonitors trends in delinquent and non-performing loans through cycles in theeconomy and in the real estate market. These economic and performance trendsare analyzed in the ongoing fine-tuning of lending practices.

The Company uses variouscollection strategies to maintain contact with the borrowers in order to obtainrepayment. Collection activities for GreenPoint Mortgage are centralized in aservicing unit in Columbus, Georgia. GreenPoint Credit’s collection activitieswere centralized during 2002 in a servicing center in Atlanta, Georgia in orderto target delinquent accounts more effectively utilizing more advancedtechnology. Remarketing activities for GreenPoint Credit remain decentralizedamong several regional offices in order to repossess and liquidate collateralmore effectively, thereby minimizing the loss severity. Collection efforts forGreenPoint Bank’s business banking loans are handled in a collaborative mannerby the credit analysts in New York and the servicing center in Columbus,Georgia.

The Company has set fortha policy for establishment and review of the adequacy of the allowance for loanlosses in order to provide for estimated costs related to the problem loans.Management believes that the allowance for loan losses is adequate. However,such determination is susceptible to the effect of future unanticipated changesin general economic and market conditions that may affect the financialcircumstances of borrowers and/or residential real estate values within theCompany’s lending areas. The Company has also established a reserve to coverlosses associated with repurchases of sold loans due to representation andwarranty violations. This reserve was sized using historical loss dataassociated with loan sales and additional reserves are set aside as the volumeof sold loans increases.

 

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**Part I —****Item 3.  Quantitative and Qualitative Disclosures about Market Risk**

 

**Market Risk Management**

 

**Overview**

The Company’s market risk exposure islimited solely to interest rate risk. Interest rate risk is defined as thesensitivity of the Company’s current and future earnings to changes in thelevel of market interest rates. Part of the Company’s interest rate riskresides on the balance sheet, as the maturity and repricing characteristics ofits assets do not match those of its liabilities. Additionally, a significantsource of the Company’s revenue, the proceeds from the sale of mortgage loans,depends on the volume of loan originations, which is sensitive to the level anddirection of market interest rates.

 

**MarketRisk Management Process**

Management of interest rate risk isconducted within policies and limits approved by the Board of Directors. Thesepolicies and limits set forth the maximum risks to earnings and market valuethat the Board of Directors deems prudent. In addition, they govern permissibleinvestments and off-balance sheet transactions, and maximum counterpartexposure limits. The formulation and implementation of any Risk Managementstrategy involves numerous day-to-day decisions involving the acquisition ordivestiture of loans and investment securities, reinvestment of cash flows, theselection of funding instruments and maturities and the use of off-balancesheet instruments. Together, these incremental decisions result in a strategythat is represented by the interest rate risk position. The performance of thepositions and strategies are formally reviewed by the Asset and LiabilityManagement Committee (“ALCO”) in the context of the outlook for interest ratesand general business conditions, as well as for compliance with establishedrisk tolerances and policies. The committee is chaired by the Chief FinancialOfficer and includes the Treasurer, the Head of Risk Management and theCompany’s Senior Business Unit and Financial Executives.

 

**InterestRate Risk Management Strategies**

Interest rate risk inherent on the balancesheet is managed taking into account the risks to earnings in the Company’smain businesses. Most importantly, the Company’s mortgage origination businessis sensitive to the level of interest rates. In a low or declining interestrate environment mortgage volumes tend to increase as demand for home purchasesand mortgage refinancing increases, leading to growth in mortgage bankingrevenues. Conversely, high or rising rates subdue mortgage demand, leading toless revenue.

These dynamics tend to bepartly offset by the sensitivity of retail banking revenues to changes in thelevel of interest rates. Typically in a high rate environment, spreads earnedon retail deposits increase, as rates paid on those deposits increase moreslowly than market rates in general. Additionally, the balance sheet isnormally positioned to allow for higher net interest income and wider netinterest margins as rates rise. This is known as an asset sensitive balancesheet position, and provides a further offset to the interest rate cyclicallyof mortgage banking revenue.

The interest ratesensitivity of the Company’s balance sheet originates with the cash flowcharacteristics of its loan portfolios and deposit products. Management altersthe overall balance sheet sensitivity through adjustments to the securitiesinvestment portfolio and the maturities of market borrowings, as well as variousdeposit pricing and derivatives strategies.

 

**InterestRate Risk Measurement**

The principal tool used to measure balancesheet sensitivity at any point in time, and to assess the impact of potentialbusiness and rate risk management strategies, is a simulation of net interestincome. The simulation gives effect to management assumptions concerning therepricing of assets and liabilities, as well as business volumes under avariety of hypothetical interest rate scenarios. These hypothetical scenariosincorporate parallel yield curve shifts in interest rates of plus or minus 100,200 and 300 basis points. In addition, non-parallel yield curve flattening andsteepening scenarios are modeled.

The most crucialmanagement assumptions concern prepayments on the Company’s mortgage loanportfolio and the pricing of retail deposits in various interest rateenvironments. As interest rates decline, mortgage prepayments tend to increase,reducing loan portfolio growth and lowering the portfolio’s average yield.Management’s assumptions are guided by analyzing the prepayment performance ofthe Company’s portfolio in past rate cycles as well as publicly availableresearch on the prepayment behavior of similar mortgage assets.

 

37

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Rates on non-maturitydeposits rise and fall with market rates, but tend to move less thanproportionately. Rates offered on retail certificates of deposit tend to movein close concert with market rates, though history suggests they increase lessrapidly as market rates rise. Extensive historical analysis shows that theCompany’s deposit volumes are relatively insensitive to interest rate movementswithin the range encompassed by the scenarios.

The following tablepresents the results of the simulations under a variety of hypotheticalinterest rate scenarios, based on the Company’s balance sheet position at June30, 2003. The results are expressed as the percentage change in pretax netinterest income from the base scenario in which interest rates are unchanged.The change in income is measured over a period of twelve months.

 
|             |   | **Short-term  Rate Changes:** |   |
|------------------|--------|-------------------------------|--------|
| **Yield  Curve** |   | **-200 bps**                  |   | **+200 bps** |   |
| -150 bps         |   | (14.6                         | )%     | 7.0 | % |
| Parallel         |   | (8.6                          | )%     | 10.7 | % |
| +150 bps         |   | (3.2                          | )%     | 14.5 | % |

 

The columns represent 200basis point changes—down and up—in the level of short-term interest rates overa twelve-month time span. The rows indicate changes in the shape of the yieldcurve over the same time period. The parallel row corresponds to changes inrate levels in which the yield curve retains its shape. In the -150 basis pointscenarios, the yield curve flattens, and in the +150 basis point simulationsthe curve steepens. For example, a parallel downward shift of 200 basis pointswould reduce net interest income by 8.6% from what would be earned if ratesremained constant. (As of June 30, 2003 not all rates could fall 200 basispoints without reaching zero. In these scenarios rates are reduced until theyreach zero. These scenarios are retained to allow for historical comparisons.)However, a decline of 200 basis points at the short end of the yield curve,accompanied by a 150 basis point steeper curve, would decrease net interestincome by 3.2% over the unchanged scenario.

At June 30, 2002 aparallel 200 basis point downward movement in interest rates was estimated toreduce net interest income by 4.8% from the base case. A parallel 200 basispoint rise in rates was estimated to benefit net interest income by 3.8%.

The simulations measurethe exposure of net interest income 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 risk profileis appropriate to its views on the likely course of interest rates anddevelopments in its core businesses.

In addition, the fairvalue of the mortgage company’s servicing assets and retained interests fromsecuritizations are directly affected by the level of prepayments associatedwith the underlying loans. As interest rates decline the value of these assetswill decline. Conversely as interest rates rise, the value of these assets willincrease.

 

**Derivative Financial Instruments**

Interest rate derivatives, such as interestrate swaps and Eurodollar futures, are periodically integrated into theCompany’s interest rate positions and, therefore, its simulations. The notionalamount of these instruments are not included in the company’s balance sheet. Therewere no outstanding derivative financial instruments hedging the Company’sinterest rate position at June 30, 2003.

 

38

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The Company does currentlyutilize derivative instruments to manage its exposure to interest rate riskassociated with mortgage loan commitments and mortgage loans held for sale.

Prior to the closing ofthe loan, the Company generally extends an interest rate lock commitment to theborrower. The Company is exposed to subsequent changes in the level of marketinterest rates, and the spread over Treasuries required by investors. Anincrease in market interest rates or a widening of spreads will reduce theprices paid by investors and the resultant gain on sale. To mitigate this risk,at the time the Company extends the interest rate lock commitment to theborrower, the Company will enter into mandatory commitments to deliver mortgagewhole loans to various investors, or to issue private securities and/or FannieMae and Freddie Mac securities (forward delivery commitments.) Thesecommitments effectively establish the price the Company will receive for therelated mortgage loan thereby minimizing the risk of subsequent changes ininterest rates. At June 30, 2003, the Company had mandatory forward deliverycommitments outstanding amounting to $4.1 billion.

 

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

 

 

The Company’s management, including itsChief Executive Officer and Chief Financial Officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as ofJune 30, 2003 and, based on its evaluation, has concluded that the Company’sdisclosure controls and procedures were effective as of June 30, 2003. Inaddition, there has been no change in the Company’s internal control overfinancial reporting that occurred during the Company’s most recent fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

40

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**Part II — Item 1. Legal Proceedings**

 

In the ordinary course of business, theCorporation and its subsidiaries are defendants in or parties to a number ofpending and threatened legal actions and proceedings, and are also involvedfrom 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 allclaims made against it; however, management believes, based on currentknowledge and after consultation with counsel, that these legal matters andadministrative proceedings and the losses, if any, resulting from the finaloutcome thereof, will not have a material adverse effect on the Corporation andits subsidiaries’ financial position, results of operations or liquidity, butcan give no assurance that they will not have such an effect.

 

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**Part II — Item 4. Submission ofMatters to a Vote of Security Holders**

 

 

Atthe Company’s annual meeting of shareholders held on April 29, 2003, thefollowing matters were voted upon with the results of the voting on suchmatters indicated:

 

1.     Election of the following three Directorsof the Company to three-year terms:

 
|             |   | **For**    |   | **Withheld** |   |
|------------------|--------|------------|--------|--------------|--------|
| Peter T. Paul    |   | 79,117,377 |   | 3,653,048    |   |
| Alvin N. Puryear |   | 77,782,963 |   | 4,987,462    |   |
| Robert P. Quinn  |   | 81,398,802 |   | 1,371,623    |   |

 

Thefollowing sets forth the names of Directors continuing in office after theannual meeting:

 

Bharat B. Bhatt

Dan F. Huebner

William M. Jackson

Thomas S. Johnson

Charles B. McQuade

J. Thomas Presby

Edward C. Schmults

Robert F. Vizza

 

2.     Ratification of the appointment ofPricewaterhouseCoopers LLP as the Company’s independent auditor for the yearending December 31, 2003:

 
| For     |   | 76,955,808 |   |
|---------|--------|------------|--------|
| Against |   | 5,561,600  |   |
| Abstain |   | 253,016    |   |

 

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**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)     Reports on Form 8-K**

 

On April 15, 2003, GreenPoint FinancialCorp. filed a current report on Form 8-K in connection with a press releaseannouncing first quarter results for the period ended March 31, 2003, whichpress release provided detail not publicly disclosed previously.

On May 9, 2003, GreenPointMortgage Securities Inc. filed a current report on Form 8-K in connection withthe offering of the Home Equity Loan Asset-Backed Securities, Series 2003-1,Class A Notes, of which GreenPoint Home Equity Loan Trust 2003-1 is the issuer.As described in a Prospectus Supplement to the Prospectus dated as of May 9,2003, certain “Collateral Term Sheets” within the meanings of the May 20, 1994Kidder, Peabody No-Action Letter and the February 17, 1995 Public SecuritiesAssociation No-Action Letter were furnished to certain prospective investors(the Related Computational Materials”).

On June 3, 2003,GreenPoint Mortgage Securities Inc. filed a current report on Form 8-K inconnection with issuance of Asset-Backed Securities on a delayed or continuousbasis pursuant to Rule 415 under the Securities Act of 1933, as amended, by theRegistration Statement on Form S-3. Pursuant to the Registration Statement, GreenPoint Home Equity LoanTrust 2003-1 (the “Trust”) issued Home Equity Assets-Backed Notes, Series2002-1 (the “Notes”), on May 19, 2003 (the “Closing Date”).

 

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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 12, 2003 |                       |   |

 

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