** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM10-Q**

 

| **ý****Quarterly Report Pursuant  to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|---------------------------------------------------------------------------------------------------------|

 

----

 

**Forthe Quarter Ended**

**June 30, 2002**

 

**OR**

 

| **o****Transition Report  Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|-----------------------------------------------------------------------------------------------------|

 

**0-22516**

Securities andExchange Commission File Number

 

**GreenPointFinancial Corp.**

(Exact name ofregistrant 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) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.

 

| ý  Yes |   | o  No |
|------------------|--------|------------|

 

As of August 2,2002 there were 99,267,310 shares of common stock outstanding.

 

----

 

**GreenPointFinancial Corp.**

 

**FORM 10-Q**

 

**For theQuarter Ended**

**June 30,2002**

 

**TABLE OFCONTENTS**

 
| **PART I - FINANCIAL INFORMATION**                                                                   |
|------------------------------------------------------------------------------------------------------|
|                                                                                                 |
| Item 1 - Financial Statements                                                                        |
|                                                                                                 |   |
|                                                                                                 | Consolidated  Statements of Financial Condition (unaudited) as of June 30, 2002 and  December 31, 2001 |
|                                                                                                 |   |
|                                                                                                 | Consolidated  Statements of Income (unaudited) for the quarter and six month periods ended  June 30, 2002 and 2001 |
|                                                                                                 |   |
|                                                                                                 | Consolidated  Statements of Comprehensive Income (unaudited) for the quarter and six month  periods ended June 30, 2002 and 2001 |
|                                                                                                 |   |
|                                                                                                 | Consolidated  Statements of Changes in Stockholders’ Equity (unaudited) for the six months  ended June 30, 2002 and 2001 |
|                                                                                                 |   |
|                                                                                                 | Consolidated Statements  of Cash Flows (unaudited) for the six months ended June 30, 2002 and 2001 |
|                                                                                                 |   |
|                                                                                                 | 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 Disclosure about Market Risk                                  |
|                                                                                                 |
| **PART II - OTHER INFORMATION**                                                                      |
|                                                                                                 |
| Item 1 - Legal  Proceedings                                                                          |
|                                                                                                 |
| Item 4 - Submission  of Matters to a Vote of Security Holders                                        |
|                                                                                                 |
| Item 5 - Other  Information                                                                          |
|                                                                                                 |
| Item 6 - Exhibits and Reports  on Form 8-K                                                           |

 

2

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**GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION**

**(Unaudited)**

 
| **(In millions, except share  amounts)**                                                               |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|--------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------------------|--------|
| **ASSETS**                                                                                             |   |               |   |               |   |
| Cash  and due from banks                                                                               |   | $                  | 228    |               | $      | 190 |   |
| Money  market investments:                                                                             |   |               |   |               |   |
| Interest-bearing  deposits in other banks                                                              |   | 4                  |   | 5                  |   |
| Federal  funds sold and securities purchased under agreements to resell                                |   | 13                 |   | 162                |   |
| Total  cash and cash equivalents                                                                       |   | 245                |   | 357                |   |
| Securities:                                                                                            |   |               |   |               |   |
| Securities  available for sale                                                                         |   | 1,821              |   | 1,542              |   |
| Securities  available for sale-pledged to creditors                                                    |   | 2,240              |   | 1,677              |   |
| Retained  interests in securitizations                                                                 |   | 106                |   | 131                |   |
| Federal  Home Loan Bank of New York stock                                                              |   | 220                |   | 233                |   |
| Securities  held to maturity (fair value of $2 and $3, respectively)                                   |   | 2                  |   | 3                  |   |
| Total  securities                                                                                      |   | 4,389              |   | 3,586              |   |
| Loans  receivable held for sale                                                                        |   | 4,368              |   | 4,945              |   |
| Loans  receivable held for investment (net of allowance for loan losses of $78 and  $81, respectively) |   | 9,784              |   | 9,961              |   |
| Other  interest-earning assets                                                                         |   | 144                |   | 139                |   |
| Banking  premises and equipment, net                                                                   |   | 152                |   | 149                |   |
| Servicing  assets                                                                                      |   | 112                |   | 123                |   |
| Goodwill  (net of accumulated amortization and impairment of $788)                                     |   | 395                |   | 395                |   |
| Other  assets                                                                                          |   | 514                |   | 531                |   |
| Total  assets                                                                                          |   | $                  | 20,103 |               | $      | 20,186 |   |
|                                                                                                   |   |               |   |               |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                         |   |               |   |               |   |
| **Liabilities:**                                                                                       |   |               |   |               |   |
| Deposits:                                                                                              |   |               |   |               |   |
| N.O.W.  and checking                                                                                   |   | $                  | 1,373  |               | $      | 648 |   |
| Savings                                                                                                |   | 1,291              |   | 1,215              |   |
| Variable  rate savings                                                                                 |   | 2,245              |   | 2,089              |   |
| Money  market                                                                                          |   | 933                |   | 895                |   |
| Total  core deposits                                                                                   |   | 5,842              |   | 4,847              |   |
| Term  certificates of deposit                                                                          |   | 5,213              |   | 5,859              |   |
| Total  deposits                                                                                        |   | 11,055             |   | 10,706             |   |
| Borrowings:                                                                                            |   |               |   |               |   |
| Securities  sold under agreements to repurchase                                                        |   | 2,200              |   | 1,600              |   |
| Other  short term borrowings                                                                           |   | 280                |   | 961                |   |
| Federal  Home Loan Bank of New York advances                                                           |   | 3,450              |   | 3,800              |   |
| Senior  bank notes                                                                                     |   | 134                |   | 134                |   |
| Subordinated  bank notes                                                                               |   | 150                |   | 150                |   |
| Guaranteed  preferred beneficial interest in Company’s junior subordinated debentures             |   | 200                |   | 200                |   |
| Total  borrowings                                                                                      |   | 6,414              |   | 6,845              |   |
| Mortgagors’  escrow                                                                               |   | 75                 |   | 81                 |   |
| Liability  under recourse exposure                                                                     |   | 344                |   | 468                |   |
| Other  liabilities                                                                                     |   | 362                |   | 430                |   |
| Total  liabilities                                                                                     |   | 18,250             |   | 18,530             |   |
| 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                                                                            |   | 897                |   | 877                |   |
| Unallocated  Employee Stock Ownership Plan (ESOP) shares                                               |   | (92                | )      | (95                | )      |
| Unearned  stock plans shares                                                                           |   | (1                 | )      | (1                 | )      |
| Retained  earnings                                                                                     |   | 1,349              |   | 1,148              |   |
| Accumulated  other comprehensive income, net                                                           |   | 31                 |   | 11                 |   |
| Treasury  stock, at cost (10,859,343 shares and 10,498,829 shares, respectively)                       |   | (332               | )      | (285               | )      |
| Total  stockholders’ equity                                                                       |   | 1,853              |   | 1,656              |   |
| Total  liabilities and stockholders’ equity                                                       |   | $                  | 20,103 |               | $      | 20,186 |   |

 

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

 

3

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(Unaudited)**

 
|                                                         |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|--------------------------------------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In millions, except per share  amounts)**                 |   | **2002**                    | ** ** | **2001**                       | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Interest income:**                                         |   |                        |       |                           |       |   |   |   |   |
| Mortgage  loans held for investment                          |   | $                           | 187        |                           | $          | 186 |   | $ | 381 |   | $ | 365 |   |
| Loans  held for sale                                         |   | 67                          |       | 53                             |       | 126 |   | 93 |   |
| Securities                                                   |   | 69                          |       | 62                             |       | 127 |   | 118 |   |
| Other                                                        |   | 6                           |       | 8                              |       | 12 |   | 18 |   |
| Total  interest income                                       |   | 329                         |       | 309                            |       | 646 |   | 594 |   |
| **Interest expense:**                                        |   |                        |       |                           |       |   |   |   |   |
| Deposits                                                     |   | 73                          |       | 118                            |       | 152 |   | 243 |   |
| Other  borrowed funds                                        |   | 54                          |       | 35                             |       | 103 |   | 50 |   |
| Long-term  debt                                              |   | 11                          |       | 10                             |       | 21 |   | 21 |   |
| Total  interest expense                                      |   | 138                         |       | 163                            |       | 276 |   | 314 |   |
| Net  interest income                                         |   | 191                         |       | 146                            |       | 370 |   | 280 |   |
| Provision  for loan losses                                   |   | (1                          | )          | (1                             | )          | (1 | ) | (1 | ) |
| Net  interest income after provision for loan losses         |   | 190                         |       | 145                            |       | 369 |   | 279 |   |
| **Non-interest income:**                                     |   |                        |       |                           |       |   |   |   |   |
| Income  from fees and commissions:                           |   |                        |       |                           |       |   |   |   |   |
| Loan  servicing fees                                         |   | 6                           |       | 4                              |       | 11 |   | 6 |   |
| Banking  services fees and commissions                       |   | 15                          |       | 11                             |       | 28 |   | 21 |   |
| Fees,  commissions and other income                          |   | 2                           |       | 1                              |       | 3 |   | 2 |   |
| Total  income from fees and commissions                      |   | 23                          |       | 16                             |       | 42 |   | 29 |   |
| Net  gain on sales of loans                                  |   | 86                          |       | 109                            |       | 176 |   | 174 |   |
| Change  in valuation of retained interests                   |   | (7                          | )          | —                         |       | (7 | ) | — |   |
| Net  gain on securities                                      |   | 4                           |       | 6                              |       | 7 |   | 12 |   |
| Total  non-interest income                                   |   | 106                         |       | 131                            |       | 218 |   | 215 |   |
| **Non-interest expense:**                                    |   |                        |       |                           |       |   |   |   |   |
| General  and administrative expenses:                        |   |                        |       |                           |       |   |   |   |   |
| Salaries  and benefits                                       |   | 48                          |       | 43                             |       | 97 |   | 84 |   |
| Employee  Stock Ownership and stock plans expense            |   | 7                           |       | 5                              |       | 13 |   | 9 |   |
| Net  expense of premises and equipment                       |   | 17                          |       | 18                             |       | 35 |   | 36 |   |
| Federal  deposit insurance premiums                          |   | —                      |       | —                         |       | 1 |   | 1 |   |
| Other  administrative expenses                               |   | 30                          |       | 25                             |       | 57 |   | 45 |   |
| Total  general and administrative expenses                   |   | 102                         |       | 91                             |       | 203 |   | 175 |   |
| Other  real estate owned operating income                    |   | —                      |       | (1                             | )          | (1 | ) | (1 | ) |
| Goodwill  amortization                                       |   | —                      |       | 11                             |       | — |   | 23 |   |
| Total  non-interest expense                                  |   | 102                         |       | 101                            |       | 202 |   | 197 |   |
| Income  from continuing operations before income taxes       |   | 194                         |       | 175                            |       | 385 |   | 297 |   |
| Income  taxes related to earnings from continuing operations |   | 71                          |       | 67                             |       | 142 |   | 116 |   |
| Net  income from continuing operations                       |   | 123                         |       | 108                            |       | 243 |   | 181 |   |
| **Discontinued operations:**                                 |   |                        |       |                           |       |   |   |   |   |
| Net  income (loss) from operations of discontinued business  |   | —                      |       | (22                            | )          | 2 |   | (17 | ) |
| **Net income**                                               |   | $                           | 123        |                           | $          | 86 |   | $ | 245 |   | $ | 164 |   |
|                                                         |   |                        |       |                           |       |   |   |   |   |
| **Basic earnings per share:**                                |   |                        |       |                           |       |   |   |   |   |
| Net  income from continuing operations                       |   | $                           | 1.39       |                           | $          | 1.21 |   | $ | 2.74 |   | $ | 2.04 |   |
| Net  income (loss) from discontinued operations              |   | —                      |       | (0.24                          | )          | 0.02 |   | (0.19 | ) |
| Net  income                                                  |   | $                           | 1.39       |                           | $          | 0.97 |   | $ | 2.76 |   | $ | 1.85 |   |
| **Diluted earnings per share:**                              |   |                        |       |                           |       |   |   |   |   |
| Net  income from continuing operations                       |   | $                           | 1.35       |                           | $          | 1.18 |   | $ | 2.67 |   | $ | 1.99 |   |
| Net  income (loss) from discontinued operations              |   | —                      |       | (0.23                          | )          | 0.02 |   | (0.18 | ) |
| Net  income                                                  |   | $                           | 1.35       |                           | $          | 0.95 |   | $ | 2.69 |   | $ | 1.81 |   |
| **Dividends declared per share**                             |   | $                           | 0.25       |                           | $          | 0.25 |   | $ | 0.50 |   | $ | 0.50 |   |

 

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

 

4

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME**

**(Unaudited)**

 
|                                                                |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|---------------------------------------------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In millions)**                                                   |   | **2002**                    | ** ** | **2001**                       | ** ** | **2002** | ** ** | **2001** | ** ** |
|                                                                |   |                        |       |                           |       |   |   |   |   |
| Net  income                                                         |   | $                           | 123        |                           | $          | 86 |   | $ | 245 |   | $ | 164 |   |
| Other  comprehensive income, before tax:                            |   |                        |       |                           |       |   |   |   |   |
| Unrealized  gain on securities:                                     |   |                        |       |                           |       |   |   |   |   |
| Unrealized  holding gain arising during period                      |   | 74                          |       | (22                            | )          | 42 |   | 19 |   |
| Less:  reclassification adjustment for gains included in net income |   | (4                          | )          | (6                             | )          | (7 | ) | (12 | ) |
| Other  comprehensive income, before tax                             |   | 70                          |       | (28                            | )          | 35 |   | 7 |   |
| Income tax  expense related to items of other comprehensive income  |   | (30                         | )          | 14                             |       | (15 | ) | (3 | ) |
| Other  comprehensive income, net of tax                             |   | 40                          |       | (14                            | )          | 20 |   | 4 |   |
| **Total comprehensive income, net of tax**                          |   | $                           | 163        |                           | $          | 72 |   | $ | 265 |   | $ | 168 |   |

 

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

 

5

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**GREENPOINT FINANCIAL CORP.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**(Unaudited)**

 
|                                                       |   | **Six Months Ended  June 30,** |       |
|------------------------------------------------------------|--------|--------------------------------|------------|
| **(In millions)**                                          |   | **2002**                       | ** ** | **2001** | ** ** |
| **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                            |   | 877                            |       | 862 |   |
| Reissuance  of treasury stock                              |   | (2                             | )          | (13 | ) |
| Amortization  of ESOP shares committed to be released      |   | 12                             |       | 9 |   |
| Amortization  of stock plans shares                        |   | 1                              |       | — |   |
| Tax  benefit for vested stock plans shares                 |   | 9                              |       | 10 |   |
| Balance  at end of period                                  |   | 897                            |       | 868 |   |
| **Unallocated  ESOP shares**                               |   |                           |       |   |   |
| Balance  at beginning of period                            |   | (95                            | )          | (100 | ) |
| Amortization  of ESOP shares committed to be released      |   | 3                              |       | 3 |   |
| Balance  at end of period                                  |   | (92                            | )          | (97 | ) |
| **Unearned  stock plans shares**                           |   |                           |       |   |   |
| Balance  at beginning of period                            |   | (1                             | )          | (2 | ) |
| Amortization  of stock plans shares                        |   | —                         |       | 1 |   |
| Balance  at end of period                                  |   | (1                             | )          | (1 | ) |
| **Retained  earnings**                                     |   |                           |       |   |   |
| Balance  at beginning of period                            |   | 1,148                          |       | 1,532 |   |
| Net  income                                                |   | 245                            |       | 164 |   |
| Dividends  declared                                        |   | (44                            | )          | (46 | ) |
| Balance  at end of period                                  |   | 1,349                          |       | 1,650 |   |
| **Accumulated  other comprehensive income, net**           |   |                           |       |   |   |
| Balance  at beginning of period                            |   | 11                             |       | 17 |   |
| Net  change in accumulated other comprehensive income, net |   | 20                             |       | 4 |   |
| Balance  at end of period                                  |   | 31                             |       | 21 |   |
| **Treasury  stock, at cost**                               |   |                           |       |   |   |
| Balance  at beginning of period                            |   | (285                           | )          | (260 | ) |
| Reissuance  of treasury stock                              |   | 38                             |       | 34 |   |
| Purchase  of treasury stock                                |   | (85                            | )          | (12 | ) |
| Balance  at end of period                                  |   | (332                           | )          | (238 | ) |
| **Total  stockholders’ equity**                       |   | $                              | 1,853      |   | $ | 2,204 |   |
|                                                            |        |                                |            |  |  |  |  |  |

 

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

 

6

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
|                                                                                          |   | **Six Months Ended  June 30,** |       |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------|------------|
| **(In millions)**                                                                             |   | **2002**                       | ** ** | **2001** | ** ** |
| **Cash  flows from operating activities:**                                                    |   |                           |       |   |   |
| Net  income                                                                                   |   | $                              | 245        |   | $ | 164 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities: |   |                           |       |   |   |
| Provision  for loan losses                                                                    |   | 1                              |       | 10 |   |
| Depreciation  and amortization                                                                |   | 16                             |       | 56 |   |
| ESOP  and stock plans expense                                                                 |   | 16                             |       | 12 |   |
| Capitalization  of servicing assets                                                           |   | (22                            | )          | (34 | ) |
| Amortization  and impairment of servicing assets                                              |   | 33                             |       | 28 |   |
| (Increase)  decrease in assets associated with operating activities:                          |   |                           |       |   |   |
| Loans  receivable held for sale:                                                              |   |                           |       |   |   |
| Loan  originations                                                                            |   | (13,578                        | )          | (11,480 | ) |
| Proceeds  from loan sales                                                                     |   | 14,116                         |       | 9,409 |   |
| Other                                                                                         |   | 39                             |       | 16 |   |
| Retained  interests in securitizations                                                        |   | 19                             |       | (24 | ) |
| Trading  related assets                                                                       |   | —                         |       | (30 | ) |
| Accrued  interest receivable                                                                  |   | 5                              |       | (9 | ) |
| Other  assets                                                                                 |   | 1                              |       | (26 | ) |
| Increase  (decrease) in liabilities associated with operating activities:                     |   |                           |       |   |   |
| Trading  related liabilities                                                                  |   | —                         |       | 30 |   |
| Liabilities  under recourse exposure                                                          |   | (124                           | )          | (44 | ) |
| Other  liabilities                                                                            |   | (68                            | )          | 56 |   |
| Other,  net                                                                                   |   | (5                             | )          | (13 | ) |
| Net  cash provided by (used in) operating activities                                          |   | 694                            |       | (1,879 | ) |
| **Cash  flows from investing activities:**                                                    |   |                           |       |   |   |
| Net  change in:                                                                               |   |                           |       |   |   |
| Loans  receivable held for investment                                                         |   | 164                            |       | (744 | ) |
| Premises  and equipment                                                                       |   | (20                            | )          | (17 | ) |
| Available  for sale securities:                                                               |   |                           |       |   |   |
| Proceeds  from maturities                                                                     |   | 76                             |       | 570 |   |
| Proceeds  from sales                                                                          |   | 1,189                          |       | 1,475 |   |
| Purchase  of securities                                                                       |   | (3,003                         | )          | (3,375 | ) |
| Principal  repayments                                                                         |   | 940                            |       | 789 |   |
| Federal  Home Loan Bank Stock: sales (purchases)                                              |   | 13                             |       | (74 | ) |
| Other,  net                                                                                   |   | 15                             |       | 14 |   |
| Net  cash used in investing activities                                                        |   | (626                           | )          | (1,362 | ) |
| **Cash  flows from financing activities:**                                                    |   |                           |       |   |   |
| Net  change in:                                                                               |   |                           |       |   |   |
| Domestic  deposits                                                                            |   | 349                            |       | (292 | ) |
| Mortgagors’  escrow accounts                                                             |   | (6                             | )          | 2 |   |
| Notes  payable                                                                                |   | —                         |       | (1 | ) |
| Securities  sold under agreements to repurchase                                               |   | (81                            | )          | 2,190 |   |
| Federal  Home Loan Bank advances                                                              |   | (350                           | )          | 1,249 |   |
| Cash  dividends paid                                                                          |   | (44                            | )          | (46 | ) |
| Treasury  stock purchased                                                                     |   | (85                            | )          | (12 | ) |
| Exercise  of stock options                                                                    |   | 37                             |       | 21 |   |
| Retirement  of long term debt                                                                 |   | —                         |       | (4 | ) |
| Net  cash (used in) provided by financing activities                                          |   | (180                           | )          | 3,107 |   |
| Net  decrease in cash and cash equivalents                                                    |   | (112                           | )          | (134 | ) |
| Cash  and cash equivalents at beginning of period                                             |   | 357                            |       | 311 |   |
| Cash  and cash equivalents at end of period                                                   |   | $                              | 245        |   | $ | 177 |   |
| **Non-cash  activities:**                                                                     |   |                           |       |   |   |
| Additions  to other real estate owned, net                                                    |   | $                              | (11        | ) | $ | (8 | ) |
| Unsettled  trades                                                                             |   | $                              | —     |   | $ | (122 | ) |
| **Supplemental  disclosure of cash flow information:**                                        |   |                           |       |   |   |
| Cash  paid for income taxes                                                                   |   | $                              | 112        |   | $ | 60 |   |
| Interest  paid                                                                                |   | $                              | 294        |   | $ | 224 |   |

 

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

 

7

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**NOTES TOTHE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****                    Summaryof Significant Accounting Policies**

 

**Basis of Presentation**

The unauditedconsolidated 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.

 

The Company adopted aplan to exit the manufactured housing lending business in December 2001.Current and comparative prior period consolidated statements of income presentthe results of continuing operations and discontinued operations separately.

 

The unauditedconsolidated interim financial statements presented should be read inconjunction with the consolidated financial statements and notes included inthe Company’s Annual Report to shareholders for the year ended December 31,2001.

 

**Accounting for Loan Sales**

The Company sells loansboth in the whole loan market and through various securitization vehicles.

 

When the Company has soldmortgages on a whole loan basis, in some cases it has retained the servicingrights related to the loans. In instances where the Company 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 the Company does retain the servicing rights, the gain orloss also depends in part on the fair value attributed to the servicing rights.

 

When GreenPoint has securitized certain mortgages, in some cases it hasretained the servicing rights and one or more retained interests. Incalculating the gain or loss on the sale, the Company allocates the cost basisof the loans sold between the assets sold, and the retained interests andservicing rights based on their relative fair values at the date of sale. Again or loss is recognized as the difference between the cash proceeds from thesale and the allocated cost basis of the assets sold.

 

**Retained Interests in Securitizations**

Retained interests in securitizations include interest-only strips,subordinated certificates, transferor interests, demand notes and the recordedliabilities for limited recourse provided on mortgage loans.

 

The Company classifies its retained interests in securitizations asavailable for sale and carries these securities at fair value. Generally, ifthe fair value of retained interests declines below its carrying amount(excluding unrealized gains), 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.

 

To obtain fair values, quoted market prices are used if available. Becausemarket quotes are generally not available for retained interests, the Companygenerally estimates fair value based upon the present value of estimated futurecash flows using assumptions of prepayments, defaults, loss severity rates, anddiscount rates that the Company believes market participants would use forsimilar assets and liabilities.

 

**Servicing Assets**

Servicing assets are carried at the lower of cost or fair value basedon defined risk strata and are amortized in proportion to and over the expectedservicing period.

 

The Company stratifies its servicing assets based on the riskcharacteristics of the underlying loan pools and the assets are evaluated forimpairment based on the risk characteristics. A valuation allowance isrecognized through a charge to current earnings for servicing assets that havean amortized balance in excess of the current fair value.

 

8

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The fair value of servicing assets is determined by calculating thepresent value of estimated future net servicing cash flows, using assumptionsof prepayments, defaults, servicing costs and discount rates that the Companybelieves market participants would use for similar assets.

 

**Goodwill Amortization**

Effective January 1, 2002, GreenPoint adopted Statement of FinancialAccounting Standards No. 142 (SFAS 142) which resulted in discontinuing theamortization of goodwill. Goodwill, which is attributable to the consumerbanking segment, will be carried at its January 1, 2002 book value of $395million and will be tested, at least annually, for impairment. The Companycompleted its transitional impairment test in the first quarter of 2002 and didnot recognize impairment, as the estimated fair value of the affected businessunit exceeded its carrying value, including goodwill.

# ** **

# **Discontinued Operations**

In December 2001, GreenPoint adopted a plan to discontinue themanufactured housing lending business. In accordance with the provisions ofAccounting Principals Board Statement No. 30, the consolidated statements ofincome have been presented to reflect this business as a discontinued operationand the income and expenses of the discontinued business have been reportedseparately. The projected future results of the discontinued operation were initiallyrecorded as part of the loss on disposal of the business recorded in the fourthquarter of 2001. The projection reflected management’s estimate of the futurerevenues and expenses of the operation. The assumptions underlying theseestimates are reviewed quarterly and the impact of revisions is included incurrent period earnings of the discontinued operation.

 

**2.****                    LoansReceivable**

 

The Company’s loansreceivable held for sale balances are summarized as follows:

 
| **(In millions)**                                          |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|------------------------------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Conventional  first mortgage loans:**                    |   |               |   |               |   |
| Residential  one-to four-family                            |   | $                  | 3,235  |               | $      | 3,834 |   |
| Commercial  property                                       |   | 11                 |   | 14                 |   |
| Second  mortgage and home equity loans                     |   | 968                |   | 358                |   |
| Manufactured  housing loans                                |   | 114                |   | 705                |   |
| Other                                                      |   | 1                  |   | 1                  |   |
| Total  loans receivable held for sale                      |   | 4,329              |   | 4,912              |   |
| Net  deferred loan origination costs and unearned discount |   | 39                 |   | 33                 |   |
| Loans  receivable held for sale, net                       |   | $                  | 4,368  |               | $      | 4,945 |   |

 

The Company’s loansreceivable held for investment balances are summarized as follows:

 
| **(In millions)**                                          |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|------------------------------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Conventional  first mortgage loans:**                    |   |               |   |               |   |
| Residential  one-to four-family                            |   | $                  | 8,748  |               | $      | 8,898 |   |
| Residential  multi-family                                  |   | 339                |   | 356                |   |
| Commercial  property                                       |   | 555                |   | 576                |   |
| Second  mortgage and home equity loans                     |   | 135                |   | 119                |   |
| Other                                                      |   | 57                 |   | 70                 |   |
| Total  loans receivable held for investment                |   | 9,834              |   | 10,019             |   |
| Net  deferred loan origination costs and unearned discount |   | 28                 |   | 23                 |   |
| Allowance  for loan losses                                 |   | (78                | )      | (81                | )      |
| Loans  receivable held for investment, net                 |   | $                  | 9,784  |               | $      | 9,961 |   |

 

9

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**3.****                    SecuritiesAvailable for Sale**

 

Theamortized cost and estimated fair value of securities available for sale atJune 30, 2002 and December 31, 2001 are summarized as follows:

 
|                                                  |   | **June 30,  2002**  |       |
|-------------------------------------------------------|--------|---------------------|------------|
| **(In millions)**                                     |   | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| **U.S.  Government and Federal Agency Obligations:**  |   |                |       |   |   |   |   |   |   |
| U.S. Treasury notes/bills                             |   | $                   | 4          |   | $ | — |   | $ | — |   | $ | 4 |   |
| Agency notes                                          |   | 80                  |       | — |   | (1 | ) | 79 |   |
| Mortgage-backed securities                            |   | 492                 |       | 15 |   | — |   | 507 |   |
| Collateralized mortgage obligations                   |   | 3,077               |       | 36 |   | — |   | 3,113 |   |
| Trust certificates collateralized by GNMA  securities |   | 5                   |       | — |   | — |   | 5 |   |
| Corporate bonds                                       |   | 112                 |       | — |   | (3 | ) | 109 |   |
| Municipal bonds                                       |   | 69                  |       | 4 |   | — |   | 73 |   |
| Equity securities                                     |   | 177                 |       | — |   | (6 | ) | 171 |   |
| Total securities available for sale                   |   | $                   | 4,016      |   | $ | 55 |   | $ | (10 | ) | $ | 4,061 |   |

 
|                                                  |   | **December  31, 2001** | ** ** |
|-------------------------------------------------------|--------|------------------------|------------|
| **(In millions)**                                     |   | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| **U.S.  Government and Federal Agency Obligations:**  |   |                   |       |   |   |   |   |   |   |
| U.S. Treasury notes/bills                             |   | $                      | 6          |   | $ | — |   | $ | — |   | $ | 6 |   |
| Agency notes                                          |   | 89                     |       | 1 |   | — |   | 90 |   |
| Mortgage-backed securities                            |   | 550                    |       | 12 |   | (2 | ) | 560 |   |
| Collateralized mortgage obligations                   |   | 2,211                  |       | 11 |   | (12 | ) | 2,210 |   |
| Trust certificates collateralized by GNMA  securities |   | 7                      |       | — |   | — |   | 7 |   |
| Corporate bonds                                       |   | 104                    |       | — |   | (2 | ) | 102 |   |
| Municipal bonds                                       |   | 69                     |       | 2 |   | — |   | 71 |   |
| Equity securities                                     |   | 177                    |       | — |   | (4 | ) | 173 |   |
| Total securities available for sale                   |   | $                      | 3,213      |   | $ | 26 |   | $ | (20 | ) | $ | 3,219 |   |

 

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**4.****                    RecourseArrangements, Retained Interests in Securitizations and Servicing Assets**

 

The following describesthe balances associated with recourse arrangements, the balances and activityin the corresponding retained interests, the balances and activity in servicingassets and the economic assumptions used in valuing the retained interests andservicing assets. As described in Note 1, in December 2001, GreenPoint formallyadopted a plan to discontinue the manufactured housing lending business. As aresult of the decision to discontinue this business, manufactured housingoperating activities were reported as discontinued operations in GreenPoint’sconsolidated statements of income.

 

**RecourseArrangements**

GreenPoint hasestablished liabilities for limited recourse provided on mortgage loans andrecourse provided on manufactured housing loans that have been securitized orsold. The investors and the securitization trusts have no recourse toGreenPoint’s other assets for failure of debtors to pay when due, except forthe retained interests related to the mortgage securitizations and theliability under the corporate guarantee related to the manufactured housingsecuritizations.

 

GreenPoint has loans sold with recourse with the following principalbalances, maximum recourse exposures and recorded liabilities:

 
|                                 |   | **June 30, 2002**      |   |
|--------------------------------------|--------|------------------------|--------|
| **(In  millions)**                   |   | **Principal  Balance** |   | **Maximum  Recourse  Exposure (1)** |   | **Recorded  Liability** |   |
| Manufactured housing securitizations |   | $                      | 4,500  |   | $ | 649 |   | $ | 335 |   |
| Manufactured housing sales           |   | 285                    |   | 285 |   | 8 |   |
| Mortgage securitizations (2)         |   | 1,176                  |   | 119 |   | — |   |
| Mortgage sales (3)                   |   | 446                    |   | 437 |   | 1 |   |
|                                      |        |                        |        |  |  |  |  |  |  |  |

 
|                                 |   | **December 31, 2001**  | ** ** |
|--------------------------------------|--------|------------------------|------------|
| **(In  millions)**                   |   | **Principal  Balance** |       | **Maximum  Recourse  Exposure (1)** |   | **Recorded  Liability** |   |
| Manufactured housing securitizations |   | $                      | 4,966      |   | $ | 785 |   | $ | 456 |   |
| Manufactured housing sales           |   | 301                    |       | 301 |   | 11 |   |
| Mortgage securitizations (2)         |   | 1,512                  |       | 144 |   | — |   |
| Mortgage sales (3)                   |   | 625                    |       | 611 |   | 1 |   |
|                                      |        |                        |            |  |  |  |  |  |  |  |

 

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*(1)**            **Represents the maximum recourseexposure relating to recourse arrangements in the form of the retention ofsubordinated interests, the issuance of a corporate guarantee, or a demand note*

*(2)**            **The net present value of expectedcash outflows on the mortgage securitization recourse arrangements is reflectedin the valuation of the mortgage retained interests.*

*(3)**            **The recourse arrangements under themortgage sale transactions represent a risk sharing arrangement in whichGreenPoint has transferred the first 2% of losses to the purchaser.*

 

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At June 30, 2002,GreenPoint has five manufactured housing securitizations with principalbalances of $1.6 billion, which have projected letter of credit draws equal tothe maximum recourse exposure for those securitizations. The remainingmanufactured housing securitizations, totaling $2.9 billion, have maximumrecourse exposure that is $293 million more than GreenPoint’s projected letterof credit draws. This loss exposure will occur only if actual letter of creditdraws exceed GreenPoint’s projections. GreenPoint records a liability based onthe net present value of the projected letter of credit draws. At June 30,2002, the projected draws exceed the recorded liability by $21 million,representing future interest expense.

 

In addition to the recourse arrangements described in the table above,at June 30, 2002 and December 31, 2001, GreenPoint has provided limitedrecourse in the form of representations and warranties on mortgage loans withremaining principal balances of $11.8 billion and $10.9 billion, respectively.GreenPoint has established liabilities related to representations andwarranties for mortgage loans of $21 million and $19 million, at June 30, 2002and December 31, 2001, respectively.

 

The following presents quantitative information about delinquencies onloans sold with recourse:

 
|                                                     |   | **June 30,  2002**       |   | **Dec. 31,  2001** |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|----------------------------------------------------------|--------|--------------------------|--------|--------------------|--------|--------------------|--------|--------------------|--------|
| **(In millions)**                                        |   | **Manufactured Housing** |   | **Mortgage**       |   |
| Principal  balance of loans                              |   | $                        | 4,785  |               | $      | 5,267              |   | $                  | 1,622  |   | $ | 2,137 |   |
| Principal  balance of loans 90 days or more past due (1) |   | 140                      |   | 254                |   | 75                 |   | 72                 |   |
|                                                          |        |                          |        |                    |        |                    |        |                    |        |  |  |  |  |

 

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*(1)    Manufactured housing past due loans includerepossessed inventory.*

 

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

The activity in the recorded liability for manufactured housingsecuritizations 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)**                          |   | **2002**                                    |   | **2001**                                       |   | **2002** |   | **2001** | ** ** |
| **Liability  for Recourse Exposure**       |   |                                        |   |                                           |   |   |   |   |   |
| Balance at  beginning of period            |   | $                                           | 399    |                                           | $      | 105 |   | $ | 467 |   | $ | 131 |   |
| Letter of credit  draws and other charges  |   | (52                                         | )      | (48                                            | )      | (123 | ) | (74 | ) |
| Change in  valuation of retained interests |   | (4                                          | )      | 30                                             |   | (1 | ) | 30 |   |
| Balance at end  of period                  |   | $                                           | 343    |                                           | $      | 87 |   | $ | 343 |   | $ | 87 |   |

 

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The assets recognized asretained interests in securitizations include interest-only strips, transferorinterests and subordinated certificates. The activity in retained interests insecuritizations is summarized as follows:

 
|                                       |   | **At and for the Quarter Ended  June 30,** |       | **At and for the Six Months Ended  June 30,** |       |
|--------------------------------------------|--------|--------------------------------------------|------------|-----------------------------------------------|------------|
|                                       |   | **2002**                                   |       | **2001**                                      | ** ** | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** | **2001** | ** ** |
|                                       |   | **Manufactured  Housing**                  |       | **Mortgage**                                  |       | **Manufactured  Housing** |   | **Mortgage** |   |
| **(In millions)**                          |   |                                       | ** ** |                                          | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Retained  Interests in Securitizations** |   |                                       |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at  beginning of period            |   | $                                          | —     |                                          | $          | 60 |   | $ | 126 |   | $ | 118 |   | $ | 1 |   | $ | 46 |   | $ | 130 |   | $ | 113 |   |
| Additions from  securitizations            |   | —                                     |       | —                                        |       | 1 |   | 13 |   | — |   | 13 |   | 7 |   | 15 |   |
| Interest and  other income                 |   | —                                     |       | 2                                             |       | 6 |   | 7 |   | 2 |   | 4 |   | 11 |   | 12 |   |
| Cash received                              |   | —                                     |       | (5                                            | )          | (16 | ) | (5 | ) | (3 | ) | (10 | ) | (29 | ) | (13 | ) |
| Change in  valuation                       |   | —                                     |       | (2                                            | )          | (7 | ) | — |   | — |   | (2 | ) | (7 | ) | — |   |
| Change in  unrealized gain                 |   | —                                     |       | —                                        |       | (4 | ) | 2 |   | — |   | 4 |   | (6 | ) | 8 |   |
| Balance at end  of period                  |   | $                                          | —     |                                          | $          | 55 |   | $ | 106 |   | $ | 135 |   | $ | — |   | $ | 55 |   | $ | 106 |   | $ | 135 |   |

 

On a quarterly basis, GreenPoint reviews retained interests forimpairment based on management’s best estimate of the fair value of future cashflows associated with the retained interests. GreenPoint also reviews theadequacy of the value of the recorded liability on a quarterly basis, based onmanagement’s best estimate of future cash flows associated with the corporateguarantee. During the quarter ended June 30, 2002, GreenPoint recorded a $7million charge to adjust its mortgage retained interests to fair value. Thecharge consists of $1 million for changes in assumptions regarding futureprepayment rates, with the remainder representing higher expected loss rates.

 

**ValuationAssumptions**

There were no new securitizations recordedduring the quarter ended June 30, 2002. The key economic assumptions used inestimating the fair value of the entire portfolio of retained interests at June30, 2002 and December 31, 2001 were as follows:

 
|                                  |   | **Estimate of Fair Value at** |       |
|---------------------------------------|--------|-------------------------------|------------|
|                                  |   | **June 30,  2002**            | ** ** | **Dec. 31,  2001** | ** ** | **June 30,  2002** | ** ** | **Dec. 31,  2001** | ** ** |
|                                  |   | **Manufactured  Housing**     | ** ** | **Mortgage** | ** ** |
| Weighted average  life (in years)     |   | 3.4                           |       | 3.6 |   | 1.0 |   | 1.1 |   |
| Weighted average  prepayment rate (1) |   | 14.1                          | %          | 13.4 | % | 52.5 | % | 49.1 | % |
| Weighted average  default rate        |   | 7.6                           | %          | 8.3 | % | N/A |   | N/A |   |
| Loss severity  rate                   |   | 85.0                          | %          | 85.0 | % | N/A |   | N/A |   |
| Weighted average  loss rate           |   | 6.4                           | %          | 7.0 | % | 2.6 | % | 1.2 | % |
| Asset cash flows  discounted at       |   | —                        |       | 14.0 | % | 11.9 | % | 12.4 | % |
| Liability cash  flows discounted at   |   | 6.6                           | %          | 6.6 | % | — |   | — |   |

 

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*(1)    Excludes weighted average default rate*

 

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**ServicingAssets**

On a quarterly basis, GreenPoint reviews capitalized servicing rightsfor impairment. This review is performed based on risk strata, which aredetermined on a disaggregated basis given the predominant risk characteristicsof the underlying loans. For manufactured housing loans, the predominant riskcharacteristics are loan type and interest rate type. For mortgage loans, thepredominant risk characteristics are loan type and interest rate.

 

The activity in servicing assets is summarized as follows:

 
|                                            |   | **At and for the Quarter Ended  June 30,** |   | **At and for the Six Months Ended  June 30,** |       |
|-------------------------------------------------|--------|--------------------------------------------|--------|-----------------------------------------------|------------|
|                                            |   | **2002**                                   |   | **2001**                                      | ** ** | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** | **2001** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **(In millions)**                               |   | **Manufactured  Housing**                  |   | **Mortgage**                                  |       | **Manufactured  Housing** |   | **Mortgage** |   |
| **Servicing  Assets**                           |   |                                       |   |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at  beginning of period                 |   | $                                          | 123    |                                          | $          | 141 |   | $ | 83 |   | $ | 67 |   | $ | 127 |   | $ | 142 |   | $ | 86 |   | $ | 60 |   |
| Additions                                       |   | —                                     |   | —                                        |       | 15 |   | 19 |   | 3 |   | 5 |   | 27 |   | 31 |   |
| Sales                                           |   | —                                     |   | —                                        |       | (1 | ) | (2 | ) | — |   | — |   | (8 | ) | (2 | ) |
| Amortization                                    |   | (8                                         | )      | (7                                            | )          | (7 | ) | (6 | ) | (15 | ) | (13 | ) | (15 | ) | (11 | ) |
| Balance at end  of period                       |   | 115                                        |   | 134                                           |       | 90 |   | 78 |   | 115 |   | 134 |   | 90 |   | 78 |   |
| **Reserve  for impairment of servicing assets** |   |                                       |   |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at  beginning of period                 |   | (71                                        | )      | —                                        |       | (23 | ) | (8 | ) | (67 | ) | — |   | (23 | ) | (5 | ) |
| Recoveries  (additions)                         |   | 1                                          |   | —                                        |       | — |   | (1 | ) | (3 | ) | — |   | — |   | (4 | ) |
| Balance at end  of period                       |   | (70                                        | )      | —                                        |       | (23 | ) | (9 | ) | (70 | ) | — |   | (23 | ) | (9 | ) |
| **Servicing  assets, net**                      |   | $                                          | 45     |                                          | $          | 134 |   | $ | 67 |   | $ | 69 |   | $ | 45 |   | $ | 134 |   | $ | 67 |   | $ | 69 |   |

 

At June 30, 2002, the estimated fair values of manufactured housing andmortgage servicing assets were $45 million and $71 million, respectively.

 

At December 31, 2001, the estimated fair values of manufactured housingand mortgage servicing assets were $60 million and $66 million, respectively.

 

The significant assumptions used in estimating the fair value of theservicing assets at June 30, 2002 and December 31, 2001 were as follows:

 
|                              |   | **June 30,  2002**       |   | **Dec. 31,  2001** |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|-----------------------------------|--------|--------------------------|--------|--------------------|--------|--------------------|--------|--------------------|--------|
|                              |   | **Manufactued  Housing** |   | **Mortgage**       |   |
| Weighted average  prepayment rate |   | 13.6                     | %(1)   | 13.5               | %(1)   | 26.8               | %(2)   | 31.4               | %(2)   |
| Weighted average  life (in years) |   | 3.7                      |   | 3.7                |   | 3.6                |   | 3.1                |   |
| Weighted average  default rate    |   | 5.8                      | %      | 6.0                | %      | N/A                |   | N/A                |   |
| Cash flows  discounted at         |   | 14.0                     | %      | 14.0               | %      | 10.1               | %      | 10.0               | %      |

 

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*(1)    Excludes weighted average default rate.*

(2)     *Includes weighted average default rate.*

 

14

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**5.****                    DerivativeFinancial Instruments**

 

GreenPoint enters into mandatory commitments to deliver mortgage wholeloans to various investors and to issue private securities and Fannie Mae andFreddie Mac securities (“forward delivery commitments”). The forward deliverycommitments are used to manage the interest rate risk associated with mortgageloans and interest rate lock commitments made by GreenPoint to mortgageborrowers. The notional amounts of these contracts were $1.5 billion and $1.1billion at June 30, 2002 and December 31, 2001, respectively. The forwarddelivery commitments designated as fair value accounting hedges associated withmortgage loans had notional values of $714 million and $802 million at June 30,2002 and December 31, 2001, respectively. The notional amounts of forwarddelivery commitments used to manage the interest rate risk associated withinterest rate lock commitments were $839 million and $249 million at June 30,2002 and December 31, 2001, respectively. The amount of hedge ineffectivenessfor the six months ended June 30, 2002 and 2001 was a gain of $2.5 million and$0.3 million, respectively, and is included in gain on sale of loans.

 

The notional amounts of derivatives do not represent amounts exchangedby the parties and, thus, are not a measure of the Company’s exposure throughits use of derivatives. The amounts exchanged are determined by reference tothe notional amounts and the other terms of the derivatives.

 

The risks inherent in derivatives are the potential inability of acounterparty to meet the terms of its contract and the risk associated withchanges in the fair values of the contracts due to movements in the underlyinginterest rates. The current credit exposure of derivatives is represented bythe fair value of contracts with a positive fair value at the reporting date.To reduce credit risk, management may deem it necessary to obtain collateral.

 

**6.****                    StockIncentive Plan**

 

For the six months ended June 30, 2002, the Company granted options topurchase 1,339,300 shares of the Company’s common stock to certain officers, atan exercise price of $43.54. These awards vest over three years on theanniversary dates of the awards.

 

**7.****                    Adoption ofSFAS 142 - Goodwill Amortization**

 

The following tablereflects our results adjusted as though we had adopted SFAS 142 on January 1,2001:

 
|                                                  | ** ** | **Quarter Ended  June 30,** | ** ** | **Six Months Ended  June 30,** |       |
|-------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In millions, except per share  amounts)**          |       | **2002**                    | ** ** | **2001**                       | ** ** | **2002** |   | **2001** |   |
| Net  income from continuing operations as reported    |       | $                           | 123        |                           | $          | 108 |   | $ | 243 |   | $ | 181 |   |
| Goodwill  amortization                                |       | —                      |       | 11                             |       | — |   | 23 |   |
| Tax effect at  effective tax rate                     |       | —                      |       | (4                             | )          | — |   | (9) |   |
| **Net income from continuing operations as adjusted** |       | $                           | 123        |                           | $          | 115 |   | $ | 243 |   | $ | 195 |   |
| **Basic earnings per share:**                         |       |                        |       |                           |       |   |   |   |   |
| Net  income from continuing operations as reported    |       | $                           | 1.39       |                           | $          | 1.21 |   | $ | 2.74 |   | $ | 2.04 |   |
| Net  income from continuing operations as adjusted    |       | $                           | 1.39       |                           | $          | 1.29 |   | $ | 2.74 |   | $ | 2.20 |   |
| **Diluted earnings per share:**                       |       |                        |       |                           |       |   |   |   |   |
| Net  income from continuing operations as reported    |       | $                           | 1.35       |                           | $          | 1.18 |   | $ | 2.67 |   | $ | 1.99 |   |
| Net  income from continuing operations as adjusted    |       | $                           | 1.35       |                           | $          | 1.26 |   | $ | 2.67 |   | $ | 2.15 |   |

 

15

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**8.****                    DiscontinuedOperations**

 

The assets and liabilities from discontinued operations at June 30,2002 and December 31, 2001 were as follows:

 
| **(In  millions)**                         |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|--------------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Assets:**                                |   |               |   |               |   |
| Loans receivable  held for sale            |   | $                  | 100    |               | $      | 705 |   |
| Retained  interests in securitizations     |   | —             |   | 1                  |   |
| Loans receivable  held for investment, net |   | 34                 |   | 44                 |   |
| Servicing  assets, net                     |   | 45                 |   | 60                 |   |
| Other assets                               |   | 229                |   | 268                |   |
| Total assets                               |   | $                  | 408    |               | $      | 1,078 |   |
| Liabilities:                               |   |               |   |               |   |
| Liability under  recourse exposure         |   | $                  | 343    |               | $      | 467 |   |
| Other  liabilities and allocated capital   |   | 65                 |   | 611                |   |
| Total  liabilities and equity              |   | $                  | 408    |               | $      | 1,078 |   |

 

During the quarter and six months ended June 30, 2002, GreenPointoriginated manufactured housing loans totaling $12 million and $103 million,respectively. These loans related to commitments outstanding at December 31,2001 and were recorded at their estimated fair value.

 

Net income from discontinued operations for the quarter and six monthsended June 30, 2002 was $0.2 million and $1.7 million, respectively. Theresults included a gain on sale of loans, which were marked down to theirestimated market value in the fourth quarter of 2001. The second quarter andsix months ended June 30, 2002 results also reflect a write down of the 2002loan originations to reflect their estimated fair value, and a $8 millioncharge associated with changes to the initial recorded estimates of the futureresults incorporated in the operating plan of the discontinued business segment.

 

16

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**9.****                    BusinessSegments**

 

The Company consists ofthree domestic business segments offering unique products and services. TheMortgage Banking segment specializes in Alt A and NoDoc mortgage loan productswhich are primarily obtained from the Company’s network of registered mortgagebrokers. The Consumer Banking segment consists of 74 full service bankingoffices offering a variety of financial services to the Greater New York Cityarea. The Balance Sheet Management segment includes earnings from the held forinvestment mortgage portfolios and other corporate investment and fundingactivities.

 

The segment disclosurealso combines the Balance Sheet Management segment and the Consumer Bankingsegment into a subtotal. The subtotal, defined as the total banking franchise,represents the results of the Company’s traditional banking operations asdistinguished from its mortgage banking operations.

 

The accounting policiesof the segments are the same as described in Note 1 “Summary of SignificantAccounting Policies.” The Company evaluates the performance of its businesssegments based on income before income taxes. Expenses under the direct controlof each business segment and the expense of premises and equipment incurred tosupport business operations are allocated accordingly, by segment. Provisionfor loan losses are charged to the Balance Sheet Management segment in anamount equal to net charge-offs. The expenses relating to administrative unitsof the Company such as executive, finance and audit are not allocated toindividual operating segments.

 
|                                |   | **Quarter Ended June 30, 2002** |   |
|-------------------------------------|--------|---------------------------------|--------|
| **(In millions)**                   |   | **Balance Sheet  Management**   |   | **Consumer  Banking** |   | **Sub-total  Banking** |   | **Mortgage  Banking** |   | **Segments  Total** |   | **Other** |   | **Consolidated  Continuing  Operations** |   |
| Net  interest income                |   | $                               | 85     |   | $ | 61 |   | $ | 146 |   | $ | 45 |   | $ | 191 |   | $ | — |   | $ | 191 |   |
| Income  from fees and commissions   |   | 1                               |   | 15 |   | 16 |   | 1 |   | 17 |   | — |   | 17 |   |
| Loan  servicing fees                |   | —                          |   | — |   | — |   | 6 |   | 6 |   | — |   | 6 |   |
| Net  gain on sale of loans          |   | —                          |   | — |   | — |   | 100 |   | 100 |   | (14 | ) | 86 |   |
| Segment  income (loss) before taxes |   | 90                              |   | 45 |   | 135 |   | 95 |   | 230 |   | (36 | ) | 194 |   |
| Non-cash  items:                    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                        |   | —                          |   | 2 |   | 2 |   | 3 |   | 5 |   | 2 |   | 7 |   |
| ESOP  and stock plans expense       |   | —                          |   | 1 |   | 1 |   | 3 |   | 4 |   | 3 |   | 7 |   |
| Total  Assets                       |   | $                               | 14,589 |   | $ | 476 |   | $ | 15,065 |   | $ | 4,587 |   | $ | 19,652 |   | $ | 451 |   | $ | 20,103 |   |

 
|                                |   | **Quarter Ended June 30, 2001** |   |
|-------------------------------------|--------|---------------------------------|--------|
| **(In millions)**                   |   | **Balance Sheet  Management**   |   | **Consumer  Banking** |   | **Sub-total  Banking** |   | **Mortgage  Banking** |   | **Segments  Total** |   | **Other** |   | **Consolidated  Continuing  Operations** |   |
| Net  interest income                |   | $                               | 72     |   | $ | 50 |   | $ | 122 |   | $ | 24 |   | $ | 146 |   | $ | — |   | $ | 146 |   |
| Income  from fees and commissions   |   | 1                               |   | 11 |   | 12 |   | — |   | 12 |   | — |   | 12 |   |
| Loan  servicing fees                |   | —                          |   | — |   | — |   | 3 |   | 3 |   | 1 |   | 4 |   |
| Net  gain on sale of loans          |   | —                          |   | — |   | — |   | 129 |   | 129 |   | (20 | ) | 109 |   |
| Segment  income (loss) before taxes |   | 78                              |   | 26 |   | 104 |   | 111 |   | 215 |   | (40 | ) | 175 |   |
| Non-cash  items:                    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                        |   | —                          |   | 3 |   | 3 |   | 3 |   | 6 |   | 2 |   | 8 |   |
| Goodwill  amortization              |   | —                          |   | 11 |   | 11 |   | — |   | 11 |   | — |   | 11 |   |
| ESOP  and stock plans expense       |   | —                          |   | 1 |   | 1 |   | 3 |   | 4 |   | 1 |   | 5 |   |
| Total  Assets                       |   | $                               | 13,253 |   | $ | 503 |   | $ | 13,756 |   | $ | 3,956 |   | $ | 17,712 |   | $ | 1,474 |   | $ | 19,186 |   |

 

17

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|                                |   | **Six Months Ended June 30, 2002** |   |
|-------------------------------------|--------|------------------------------------|--------|
| **(In millions)**                   |   | **Balance Sheet  Management**      |   | **Consumer  Banking** |   | **Sub-total  Banking** |   | **Mortgage  Banking** |   | **Segments  Total** |   | **Other** |   | **Consolidated  Continuing  Operations** |   |
| Net  interest income                |   | $                                  | 167    |   | $ | 118 |   | $ | 285 |   | $ | 85 |   | $ | 370 |   | $ | — |   | $ | 370 |   |
| Income  from fees and commissions   |   | 3                                  |   | 28 |   | 31 |   | — |   | 31 |   | — |   | 31 |   |
| Loan  servicing fees                |   | —                             |   | — |   | — |   | 11 |   | 11 |   | — |   | 11 |   |
| Net  gain on sale of loans          |   | —                             |   | — |   | — |   | 202 |   | 202 |   | (26 | ) | 176 |   |
| Segment  income (loss) before taxes |   | 176                                |   | 89 |   | 265 |   | 187 |   | 452 |   | (67 | ) | 385 |   |
| Non-cash  items:                    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                        |   | —                             |   | 4 |   | 4 |   | 7 |   | 11 |   | 3 |   | 14 |   |
| ESOP  and stock plans expense       |   | —                             |   | 2 |   | 2 |   | 7 |   | 9 |   | 4 |   | 13 |   |
| Total  Assets                       |   | $                                  | 14,589 |   | $ | 476 |   | $ | 15,065 |   | $ | 4,587 |   | $ | 19,652 |   | $ | 451 |   | $ | 20,103 |   |

 
|                                |   | **Six Months Ended June 30, 2002** |   |
|-------------------------------------|--------|------------------------------------|--------|
| **(In millions)**                   |   | **Balance Sheet  Management**      |   | **Consumer  Banking** |   | **Sub-total  Banking** |   | **Mortgage  Banking** |   | **Segments  Total** |   | **Other** |   | **Consolidated  Continuing  Operations** |   |
| Net  interest income                |   | $                                  | 138    |   | $ | 103 |   | $ | 241 |   | $ | 39 |   | $ | 280 |   | $ | — |   | $ | 280 |   |
| Income  from fees and commissions   |   | 2                                  |   | 22 |   | 24 |   | (1 | ) | 23 |   | — |   | 23 |   |
| Loan  servicing fees                |   | —                             |   | — |   | — |   | 6 |   | 6 |   | — |   | 6 |   |
| Net  gain on sale of loans          |   | —                             |   | — |   | — |   | 201 |   | 201 |   | (27 | ) | 174 |   |
| Segment  income (loss) before taxes |   | 150                                |   | 55 |   | 205 |   | 158 |   | 363 |   | (66 | ) | 297 |   |
| Non-cash  items:                    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                        |   | —                             |   | 5 |   | 5 |   | 7 |   | 12 |   | 3 |   | 15 |   |
| Goodwill  amortization              |   | —                             |   | 23 |   | 23 |   | — |   | 23 |   | — |   | 23 |   |
| ESOP  and stock plans expense       |   | —                             |   | 2 |   | 2 |   | 5 |   | 7 |   | 2 |   | 9 |   |
| Total  Assets                       |   | $                                  | 13,253 |   | $ | 503 |   | $ | 13,756 |   | $ | 3,956 |   | $ | 17,712 |   | $ | 1,474 |   | $ | 19,186 |   |

 

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*(1)**             Balance sheetmanagement largely consists of the mortgage portfolio, MBS and investmentsecurities.*

*(2)**             Consumer Bankingsegment excludes intercompany funds transfers. Intersegment assets andliabilities eliminated for consolidation purposes were $11.0 billion and $10.8billion for the six months ended June 30, 2002 and 2001, respectively.*

*(3)**             Other includesintercompany eliminations and unallocated administrative expenses.*

*(4)**             Total assets includeassets of discontinued business segment, which is included in the other column.*

 

**10.****             StockRepurchase Program**

 

In February 2001, theCompany’s Board of Directors authorized a share repurchase program of up to 5%,or approximately five million, of its outstanding shares. The repurchase willbe at the Company’s discretion, based on ongoing assessments of the capitalneeds of the business and the market valuation of its stock.

 

As of June 30, 2002, theCompany repurchased 3,486,000 shares under this program, at a cost ofapproximately $144 million. The repurchased shares are being held intreasury.

 

18

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**11.****             EarningsPer Share**

 
|                                                                                                             |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In millions, except per share amounts)**                                                                      |   | **2002**                    |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                                                                                             |   |                        |   |                           |   |   |   |   |   |
| Net  income from continuing operations                                                                           |   | $                           | 123    |                           | $      | 108 |   | $ | 243 |   | $ | 181 |   |
| Net income  (loss) from discontinued operations                                                                  |   | —                      |   | (22                            | )      | 2 |   | (17 | ) |
| Net  income                                                                                                      |   | $                           | 123    |                           | $      | 86 |   | $ | 245 |   | $ | 164 |   |
|                                                                                                             |   |                        |   |                           |   |   |   |   |   |
| Weighted  average number of common shares outstanding during each period - basic                                 |   | 88.6                        |   | 89.1                           |   | 88.7 |   | 88.7 |   |
|                                                                                                             |   |                        |   |                           |   |   |   |   |   |
| Effect  of dilutive securities - stock options                                                                   |   | 2.4                         |   | 2.1                            |   | 2.5 |   | 2.2 |   |
|                                                                                                             |   |                        |   |                           |   |   |   |   |   |
| Weighted  average number of common shares and common stock equivalents outstanding  during each period - diluted |   | 91.0                        |   | 91.2                           |   | 91.2 |   | 90.9 |   |
|                                                                                                             |   |                        |   |                           |   |   |   |   |   |
| **Basic earnings per share:**                                                                                    |   |                        |   |                           |   |   |   |   |   |
| Net  income from continuing operations                                                                           |   | $                           | 1.39   |                           | $      | 1.21 |   | $ | 2.74 |   | $ | 2.04 |   |
| Net income  (loss) from discontinued operations                                                                  |   | —                      |   | (0.24                          | )      | 0.02 |   | (0.19 | ) |
| Net  income                                                                                                      |   | $                           | 1.39   |                           | $      | 0.97 |   | $ | 2.76 |   | $ | 1.85 |   |
|                                                                                                             |   |                        |   |                           |   |   |   |   |   |
| **Diluted earnings per share:**                                                                                  |   |                        |   |                           |   |   |   |   |   |
| Net  income from continuing operations                                                                           |   | $                           | 1.35   |                           | $      | 1.18 |   | $ | 2.67 |   | $ | 1.99 |   |
| Net income  (loss) from discontinued operations                                                                  |   | —                      |   | (0.23                          | )      | 0.02 |   | (0.18 | ) |
| Net  income                                                                                                      |   | $                           | 1.35   |                           | $      | 0.95 |   | $ | 2.69 |   | $ | 1.81 |   |

 

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**Item 2****- Management’s Discussion and Analysis of****Financial Condition and Results of Operations**

 
|                                                                     |   | **Quarter Ended**  |       | **Six Months Ended** |       |
|--------------------------------------------------------------------------|--------|--------------------|------------|----------------------|------------|
|                                                                     |   | **June 30,  2002** |       | **March 31,  2002**  |       | **Dec. 31,  2001** |   | **Sept. 30,  2001** |   | **June 30,  2001** |   | **June 30,** |   |
| **(Dollars in millions, except per  share data)**                        |   |               |       |                 |       |   | **2002** |   | **2001** |   |
| **Performance  Ratios - Continuing Operations  (Annualized):**           |   |               | ** ** |                 | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Return  on average assets                                                |   | 2.45               | %          | 2.51                 | %          | 2.40 | % | 2.46 | % | 2.57 | % | 2.48 | % | 2.28 | % |
| Return  on average equity                                                |   | 27.53              |       | 27.50                |       | 20.68 |   | 20.19 |   | 20.05 |   | 27.52 |   | 17.17 |   |
| Net  interest margin                                                     |   | 4.06               |       | 4.03                 |       | 4.03 |   | 3.97 |   | 3.84 |   | 4.05 |   | 3.88 |   |
| Net  interest spread during period                                       |   | 3.91               |       | 3.88                 |       | 3.73 |   | 3.68 |   | 3.52 |   | 3.90 |   | 3.55 |   |
| Operating  expense to average assets                                     |   | 2.05               |       | 2.10                 |       | 2.34 |   | 2.22 |   | 2.13 |   | 2.07 |   | 2.18 |   |
| Total  non-interest expense to operating revenue                         |   | 23.5               |       | 23.3                 |       | 27.5 |   | 24.3 |   | 22.8 |   | 23.4 |   | 23.5 |   |
| Efficiency  ratio (1)                                                    |   | 34.6               |       | 34.5                 |       | 38.0 |   | 34.3 |   | 32.4 |   | 34.6 |   | 35.2 |   |
| Average  interest-earning assets to average interest-bearing liabilities |   | 1.06               | x          | 1.05                 | x          | 1.09 | x | 1.07 | x | 1.08 | x | 1.05 | x | 1.08 | x |
|                                                                     |   |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Per  Share Data:**                                                     |   |               | ** ** |                 | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Basic  earnings per share - continuing operations                        |   | $                  | 1.39       |                 | $          | 1.36 |   | $ | 1.30 |   | $ | 1.26 |   | $ | 1.21 |   | $ | 2.74 |   | $ | 2.04 |   |
| Diluted  earnings per share - continuing operations                      |   | 1.35               |       | 1.32                 |       | 1.28 |   | 1.23 |   | 1.18 |   | 2.67 |   | 1.99 |   |
| Book  value per common share                                             |   | 20.45              |       | 19.15                |       | 18.39 |   | 25.11 |   | 24.11 |   | N/A |   | N/A |   |
| Tangible  book value per common share                                    |   | 16.09              |       | 14.82                |       | 14.00 |   | 16.33 |   | 15.09 |   | N/A |   | N/A |   |
| Dividends  per share                                                     |   | 0.25               |       | 0.25                 |       | 0.25 |   | 0.25 |   | 0.25 |   | 0.50 |   | 0.50 |   |
| Shares  used in calculations (in thousands):                             |   |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Average  (2)                                                             |   | 90,968             |       | 91,346               |       | 90,292 |   | 91,892 |   | 91,212 |   | 91,181 |   | 90,867 |   |
| Period-end  (3)                                                          |   | 90,609             |       | 91,372               |       | 90,108 |   | 91,755 |   | 91,426 |   | N/A |   | N/A |   |
| Total                                                                    |   | 99,402             |       | 100,119              |       | 99,762 |   | 101,031 |   | 101,063 |   | N/A |   | N/A |   |
|                                                                     |   |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Asset  Quality Ratios - continuing operations:**                       |   |               | ** ** |                 | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Non-performing  loans to mortgage loans held for investment              |   | 2.00               | %          | 1.99                 | %          | 2.04 | % | 1.90 | % | 2.11 | % |   |   |   |   |
| Non-performing  assets to total assets                                   |   | 1.02               |       | 0.98                 |       | 1.06 |   | 0.97 |   | 1.02 |   |   |   |   |   |
| Allowance  for loan losses to non-performing loans                       |   | 38.02              |       | 38.1                 |       | 36.8 |   | 48.4 |   | 48.2 |   |   |   |   |   |
| Allowance  for loan losses to mortgage loans held for investment         |   | 0.76               |       | 0.76                 |       | 0.75 |   | 0.92 |   | 1.02 |   |   |   |   |   |
| Net  loan charge-off experience to average total loans                   |   | 0.01               |       | 0.02                 |       | 0.05 |   | 0.04 |   | 0.04 |   |   |   |   |   |
| Ratio  of allowance for loan losses to net charge-offs                   |   | 57.3               |       | 43.2                 |       | 16.0 |   | 25.7 |   | 27.1 |   |   |   |   |   |
|                                                                     |   |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Capital  Data:**                                                       |   |               | ** ** |                 | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Tier  I Capital (to risk weighted assets)                                |   | 12.07              | %          | 11.42                | %          | 10.10 | % | 9.79 | % | 9.43 | % |   |   |   |   |
| Total  Risk Based Capital (to risk weighted assets)                      |   | 13.77              |       | 13.09                |       | 11.72 |   | 11.36 |   | 11.02 |   |   |   |   |   |
| Tier  I Capital to average assets                                        |   | 8.05               |       | 7.82                 |       | 7.23 |   | 8.80 |   | 9.20 |   |   |   |   |   |
| Tangible  equity to tangible managed assets                              |   | 5.90               |       | 5.40                 |       | 5.06 |   | 5.60 |   | 5.27 |   |   |   |   |   |
| Tangible  equity to managed receivables                                  |   | 7.51               |       | 7.17                 |       | 6.17 |   | 6.72 |   | 6.46 |   |   |   |   |   |
| Purchase  of treasury stock                                              |   | $                  | 72         |                 | $          | 13 |   | $ | 44 |   | $ | 15 |   | $ | — |   | $ | 85 |   | $ | 12 |   |
|                                                                     |   |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Other Data:**                                                          |   |               | ** ** |                 | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Mortgage  loan originations                                              |   | $                  | 7,041      |                 | $          | 6,434 |   | $ | 8,428 |   | $ | 6,792 |   | $ | 6,848 |   | $ | 13,475 |   | $ | 11,065 |   |
| Total  managed assets (4)                                                |   | 24,620             |       | 25,642               |       | 25,133 |   | 26,890 |   | 26,614 |   |   |   |   |   |
| Total  managed receivables (5)                                           |   | 18,990             |       | 19,024               |       | 20,256 |   | 21,720 |   | 21,042 |   |   |   |   |   |
| Earnings to combined fixed charges: (6)                                  |   |               |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Excluding  interest on deposits                                          |   | 15.92              | x          | 16.52                | x          | 16.41 | x | 15.64 | x | 14.46 | x | 16.40 | x | 12.42 | x |
| Including  interest on deposits                                          |   | 3.28               | x          | 3.09                 | x          | 2.79 | x | 2.52 | x | 2.34 | x | 3.19 | x | 2.11 | x |
| Full-service  consumer bank offices                                      |   | 74                 |       | 74                   |       | 74 |   | 74 |   | 74 |   | 74 |   | 74 |   |

 

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*(1)**             Theefficiency ratio is calculatedby dividing general and administrative expenses by the sum of net interestincome and non-interest income.*

*(2)**             Usedin the calculation of fully diluted earnings per share.*

*(3)**             Usedin the calculation of common book value and tangible common book value ratios.*

*(4)**             Managedassets are the sum of totalassets and off-balance sheet managed receivables.*

*(5)**             Managedreceivables are the sum ofon-balance sheet loans and off-balance sheet managed receivables.*

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

 

20

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**1.****                    GENERAL**

 

GreenPoint Financial Corp. (the “Company” or “GreenPoint”) a leadingnational specialty housing finance company with more than $25 billion inmortgage originations in 2001, has two principal businesses. GreenPointMortgage (“GPM”), headquartered in Novato, California, is a leading nationallender in non-conforming residential mortgages, specializing in “Alternative A”(“Alt A”) mortgage loans. GreenPoint Bank (the “Bank”), a New York Statechartered savings bank, is the third largest thrift depository in the GreaterNew York area with $11 billion in deposits in 74 branches serving more than400,000 households.

 

**ForwardLooking Statements**

 

This Quarterly Report on Form 10-Q containscertain forward-looking statements, which are based on management’s currentexpectations. These forward-looking statements include information concerningpossible or assumed future results of operations, trends, financial results andbusiness plans, including those relating to earnings growth; revenue growth;origination volume in the Company’s mortgage business; non-interest incomelevels, including fees from product sales; credit performance on loans made bythe Company; tangible capital generation; margins on sales or securitizationsof loans; market share; expense levels; and other business operations andstrategies. For these statements, GreenPoint claims the protection of the safeharbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995 to the extent provided by applicable law.Forward-looking statements involve inherent risks and uncertainties. We cautionyou that a number of important factors could cause actual results to differmaterially from those contained in any forward-looking statement. Such factorsinclude, but are not limited to: risks and uncertainties related toacquisitions, divestitures and terminating business segments, including relatedintegration and restructuring activities; prevailing economic conditions;changes in interest rates, loan demand, real estate values, and competition,which can materially affect origination levels and gain on sale results in theCompany’s mortgage business; the level of defaults, losses and prepayments onloans made by the Company, whether held in portfolio, sold in the whole loansecondary markets or securitized, which can materially affect required loanloss reserve levels and the Company’s periodic valuation of its retainedinterests from securitizations; changes in accounting principles, policies, andguidelines; adverse changes or conditions in capital or financial markets,which can adversely affect the ability of the Company to sell or securitizeloan originations on a timely basis or at prices which are acceptable to theCompany; actions by rating agencies and the affects of these actions on theCompany’s businesses, operations and funding requirements; changes in anyapplicable law, rule, regulation or practice with respect to tax or legalissues; other economic, competitive, governmental, regulatory, andtechnological factors affecting the Company’s operations, pricing, products andservices; and the risk factors or other uncertainties described from time totime in the Company’s filings with the Securities and Exchange Commission,including the Risk Factors section included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2001 filed with the Securitiesand Exchange Commission on March 29, 2002. The forward-looking statements aremade as of the date of this report, and the Company assumes no obligation toupdate the forward-looking statements or to update the reasons why actualresults could differ from those projected in the forward-looking statements.

 

The Company regularly explores opportunities foracquisitions of and holds discussions with financial institutions and relatedbusinesses, and also regularly explores opportunities for acquisitions ofliabilities and assets of financial institutions and other financial servicesproviders. The Company routinely analyzes its lines of business and from timeto time may increase, decrease or terminate one or more activities.

 

21

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2.                     **OPERATINGRESULTS - CONTINUING OPERATIONS**

** **

**Overview of second quarter 2002financial results:**

 

•                        Net income from continuingoperations for the second quarter of 2002 was $1.35 per diluted share, or $123million, an increase of 14% over the second quarter of 2001. The resultsreflect strength in the Company’s specialty mortgage and consumer bankingbusiness. The consumer banking business achieved significant growth in coredeposits and fees and the mortgage banking business increased new loanoriginations, as the Company continued to operate in a favorable marketenvironment supported by strong execution.

 

•                        Total mortgage loanoriginations for the second quarter of 2002 were $7.0 billion, an increase of3% over the $6.8 billion originated during the second quarter of 2001 and 9%over the $6.4 billion of the first quarter.

 

•                        Mortgage sales andsecuritizations totaled $6.0 billion resulting in realized gains of $86million, compared with sales and securitizations of $4.4 billion and a gain of$109 million in the comparative quarter a year ago.

 

•                        Net interest income fromcontinuing operations totaled $191 million, an increase of 31% over the $146million in the second quarter of 2001. The net interest margin remained strongat 4.06%, increasing from 3.84% in the second quarter of 2001.

 

•                        Core deposits grew 13% duringthe second quarter to a balance of $5.8 billion. The core deposit balanceincreased $1 billion, or 21%, since the beginning of the year.

 

•                        Consumer banking fees increased15% over the first quarter of 2002 and were 36% higher than second quarter of2001.

 

•                        A $7 million charge wasrecorded in connection with the valuation of retained interests insecuritizations of home equity lines of credit. The charge consisted of $1million for changes in assumptions regarding future prepayment rates, with theremainder representing higher expected loss rates.

 

•                        Asset quality in the mortgageportfolio remained very strong. Non-performing loans were 2.00% of mortgageloans held for investment, compared with 2.11% at the end of the second quartera year ago.

 

•                        GreenPoint continues tomaintain a strong capital position with a leverage ratio of 8.05%, a Tier 1risk-based ratio of 12.07% and a total risk-based capital ratio of 13.77% atJune 30, 2002.

 

•                        The net income from thediscontinued manufactured housing business was $0.2 million, reflecting aperformance consistent with projections made at the time the business wasdiscontinued.

 

22

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**Business Segment Results:**

 

•                        The Mortgage Banking businessearned $95 million before taxes, down from $111 million in the second quarterof 2001. The reduction was a result of a decrease in loan sales andsecuritization revenues, partially offset by an increase in net interestincome. Segment income for the six months ended June 30, 2002 increased to $187million versus $158 million in the same period a year ago, principally due toan increase in net interest income from $39 million to $85 million as a resultof a higher average balance in mortgage loans held for sale.

 

•                        The Consumer Banking business,which includes spreads earned on average deposits of $11.0 billion and consumerbanking fees, had income of $45 million and $89 million, respectively, for thequarter and six months ended June 30, 2002, an increase of 73% and 62%,respectively over the year ago period. The growth reflects higher core depositbalances, wider spreads earned on those balances, and higher fee income whichgrew 36% and 27% respectively, over the comparable periods of 2001. Theincrease over the year ago period was also due to the discontinuance ofgoodwill amortization of $11 million and $23 million for the quarter and sixmonths ended June, 30, 2001, due to an accounting rule change that took effectJanuary 1, 2002.

 

•                        The Balance Sheet Managementsegment derives earnings from the spread between yields on loans and marketablesecurities, and funding costs, which are comprised of deposit balances at theirmatch-funded transfer-priced rates and wholesale funds. Net income before taxeswas $90 million and $176 million, respectively, for the quarter and six monthsended June 30, 2002, compared with $78 million and $150 million in the sameperiods a year ago. The increase was attributable to higher average earningassets, both in the loan and securities portfolios.

 

•                        When combined, the ConsumerBanking and Balance Sheet Management segments present a complete picture of theCompany’s traditional banking business. It portrays a depository institutionwhich includes deposit gathering, associated fee income, and the investment ofthose deposits, and additional market borrowings. The total banking businessearned before taxes, $135 million and $265 million, respectively, for thequarter and six months end June 30, 2002, compared with $104 million and $205million in prior comparative periods. As such, it provided more than half ofpretax income before unallocated corporate expenses and eliminations, with themortgage banking segment providing the remainder.

 

23

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**Supplemental Performance Measurements-****Cash Earnings**

 

Cash earnings is a non-GAAP measurement that is defined as net incomefrom continuing operations less non-cash charges related to goodwill and theEmployee Stock Ownership Plan (“ESOP”). The non-cash expenses, unlike otherexpenses incurred by the Company, do not reduce GreenPoint’s tangible capitalthereby enabling the Company to increase shareholder value through the growthof earning assets, increases in cash dividends and additional repurchases ofthe Company’s stock.

 
|                                             |   | **Quarter Ended**  |   | **Six Months Ended** |   |
|--------------------------------------------------|--------|--------------------|--------|----------------------|--------|
|                                             |   | **June 30,  2002** |   | **March 31,  2002**  |   | **Dec. 31,  2001** |   | **Sept. 30,  2001** |   | **June 30,  2001** |   | **June 30,** |   |
|                                             |   |               |   |                 |   |   | **2002** |   | **2001** |   |
| Net income from continuing operations            |   | $                  | 123    |                 | $      | 120 |   | $ | 115 |   | $ | 113 |   | $ | 108 |   | $ | 243 |   | $ | 181 |   |
| Add back:                                        |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill amortization                            |   | —             |   | —               |   | 11 |   | 11 |   | 11 |   | — |   | 23 |   |
| Employee Stock Ownership and stock plans expense |   | 7                  |   | 6                    |   | 5 |   | 5 |   | 5 |   | 13 |   | 9 |   |
| Cash earnings from continuing operations         |   | $                  | 130    |                 | $      | 126 |   | $ | 131 |   | $ | 129 |   | $ | 124 |   | $ | 256 |   | $ | 213 |   |
|                                             |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Cash earnings per share (1)                      |   | $                  | 1.43   |                 | $      | 1.38 |   | $ | 1.45 |   | $ | 1.41 |   | $ | 1.36 |   | $ | 2.81 |   | $ | 2.34 |   |
|                                             |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| **Performance  Ratios (Annualized)**             |   |               |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Cash  earnings return on average assets          |   | 2.59               | %      | 2.64                 | %      | 2.73 | % | 2.82 | % | 2.95 | % | 2.61 | % | 2.67 | % |
| Cash  earnings return on average equity          |   | 29.11              |   | 28.87                |   | 23.49 |   | 23.16 |   | 23.02 |   | 28.99 |   | 20.17 |   |
| Cash  earnings return on tangible equity         |   | 37.75              |   | 37.66                |   | 37.13 |   | 37.15 |   | 38.35 |   | 37.70 |   | 34.35 |   |

 

----

*(1)**             Basedon the weighted average shares used to calculate diluted earnings per share.*

 

**NetInterest Income**

 

Net interest income in continuing operations, on a fullytaxable-equivalent basis, increased by $44 million and $91 million, or 30% and32%, to $193 million and $376 million for the quarter and six months ended June30, 2002 from $149 million and $285 million in the comparable periods in 2001.Net interest income benefited from an increase in average earning assets, whichincluded an increase in mortgage loans held for investment, loans held for saleand investment securities. The net interest margin increased to 4.06% and 4.05%from 3.84% and 3.88%, respectively, in the year ago periods.

 

Average earning assetsincreased by $3.5 billion and $3.9 billion, or 23% and 27% to $19.1 billion inthe quarter and $18.6 billion in the six month period from $15.5 billion and$14.6 billion a year ago. The increase reflected growth in loans held for saleand higher mortgage loans held for investment due to higher origination volume,and higher investment securities. The yield on interest-earning assets andrates paid on interest-bearing liabilities declined in both the quarterly andyear-to-date comparison due to declining market interest rates.

 

The growth in averageearning assets was funded in part by a substantial growth in core deposits asthe average balance increased 23% over the prior years second quarter. For thesix month period, average core deposits was 20% higher than 2001. The growthreflects the success of the Company’s checking account promotions and thecontinued expansion of products and services offered by the banking franchise.

 

24

----

 

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

 

The following table sets forth certain information relating to thecontinuing operations of the Company’s average statements of financialcondition (unaudited) and statements of income (unaudited) for the quarterended June 30, 2002 and 2001, and reflects the average yield on assets andaverage cost of liabilities for the periods indicated. Such annualized yieldsand costs are derived by dividing income or expense by the average balance ofassets or liabilities, respectively, for the periods shown. Average balancesare derived from average daily balances. Average balances and yields includenon-accrual loans. The yields and costs include fees that are consideredadjustments to yields. Interest and yields are presented on ataxable-equivalent yield basis.

 
|                                                                                       |   | **Quarter Ended**    |       |
|--------------------------------------------------------------------------------------------|--------|----------------------|------------|
|                                                                                       |   | **June 30, 2002**    |       | **June 30, 2001** |   |
| **(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)                                                    |   | $                    | 9,936      |   | $ | 187 |   | 7.50 | % | $ | 8,788 |   | $ | 186 |   | 8.48 | % |
| Other loans (2)                                                                            |   | 19                   |       | 1 |   | 8.80 |   | 22 |   | — |   | 8.72 |   |
| Loans held for  sale                                                                       |   | 4,136                |       | 67 |   | 6.51 |   | 2,723 |   | 53 |   | 7.76 |   |
| Securities (3)                                                                             |   | 4,688                |       | 69 |   | 5.90 |   | 3,641 |   | 62 |   | 6.80 |   |
| Other  interest-earning assets                                                             |   | 281                  |       | 7 |   | 11.00 |   | 347 |   | 11 |   | 12.57 |   |
| Total  interest-earning assets                                                             |   | 19,060               |       | 331 |   | 6.95 |   | 15,521 |   | 312 |   | 8.05 |   |
| Non-interest  earning assets (4)                                                           |   | 957                  |       |   |   |   |   | 1,297 |   |   |   |   |   |
| Total assets                                                                               |   | $                    | 20,017     |   |   |   |   |   | $ | 16,818 |   |   |   |   |   |
|                                                                                       |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholders’ Equity:**                                            |   |                 | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Interest-bearing  liabilities:                                                             |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                    |   | $                    | 1,297      |   | 4 |   | 1.32 |   | $ | 1,215 |   | 6 |   | 2.01 |   |
| Demand deposits  and N.O.W.                                                                |   | 1,004                |       | 3 |   | 1.20 |   | 585 |   | 1 |   | 0.46 |   |
| Money market and  variable rate savings                                                    |   | 3,178                |       | 15 |   | 1.86 |   | 2,656 |   | 21 |   | 3.23 |   |
| Total core  deposits                                                                       |   | 5,479                |       | 22 |   | 1.61 |   | 4,456 |   | 28 |   | 2.53 |   |
| Term  certificates of deposit                                                              |   | 5,459                |       | 50 |   | 3.70 |   | 6,502 |   | 90 |   | 5.54 |   |
| Total deposits                                                                             |   | 10,938               |       | 72 |   | 2.65 |   | 10,958 |   | 118 |   | 4.32 |   |
| Mortgagors’  escrow                                                                   |   | 84                   |       | 1 |   | 1.69 |   | 98 |   | — |   | 0.39 |   |
| Borrowed funds                                                                             |   | 6,555                |       | 54 |   | 3.30 |   | 2,891 |   | 35 |   | 4.82 |   |
| Senior bank  notes                                                                         |   | 134                  |       | 3 |   | 6.72 |   | 134 |   | 2 |   | 7.04 |   |
| Subordinated bank  notes                                                                   |   | 150                  |       | 4 |   | 9.36 |   | 150 |   | 3 |   | 9.36 |   |
| Guaranteed  preferred beneficial interest in Company’s junior subordinated debentures |   | 200                  |       | 4 |   | 9.16 |   | 200 |   | 5 |   | 9.16 |   |
| Total  interest-bearing liabilities                                                        |   | 18,061               |       | 138 |   | 3.04 |   | 14,431 |   | 163 |   | 4.53 |   |
| Other liabilities  (5)                                                                     |   | 173                  |       |   |   |   |   | 233 |   |   |   |   |   |
| Total  liabilities                                                                         |   | 18,234               |       |   |   |   |   | 14,664 |   |   |   |   |   |
| Stockholders’  equity                                                                 |   | 1,783                |       |   |   |   |   | 2,154 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                           |   | $                    | 20,017     |   |   |   |   |   | $ | 16,818 |   |   |   |   |   |
| Net interest  income/interest rate spread (6)                                              |   |                 |       | $ | 193 |   | 3.91 | % |   |   | $ | 149 |   | 3.52 | % |
| Net  interest-earning assets/net interest margin (7)                                       |   | $                    | 999        |   |   |   | 4.06 | % | $ | 1,090 |   |   |   | 3.84 | % |
| Ratio of  interest-earning assets to interest-earning liabilities                          |   | 1.06                 | x          |   |   |   |   | 1.08 | x  |   |   |   |   |

 

----

*(1)**             Netinterest income is calculated on a taxable-equivalent basis.*

*(2)**             Incomputing the average balances and average yield on loans, non-accruing loanshave been included.*

*(3)**             Theaverage yield does not give effect to changes in fair value that are reflectedas a component of stockholders’ equity.*

*(4)**             Includesgoodwill, banking premises and equipment, servicing assets, deferred taxassets, accrued interest receivable, and other miscellaneous non-interestearning assets.*

*(5)**             Includesaccrued interest payable, accounts payable and other miscellaneous non-interestbearing obligations of the Company.*

*(6)**             Netinterest rate spread represents the difference between the average yield oninterest-earning assets and the average cost of interest-bearing liabilities.*

*(7)**             Netinterest margin represents net interest income divided by averageinterest-earning assets.*

 

25

----

 

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

 

The following table sets forth certain information relating to thecontinuing operations of the Company’s average statements of financialcondition (unaudited) and statements of income (unaudited) for the six monthsended June 30, 2002 and 2001, and reflects the average yield on assets andaverage cost of liabilities for the periods indicated. Such annualized yieldsand costs are derived by dividing income or expense by the average balance ofassets or liabilities, respectively, for the periods shown. Average balancesare derived from average daily balances. Average balances and yields includenon-accrual loans. The yields and costs include fees that are consideredadjustments to yields. Interest and yields are presented on ataxable-equivalent yield basis.

 
|                                                                                       |   | **Six Months Ended** |       |
|--------------------------------------------------------------------------------------------|--------|----------------------|------------|
|                                                                                       |   | **June 30, 2002**    | ** ** | **June 30, 2001** | ** ** |
| **(Taxable-equivalent interest and rates, in millions)  (1)**                              |   | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** |
| **Assets:**                                                                                |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest-earning  assets:                                                                  |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage loans  held for investment (2)                                                    |   | $                    | 10,057     |   | $ | 381 |   | 7.57 | % | $ | 8,494 |   | $ | 365 |   | 8.59 | % |
| Other loans (2)                                                                            |   | 19                   |       | 1 |   | 8.64 |   | 23 |   | — |   | 8.74 |   |
| Loans held for  sale                                                                       |   | 3,847                |       | 126 |   | 6.63 |   | 2,337 |   | 93 |   | 8.05 |   |
| Securities (3)                                                                             |   | 4,363                |       | 127 |   | 5.81 |   | 3,392 |   | 118 |   | 6.93 |   |
| Other  interest-earning assets                                                             |   | 297                  |       | 17 |   | 11.45 |   | 390 |   | 23 |   | 11.90 |   |
| Total  interest-earning assets                                                             |   | 18,583               |       | 652 |   | 7.03 |   | 14,636 |   | 599 |   | 8.21 |   |
| Non-interest  earning assets (4)                                                           |   | 1,021                |       |   |   |   |   | 1,290 |   |   |   |   |   |
| Total assets                                                                               |   | $                    | 19,604     |   |   |   |   |   | $ | 15,926 |   |   |   |   |   |
|                                                                                       |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholders’ Equity:**                                            |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                                             |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                 |       |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                    |   | $                    | 1,270      |   | 9 |   | 1.39 |   | $ | 1,212 |   | 12 |   | 2.02 |   |
| Demand deposits  and N.O.W.                                                                |   | 842                  |       | 4 |   | 0.91 |   | 578 |   | 2 |   | 0.47 |   |
| Money market and  variable rate savings                                                    |   | 3,137                |       | 30 |   | 1.92 |   | 2,599 |   | 42 |   | 3.34 |   |
| Total core  deposits                                                                       |   | 5,249                |       | 43 |   | 1.63 |   | 4,389 |   | 56 |   | 2.60 |   |
| Term  certificates of deposit                                                              |   | 5,593                |       | 108 |   | 3.91 |   | 6,624 |   | 186 |   | 5.66 |   |
| Total deposits                                                                             |   | 10,842               |       | 151 |   | 2.81 |   | 11,013 |   | 242 |   | 4.44 |   |
| Mortgagors’  escrow                                                                   |   | 84                   |       | 1 |   | 1.74 |   | 97 |   | 1 |   | 1.80 |   |
| Borrowed funds                                                                             |   | 6,252                |       | 103 |   | 3.34 |   | 1,995 |   | 50 |   | 5.12 |   |
| Senior bank  notes                                                                         |   | 134                  |       | 5 |   | 6.72 |   | 135 |   | 5 |   | 7.04 |   |
| Subordinated  bank notes                                                                   |   | 150                  |       | 7 |   | 9.36 |   | 150 |   | 7 |   | 9.36 |   |
| Guaranteed  preferred beneficial interest in Company’s junior subordinated debentures |   | 200                  |       | 9 |   | 9.16 |   | 200 |   | 9 |   | 9.16 |   |
| Total  interest-bearing liabilities                                                        |   | 17,662               |       | 276 |   | 3.13 |   | 13,590 |   | 314 |   | 4.66 |   |
| Other  liabilities (5)                                                                     |   | 175                  |       |   |   |   |   | 225 |   |   |   |   |   |
| Total  liabilities                                                                         |   | 17,837               |       |   |   |   |   | 13,815 |   |   |   |   |   |
| Stockholders’  equity                                                                 |   | 1,767                |       |   |   |   |   | 2,111 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                           |   | $                    | 19,604     |   |   |   |   |   | $ | 15,926 |   |   |   |   |   |
| Net interest  income/interest rate spread (6)                                              |   |                 |       | $ | 376 |   | 3.90 | % |   |   | $ | 285 |   | 3.55 | % |
| Net  interest-earning assets/net interest margin (7)                                       |   | $                    | 921        |   |   |   | 4.05 | % | $ | 1,046 |   |   |   | 3.88 | % |
| Ratio of  interest-earning assets to interest-earning liabilities                          |   | 1.05                 | x          |   |   |   |   | 1.08 | x |   |   |   |   |
|                                                                                            |        |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

*(1)**             Netinterest income is calculated on a taxable-equivalent basis.*

*(2)**             Incomputing the average balances and average yield on loans, non-accruing loanshave been included.*

*(3)**             Theaverage yield does not give effect to changes in fair value that are reflectedas a component of stockholders’ equity.*

*(4)**             Includesgoodwill, banking premises and equipment, servicing assets, deferred taxassets, accrued interest receivable, and other miscellaneous non-interestearning assets.*

*(5)**             Includesaccrued interest payable, accounts payable and other miscellaneous non-interestbearing obligations of the Company.*

*(6)**             Netinterest rate spread represents the difference between the average yield oninterest-earning assets and the average cost of interest-bearing liabilities.*

*(7)**             Netinterest margin represents net interest income divided by averageinterest-earning assets.*

 

26

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**Rate/Volume Analysis**

 

The following tablepresents the effects of changes in interest rates and changes in volume ofinterest-earning assets and interest-bearing liabilities on the Company’s interestincome on a tax equivalent basis and interest expense during the periodsindicated. Information is provided in each category on changes (i) attributableto changes in volume (changes in volume multiplied by prior rate), (ii) changesattributable to changes in rate (changes in rate multiplied by prior volume),and (iii) the net change. The changes attributable to the combined impact ofvolume and rate have been allocated proportionately to volume and rate.

 
|                                                                                       |   | **Quarter Ended June 30, 2002  Compared to  Quarter Ended June 30, 2001  Increase/(Decrease)** |       | **Six Months Ended June 30, 2002  Compared to  Six Months Ended June 30, 2001  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)                                                    |   | $                                                                                              | 23         |                                                                                                 | $          | (22 | ) | $ | 1 |   | $ | 62 |   | $ | (46 | ) | $ | 16 |   |
| Other  loans (1)                                                                           |   | —                                                                                         |       | 1                                                                                                    |       | 1 |   | — |   | 1 |   | 1 |   |
| Loans  held for sale                                                                       |   | 24                                                                                             |       | (10                                                                                                  | )          | 14 |   | 52 |   | (19 | ) | 33 |   |
| Securities                                                                                 |   | 16                                                                                             |       | (9                                                                                                   | )          | 7 |   | 31 |   | (22 | ) | 9 |   |
| Other  interest-earning assets                                                             |   | (2                                                                                             | )          | (2                                                                                                   | )          | (4 | ) | (5 | ) | (1 | ) | (6 | ) |
| Total interest earned on assets                                                            |   | 61                                                                                             |       | (42                                                                                                  | )          | 19 |   | 140 |   | (87 | ) | 53 |   |
| Savings                                                                                    |   | —                                                                                         |       | (2                                                                                                   | )          | (2 | ) | 1 |   | (4 | ) | (3 | ) |
| Demand  deposits and N.O.W.                                                                |   | —                                                                                         |       | 2                                                                                                    |       | 2 |   | 2 |   | — |   | 2 |   |
| Money  market and variable rate savings                                                    |   | 4                                                                                              |       | (10                                                                                                  | )          | (6 | ) | 8 |   | (20 | ) | (12 | ) |
| Term  certificates of deposit                                                              |   | (13                                                                                            | )          | (27                                                                                                  | )          | (40 | ) | (26 | ) | (52 | ) | (78 | ) |
| Mortgagors’  escrow                                                                   |   | —                                                                                         |       | 1                                                                                                    |       | 1 |   | — |   | — |   | — |   |
| Other  borrowed funds                                                                      |   | 34                                                                                             |       | (15                                                                                                  | )          | 19 |   | 75 |   | (22 | ) | 53 |   |
| Senior  bank notes                                                                         |   | —                                                                                         |       | 1                                                                                                    |       | 1 |   | — |   | — |   | — |   |
| Subordinated  bank notes                                                                   |   | —                                                                                         |       | 1                                                                                                    |       | 1 |   | — |   | — |   | — |   |
| Guaranteed  preferred beneficial interest in Company’s junior subordinated debentures |   | —                                                                                         |       | (1                                                                                                   | )          | (1 | ) | — |   | — |   | — |   |
| Total  interest paid on liabilities                                                        |   | 25                                                                                             |       | (50                                                                                                  | )          | (25 | ) | 60 |   | (98 | ) | (38 | ) |
| Net  change in net interest income                                                         |   | $                                                                                              | 36         |                                                                                                 | $          | 8 |   | $ | 44 |   | $ | 80 |   | $ | 11 |   | $ | 91 |   |

 

----

*(1)**             Incomputing the volume and rate components of net interest income for loans,non-accrual loans have been included.*

 

27

----

 

**Provision for loan losses**

 

The provision for loan losses was approximately $0.3 million for thesecond quarter of 2002 and $0.7 million for the first six months of 2002, downfrom $0.8 million and $1.3 million, respectively for the comparable 2001periods. The provision equaled net charge-offs for all periods.

 

**Non-Interest Income**

 

The following tablesummarizes the components of non-interest income:

 
|                                       |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|--------------------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In millions)**                          |   | **2002**                    | ** ** | **2001**                       | ** ** | **2002** | ** ** | **2001** | ** ** |
| Income  from fees and commissions:         |   |                        |       |                           |       |   |   |   |   |
| Loan  servicing fees                       |   | $                           | 6          |                           | $          | 4 |   | $ | 11 |   | $ | 6 |   |
| Banking  services fees and commissions     |   | 15                          |       | 11                             |       | 28 |   | 21 |   |
| Fees,  commissions and other income        |   | 2                           |       | 1                              |       | 3 |   | 2 |   |
| Total  income from fees and commissions    |   | 23                          |       | 16                             |       | 42 |   | 29 |   |
| Net  gain on sales of mortgage loans       |   | 86                          |       | 109                            |       | 176 |   | 174 |   |
| Change  in valuation of retained interests |   | (7                          | )          | —                         |       | (7 | ) | — |   |
| Net  gain on securities                    |   | 4                           |       | 6                              |       | 7 |   | 12 |   |
| Total  non-interest income                 |   | $                           | 106        |                           | $          | 131 |   | $ | 218 |   | $ | 215 |   |

 

Non-interest income inthe second quarter was $106 million, down 19% from the comparable period a yearago. The decline versus the year ago period was due to a smaller net gain onsale of mortgage loans and a $7 million charge related to retained interests insecuritizations of home equity lines of credit. The charge consisted of $1million for changes in assumptions regarding future pre-payment rates, with theremainder representing higher expected loss rates. The gain on sale of loans isdescribed in further detail in the following paragraphs.

 

Income from fees andcommissions was $23 million and $42 million for the quarter and six monthsended June 30, 2002, versus $16 million and $29 million in the year agoperiods, which is partially offset by a decline of $2 million and $5 million inthe gain on sale of securities. The increase included a $4 million and $7million increase in banking fees due to an increase in the number of checkingaccounts. The $2 million and $5 million increase in loan servicing feesreflects the impact of a $3 million servicing asset impairment recorded in thefirst quarter of 2001.

 

28

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*Gain onsale of loans:*

 

The following tablesummarizes loans sold and average margins earned:

 
|                             |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|----------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In millions)**                |   | **2002**                    | ** ** | **2001**                       | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Whole  loan - Mortgage:**      |   |                        |       |                           |       |   |   |   |   |
| Sales                            |   | $                           | 5,943      |                           | $          | 4,003 |   | $ | 11,397 |   | $ | 6,839 |   |
| Gain on sale                     |   | $                           | 84         |                           | $          | 97 |   | $ | 170 |   | $ | 159 |   |
| Average margin                   |   | 1.41                        | %          | 2.41                           | %          | 1.49 | % | 2.31 | % |
| Average margin  by product type: |   |                        |       |                           |       |   |   |   |   |
| Specialty products  (1)          |   | 2.95                        | %          | 3.18                           | %          | 2.96 | % | 3.03 | % |
| Home equity /  Seconds           |   | 1.59                        | %          | 3.45                           | %          | 1.66 | % | 3.22 | % |
| Agency / Jumbo                   |   | 0.57                        | %          | 0.97                           | %          | 0.63 | % | 0.76 | % |
| **Securitizations  - Mortgage:** |   |                        |       |                           |       |   |   |   |   |
| Sales                            |   | $                           | 63         |                           | $          | 396 |   | $ | 226 |   | $ | 475 |   |
| Gain on sale (2)                 |   | $                           | 2          |                           | $          | 12 |   | $ | 6 |   | $ | 15 |   |
| Average margin                   |   | 3.26                        | %          | 2.90                           | %          | 2.59 | % | 2.98 | % |

 

----

*(1)**            Specialty productsincludes: Alt A, No Doc and A minus programs*

*(2)**            Includes draws fromprior period securitizations.*

 

Gain on sale of mortgageloans declined for the second quarter versus the comparable period a year ago,principally due to a lower average sale margin. Gain on sale of mortgage loansincreased for the six months ended June 30, 2002 versus a year ago due to ahigher volume of loan sales. The sale margin was 141 and 149 basis points comparedto 241 and 231 basis points for the second quarter and six months ended June30, 2001. The lower margin is the result of a change in product mix as theprior year included a higher proportion of Specialty products sold, and lowermargins earned on Agency loans. As a percentage of total mortgage loans sold,specialty mortgages sold were 35% and 36% for the quarter and six months endedJune 20, 2002, compared with 58% and 63% for the corresponding periods in 2001.The margins on Specialty products declined modestly to 295 basis points from318 basis points in the second quarter of 2001 while Agency / Jumbo marginsdeclined to 57 basis points from a relatively strong 97 basis points in theprior year's second quarter.

 

In the second quarter andsix months ended June 30, 2002, the Company recognized a gain of $2 million and$6 million, respectively, related to previously securitized home equity linesof credit, compared to $12 million and $15 million in the year ago periodswhich included both previously and newly securitized home equity lines.

 

29

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**Non-Interest Expense**

 

The following is asummary of the components of non-interest expense:

 
|                                              |   | **Quarter Ended  June 30,** |       | **Six Months Ended  June 30,** |       |
|---------------------------------------------------|--------|-----------------------------|------------|--------------------------------|------------|
| **(In millions)**                                 |   | **2002**                    | ** ** | **2001**                       | ** ** | **2002** | ** ** | **2001** | ** ** |
| Salaries  and benefits                            |   | $                           | 48         |                           | $          | 43 |   | $ | 97 |   | $ | 84 |   |
| Employee  Stock Ownership and stock plans expense |   | 7                           |       | 5                              |       | 13 |   | 9 |   |
| Net  expense of premises and equipment            |   | 17                          |       | 18                             |       | 35 |   | 36 |   |
| Advertising                                       |   | 6                           |       | 2                              |       | 9 |   | 4 |   |
| Federal  deposit insurance premiums               |   | —                      |       | —                         |       | 1 |   | 1 |   |
| Other  administrative expenses                    |   | 24                          |       | 23                             |       | 48 |   | 41 |   |
| Total  general and administrative expenses        |   | 102                         |       | 91                             |       | 203 |   | 175 |   |
| Other  real estate owned operating income, net    |   | —                      |       | (1                             | )          | (1 | ) | (1 | ) |
| Goodwill  amortization                            |   | —                      |       | 11                             |       | — |   | 23 |   |
| Total  non-interest expense                       |   | $                           | 102        |                           | $          | 101 |   | $ | 202 |   | $ | 197 |   |

 

Excluding goodwill amortization expense in the second quarter and sixmonths ended June 30, 2001, total non-interest expense increased $12 and $28million to $102 million and $202 million, respectively for the 2002 comparableperiods. Salaries and benefits increased $5 million and $13 million principallydue to additional staff and incentive commissions related to the highermortgage volume. Employee stock ownership and stock plans expense increased $2million and $4 million due to a higher average stock price versus the sameperiods a year ago. Increases of $4 million and $5 million in advertisingexpense in the quarter and year to date periods reflected consumer bankingpromotions associated with core deposit growth initiatives. The increase of $1million and $7 million in other administrative costs was primarily associatedwith increased mortgage loan processing costs. The Company’s efficiency ratio,which relates operating expenses to revenues, was 34.6% for the second quarterof 2002, compared with 32.4% in the year ago quarter.

 

**Income Tax Expense**

 

Total income tax expenseincreased $4 million, or 6%, to $71 million for the second quarter of 2002 and$26 million, or 22%, to $142 million for the six months ended June 30, 2002,versus the comparable periods a year ago. The rise in the current quarter andsix month periods, compared to 2001, is due to higher pre-tax income partiallyoffset by a decline in the effective tax rate from 38.44% and 39.02% in thesecond quarter and first six months, of 2001 to 36.9% in the second quarter andfirst six months of 2002.

 

30

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**LoanOriginations**

 

The following tablesummarizes loan origination activity for each of the reported periods:

 
|                                            |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|-------------------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In  millions)**                              |   | **2002**                    |   | **2001**                       |   | **2002** |   | **2001** |   |
| **Mortgage:**                                   |   |                        |   |                           |   |   |   |   |   |
| Total  applications received                    |   | $                           | 15,038 |                           | $      | 12,959 |   | $ | 27,074 |   | $ | 23,358 |   |
| Loans  originated:                              |   |                        |   |                           |   |   |   |   |   |
| Specialty  products                             |   | $                           | 2,455  |                           | $      | 3,115 |   | $ | 4,646 |   | $ | 5,354 |   |
| Home  equity/Seconds                            |   | 694                         |   | 399                            |   | 1,312 |   | 823 |   |
| Agency/Jumbo                                    |   | 3,892                       |   | 3,334                          |   | 7,517 |   | 4,888 |   |
| Total loans  originated                         |   | $                           | 7,041  |                           | $      | 6,848 |   | $ | 13,475 |   | $ | 11,065 |   |
| Commitments to  originate loans (end of period) |   | $                           | 7,049  |                           | $      | 6,605 |   | $ | 7,049 |   | $ | 6,605 |   |
| Loans held for  sale (end of period)            |   | $                           | 4,251  |                           | $      | 3,684 |   | $ | 4,251 |   | $ | 3,684 |   |

 

Total loan originationsduring the quarter for the mortgage business were $7.0 billion, up from $6.8billion during the second quarter of 2001 and for the six months ended June 30thwere $13.5 billion, up from $11.1 billion for the comparable period ayear ago. Specialty product originations were $2.5 billion and $4.6 billion forthe quarter and six months ended June 30, 2002, down from $3.1 billion and $5.4billion in the comparable period a year ago. Agency / Jumbo originationsincreased from $3.3 billion to $3.9 billion and from $4.9 billion to $7.5billion, respectively, for the quarter and six months ended June 30, 2002 versusthe same periods a year ago. The change in loan origination product mixreflects the declining interest rate environment and strong demand for mortgagerefinancing.

 

**Non-Performing Assets:**

 

Non-performing assetsconsist of non-accruing loans and other real estate owned. For the six monthsended June 30, 2002, non-performing assets decreased by 4%. The ratio ofnon-performing loans to loans held for investment fell to 2.00% atJune 30, 2002 from 2.04% at December 31, 2001 while the ratio of non-performingassets to total assets fell to 1.02% at June 30, 2002 from 1.06% atDecember 31, 2001. GreenPoint attempts to convert these assets tointerest-earning assets as quickly as possible, while minimizing potentiallosses on conversion.

 

Non-performing assets,net of related specific reserves, were as follows:

 
| **(In millions)**                   |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|-------------------------------------|--------|--------------------|--------|--------------------|--------|
| Mortgage  loans secured by:         |   |               |   |               |   |
| Residential  one-to four-family     |   | $                  | 145    |               | $      | 177 |   |
| Residential  multi-family           |   | 6                  |   | 8                  |   |
| Commercial  property                |   | 45                 |   | 14                 |   |
| Other  loans                        |   | —             |   | 4                  |   |
| Total  non-performing loans (1)     |   | 196                |   | 203                |   |
| Total  other real estate owned, net |   | 9                  |   | 10                 |   |
| Total  non-performing assets        |   | $                  | 205    |               | $      | 213 |   |

 

----

*(1)**             Includes$4 million and $7 million of non-accrual mortgage loans under 90 days past dueat June 30, 2002 and December 31 2001, respectively.*

 

31

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**LoanServicing Portfolio**

 

The following tablesummarizes the dollar amount of loans serviced for GreenPoint and for others:

 
| **(In millions)**                    |   | **June 30,  2002** |   | **Dec. 31,  2001** |   |
|--------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Mortgage:**                        |   |               |   |               |   |
| Serviced  for GreenPoint (1)         |   | $                  | 13,482 |               | $      | 13,978 |   |
| Serviced  for others (third parties) |   | 10,817             |   | 11,796             |   |
| **Total loan servicing portfolio**   |   | $                  | 24,299 |               | $      | 25,774 |   |

 

----

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

 

**Allowance for Possible Loan Losses:**

 

The following is asummary of the provision and allowance for possible loan losses:

 
|                                                               |   | **Quarter Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|--------------------------------------------------------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In  millions)**                                                 |   | **2002**                    |   | **2001**                       |   | **2002** |   | **2001** |   |
| Balance  at beginning of period                                    |   | $                           | 78     |                           | $      | 113 |   | $ | 81 |   | $ | 113 |   |
| Provision  charged to income:                                      |   |                        |   |                           |   |   |   |   |   |
| Continuing                                                         |   | 1                           |   | 1                              |   | 1 |   | 1 |   |
| Discontinued                                                       |   | —                      |   | 4                              |   | — |   | 9 |   |
| Charge-offs:                                                       |   |                        |   |                           |   |   |   |   |   |
| Mortgage                                                           |   | (1                          | )      | (1                             | )      | (1 | ) | (1 | ) |
| Manufactured  housing                                              |   | —                      |   | (5                             | )      | — |   | (11 | ) |
| Manufactured  housing - transfer to loans receivable held for sale |   | —                      |   | —                         |   | (3 | ) | — |   |
| Recoveries:                                                        |   |                        |   |                           |   |   |   |   |   |
| Mortgage                                                           |   | —                      |   | —                         |   | — |   | — |   |
| Manufactured  housing                                              |   | —                      |   | 1                              |   | — |   | 2 |   |
| Balance  at end of period                                          |   | $                           | 78     |                           | $      | 113 |   | $ | 78 |   | $ | 113 |   |

 

Net mortgage loan charge-offswere approximately $0.3 million and $0.7 million for the quarter and six monthsended June 30, 2002, unchanged versus the comparable periods a year ago.

 

**Capital Ratios**

 

The Company and the Bankare subject to various regulatory capital requirements administered by thefederal and state banking agencies. The Board of Governors of the FederalReserve System establishes minimum capital requirements for the consolidatedbank holding company, as well as for the Bank.

 

Under capital adequacyguidelines and the regulatory framework for prompt corrective action, the Bankmust meet specific capital guidelines that involve quantitative measures of itsassets, liabilities, and certain off balance sheet items as calculated underregulatory accounting practices. These guidelines require minimum ratios ofrisk-based capital to risk adjusted assets of 4% for Tier 1 capital and 8% fortotal capital. The Federal Reserve Board also has guidelines for a leverageratio that is designed to complement the risk-based capital ratios indetermining the overall capital adequacy of banks and bank holding companies. Aminimum leverage ratio of Tier 1 capital to average total assets of 3% isrequired for banks and bank holding companies, with an additional 100 to 200basis points required for all but the highest rated institutions. Managementbelieves, as of June 30, 2002, that the Company and the Bank meet all capitaladequacy requirements to which it is subject.

 

32

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FDICIA, among otherthings, identifies five capital categories for insured depository institutions(well capitalized, adequately capitalized, undercapitalized, significantlyundercapitalized and critically undercapitalized) and requires federal bankingregulatory agencies to implement systems for “prompt corrective action” forinsured depository institutions that do not meet minimum capital requirementsbased on these categories. As of March 31, 2002, the Bank was well capitalizedbased on the prompt corrective action guidelines.

 

The most recentnotification from the FDIC categorized the Bank as well capitalized under theregulatory framework for prompt corrective action. To be categorized as wellcapitalized, the Bank must maintain minimum Tier 1 capital, total capital andleverage ratios of 6%, 10% and 5%, respectively. There have been no conditionsor events since that notification that management believes have changed theCompany’s or Bank’s category.

 

The Company’s TotalCapital and Tier 1 Capital (to risk weighted assets) improved from 11.72% and10.10%, respectively, at December 31, 2001 to 13.77% and 12.07%, respectivelyat June 30, 2002. The improvement in the ratios is attributable to the growthin tangible capital resulting from earnings. The Company’s ratio of period-endstockholders’ equity to ending total assets at June 30, 2002 was 9.22% comparedto 8.20% at December 31, 2001.

 

InOctober of 2001 the FDIC approved a final rule revising the regulatory capitaltreatment of recourse, direct credit substitutes, and residual interests insecuritizations. The final rule is effective for transactions settled on orafter January 1, 2002, with a one-year transition rule for transactions settledbefore that date. For transactions settled before January 1, 2002, banks candelay adoption of any provision until December 31, 2002 if adoption wouldresult in an increased capital charge. The adoption of the new rule will nothave a significant impact on GreenPoint’s risk-based capital ratios when fullyimplemented as of December 31, 2002.

 
|                                       |   | **Actual** |   | **Required for Capital Adequacy Purposes** |   |
|--------------------------------------------|--------|------------|--------|--------------------------------------------|--------|
| **(In millions)**                          |   | **Amount** |   | **Ratio**                                  |   | **Amount** |   | **Ratio** |   |
| **As of  June 30, 2002**                   |   |       |   |                                       |   |   |   |   |   |
| Total  Capital (to Risk Weighted Assets):  |   |       |   |                                       |   |   |   |   |   |
| Company                                    |   | $          | 1,843  |                                       | 13.77  | % | $ | 1,071 |   | 8.00 | % |
| Bank                                       |   | 1,839      |   | 13.74                                      |   | 1,071 |   | 8.00 |   |
| Tier  1 Capital (to Risk Weighted Assets): |   |       |   |                                       |   |   |   |   |   |
| Company                                    |   | $          | 1,615  |                                       | 12.07  | % | $ | 535 |   | 4.00 | % |
| Bank                                       |   | 1,611      |   | 12.04                                      |   | 535 |   | 4.00 |   |
| Tier  1 Capital (to Average Assets):       |   |       |   |                                       |   |   |   |   |   |
| Company                                    |   | $          | 1,615  |                                       | 8.05   | % | $ | 803 |   | 4.00 | % |
| Bank                                       |   | 1,611      |   | 8.08                                       |   | 798 |   | 4.00 |   |
|                                       |   |       |   |                                       |   |   |   |   |   |
| **As of  December 31, 2001**               |   |       |   |                                       |   |   |   |   |   |
| Total  Capital (to Risk Weighted Assets):  |   |       |   |                                       |   |   |   |   |   |
| Company                                    |   | $          | 1,669  |                                       | 11.72  | % | $ | 1,139 |   | 8.00 | % |
| Bank                                       |   | 1,656      |   | 11.63                                      |   | 1,139 |   | 8.00 |   |
| Tier  1 Capital (to Risk Weighted Assets): |   |       |   |                                       |   |   |   |   |   |
| Company                                    |   | $          | 1,438  |                                       | 10.10  | % | $ | 570 |   | 4.00 | % |
| Bank                                       |   | 1,426      |   | 10.01                                      |   | 570 |   | 4.00 |   |
| Tier  1 Capital (to Average Assets):       |   |       |   |                                       |   |   |   |   |   |
| Company                                    |   | $          | 1,438  |                                       | 7.23   | % | $ | 796 |   | 4.00 | % |
| Bank                                       |   | 1,426      |   | 7.17                                       |   | 795 |   | 4.00 |   |

 

33

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**ConsolidatedStatement of Financial Condition**

 

Total assets of $20.1billion at June 30, 2002 were essentially unchanged from $20.2 billion atDecember 31, 2001. The balance sheet reflects growth in the securitiesportfolio of $803 million offset by the first quarter sale of manufacturedhousing loans with a principal balance of $843 million. The sale proceeds ofthe manufactured housing loans were reinvested in securities available forsale. Loans receivable held for investment declined $177 million.

 

The balance of coredeposits increased $1.0 billion since year-end 2001, reflecting the success ofa variety of initiatives to attract checking accounts. This growth was offsetin part by a decline of $646 million in the high cost term certificates ofdeposit. Market borrowings decreased $431 million since year-end 2001,reflecting the net additional funding provided through deposit growth.

 

34

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**Item 3****- Quantitativeand Qualitative Disclosureabout Market Risk**

 

**MarketRisk Management**

 

**Overview:**

The Company’s market risk exposure is limited solely to interest raterisk. Interest rate risk is defined as the sensitivity of the Company’s currentand future earnings to changes in the level of market interest rates. It arisesin the ordinary course of the Company’s business, as the repricingcharacteristics of its assets do not match those of its liabilities. Theresulting interest rate risk is managed by adjustments to the Company’sinvestment portfolios and the maturities of market borrowings as well asvarious deposit pricing and derivative strategies.

 

**Market Risk Management Process:**

Management responsibility for interest rate risk resides with the Assetand Liability Management Committee (“ALCO”). The committee is chaired by theChief Financial Officer and includes the Treasurer, the Head of Risk Managementand the Company’s senior business-unit and financial executives. Interest raterisk management strategies are formulated and monitored by ALCO within policiesand limits approved by the Board of Directors. These policies and limits setforth the maximum risk which the Board of Directors deems prudent, governpermissible investment securities and off-balance sheet instruments, andidentify acceptable counterparties to securities and off-balance sheettransactions.

 

ALCO risk management strategies allow for the assumption of interestrate risk within the Board approved limits. The strategies are formulated basedupon ALCO’s assessments of likely market developments and trends in theCompany’s lending and consumer banking businesses. Strategies are developedwith the aim of enhancing the Company’s net income and capital, while ensuringthe risks to income and capital from adverse movements in interest rates areacceptable.

 

**Interest Rate Risk Position:**

The Company’s income is affected by changes in the level of marketinterest rates based upon mismatches between the repricing of its assets andliabilities. One measure of interest rate sensitivity is provided by the accompanyingnet gap analysis, which organizes assets and liabilities according to the timeperiod in which they reprice or mature. For many of the Company’s assets andliabilities, the maturity or repricing date is not determinable with certainty.For example, the Company’s mortgage loans and its mortgage-backed securitiescan be prepaid before contractual amortization and/or maturity. Also, repricingof the Company’s non-time deposits is subject to management’s evaluation of theexisting interest rate environment, current funding and liquidity needs, andother factors influencing the market competition for such deposits. The amountsin the accompanying table reflect management’s judgment of the most likelyrepricing schedule; actual results could vary from those detailed herein.

 

The difference between assets and liabilities repricing in a givenperiod is one approximate measure of interest rate sensitivity. More assetsthan liabilities repricing in a period (a positive gap) implies earnings willrise as interest rates rise, and decline as interest rates decline. Moreliabilities than assets repricing (a negative gap) implies declining income asrates rise and rising income as rates fall.

 

These repricing relationships do not consider the impact that ratemovements might have on other components of the Bank’s risk profile; forexample, an increase in interest rates, while implying that earnings will risein a positive gap period, might also result in higher credit or default riskdue to a higher probability of borrowers being unable to pay the contractualpayments on loans. Likewise, a decrease in rates might result in an increase inthe risk that funds received from loan and securities prepayments arereinvested at lower rates and/or spreads. The management of these risks isdiscussed more fully in the section covering earnings at risk.

 

35

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The following tablepresents the Company’s interest rate sensitivity gap position as of June 30,2002:

 
| **Interest Rate Sensitivity Gap  Analysis**                                                 |   | **At June 30, 2002**  |   |
|---------------------------------------------------------------------------------------------|--------|-----------------------|--------|
| **(Dollars in millions)**                                                                   |   | **Within   One Year** |   | **More Than  1 Year to  3 Years** |   | **More Than  3 Years to  5 Years** |   | **More Than  5 Years to  9 Years** |   | **More  Than  9 Years** |   | **Total** |   |
| Total  loans, net                                                                           |   | $                     | 8,404  |   | $ | 3,098 |   | $ | 1,693 |   | $ | 664 |   | $ | 293 |   | $ | 14,152 |   |
| Money  market investments                                                                   |   | 17                    |   | — |   | — |   | — |   | — |   | 17 |   |
| Securities                                                                                  |   | 2,089                 |   | 794 |   | 328 |   | 429 |   | 749 |   | 4,389 |   |
| Other  interest-earning assets                                                              |   | 144                   |   | — |   | — |   | — |   | — |   | 144 |   |
| Total  interest-earning assets                                                              |   | 10,654                |   | 3,892 |   | 2,021 |   | 1,093 |   | 1,042 |   | 18,702 |   |
| Cash  and due from banks                                                                    |   | 228                   |   | — |   | — |   | — |   | — |   | 228 |   |
| Servicing  assets                                                                           |   | 19                    |   | 30 |   | 21 |   | 24 |   | 18 |   | 112 |   |
| Other  non-interest earning assets                                                          |   | 704                   |   | 75 |   | 75 |   | 151 |   | 56 |   | 1,061 |   |
| Total  assets                                                                               |   | $                     | 11,605 |   | $ | 3,997 |   | $ | 2,117 |   | $ | 1,268 |   | $ | 1,116 |   | $ | 20,103 |   |
|                                                                                        |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Term  certificates of deposit                                                               |   | $                     | 2,981  |   | $ | 1,963 |   | $ | 258 |   | $ | 11 |   | $ | — |   | $ | 5,213 |   |
| Core  deposits                                                                              |   | 680                   |   | 1,064 |   | 808 |   | 1,045 |   | 2,245 |   | 5,842 |   |
| Total  deposits                                                                             |   | 3,661                 |   | 3,027 |   | 1,066 |   | 1,056 |   | 2,245 |   | 11,055 |   |
| Securities  sold under agreements to repurchase and other short term borrowings             |   | 1,080                 |   | 1,200 |   | 200 |   | — |   | — |   | 2,480 |   |
| Federal  Home Loan Bank advances                                                            |   | 1,650                 |   | 950 |   | 500 |   | 350 |   | — |   | 3,450 |   |
| Senior  bank notes                                                                          |   | 134                   |   | — |   | — |   | — |   | — |   | 134 |   |
| Subordinated  bank debt                                                                     |   | —                |   | — |   | — |   | 150 |   | — |   | 150 |   |
| Guaranteed  preferred beneficial interest in Company’s junior subordinated debentures  |   | —                |   | — |   | 200 |   | — |   | — |   | 200 |   |
| Mortgagors'  escrow                                                                         |   | 9                     |   | 15 |   | 12 |   | 16 |   | 23 |   | 75 |   |
| Total  interest-bearing liabilities                                                         |   | 6,534                 |   | 5,192 |   | 1,978 |   | 1,572 |   | 2,268 |   | 17,544 |   |
| Other  liabilities                                                                          |   | 706                   |   | — |   | — |   | — |   | — |   | 706 |   |
| Stockholders’  equity                                                                  |   | —                |   | — |   | — |   | — |   | 1,853 |   | 1,853 |   |
| Total  liabilities and stockholders’ equity                                            |   | $                     | 7,240  |   | $ | 5,192 |   | $ | 1,978 |   | $ | 1,572 |   | $ | 4,121 |   | $ | 20,103 |   |
| Interest  rate sensitivity gap                                                              |   | $                     | 4,365  |   | $ | (1,195 | ) | $ | 139 |   | $ | (304 | ) | $ | (3,005 | ) |   |   |
| Cumulative  interest rate sensitivity gap                                                   |   | $                     | 4,365  |   | $ | 3,170 |   | $ | 3,309 |   | $ | 3,005 |   | — |   |   |   |
| Cumulative  interest rate sensitivity gap as a percentage of total assets at June 30,  2002 |   | 21.7                  | %      | 15.8 | % | 16.5 | % | 14.9 | % |   |   |   |   |

 

As of June 30, 2002, the cumulative volume of assets maturing orrepricing within one year exceeded liabilities by $4.4 billion, or 21.7% of totalassets. This compares to an excess of liabilities to assets less than one yearof $396 million at March 31, 2002. As interest rates fell to near historic lowsin the second quarter, the effective repricing schedule of the Company’smortgage portfolio shortened based upon faster assumed prepayments. Also duringthe quarter, the Company’s core deposits, which are assumed to have relativelyslow repricing characteristics, grew substantially. Certificates of deposits,with relatively short maturities, declined. Finally, in response tohistorically low interest rates, the Company extended its market borrowings,such as Federal Home Loan Bank advances and repurchase agreements.

 

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# **Derivative Financial Instruments:**

Interest rate derivatives, such as interest rate swaps and eurodollarfutures, are periodically employed in the Company’s interest rate gapmanagement. The notional amount of these instruments is not included in thecompany’s balance sheet. There were no outstanding derivative financialinstruments hedging the Company’s interest rate gap position at June 30, 2002.

 

The Company does currently utilize derivative instruments to manage itsexposure to interest rate risk associated with mortgage loan commitments andmortgage loans held for sale.

 

Prior to the closing of the loan, the Company generally extends aninterest rate lock commitment to the borrower. The Company is exposed tosubsequent changes in the level of market interest rates, and the spread overTreasuries required by investors. An increase in market interest rates or awidening of spreads will reduce the prices paid by investors and the resultantgain on sale. To mitigate this risk, at the time the Company extends theinterest rate lock commitment to the borrower, the Company will enter intomandatory commitments to deliver mortgage whole loans to various investors, orto issue private securities and/or Fannie Mae and Freddie Mac securities(forward delivery commitments.) These commitments effectively establish theprice the Company will receive for the related mortgage loan thereby minimizingthe risk of subsequent changes in interest rates. At June 30, 2002, the Companyhad mandatory forward delivery commitments outstanding amounting to $1.5 billion.

 

# **Earnings at Risk Sensitivity Analysis:**

The static gap analysis is an incomplete representation of interestrate risk for several reasons. It fails to account for potential changes inprepayment speeds on the Company’s mortgage loans and mortgage backedsecurities portfolios related to changes in market interest rates. In additionthe static gap analysis does not capture the behavior of deposit balances whichmay vary with changes in the general level of interest rates and management’spricing strategies. Finally, the gap analysis does not provide a clearpresentation of the risks to income arising from options embedded in theCompany’s balance sheet. Accordingly, ALCO makes extensive use of an earningssimulation model in the formulation of its market risk management strategy.

 

The earnings simulation model gives effect to management assumptionsconcerning the repricing of assets, liabilities and derivative financialinstruments, as well as business volumes, under a variety of hypotheticalinterest rate scenarios. These hypothetical scenarios incorporate parallelshifts in interest rates of plus or minus 100, 200 and 300 basis points. Inaddition deterministic non-parallel flattening and steepening scenarios arealso incorporated into the interest rate risk management process.

 

The most crucial management assumptions concern prepayments on theCompany’s mortgage loan portfolio and the pricing of consumer deposits invarious interest rate environments. As interest rates decline, mortgageprepayments tend to increase, reducing loan portfolio growth and lowering theportfolio’s average yield. Rates on non-maturity deposits rise and fall withthe general level of interest rates, but tend to move less thanproportionately. Rates offered on consumer certificates of deposit tend to movein close concert with market rates, though history suggests that they increaseless rapidly when market rates rise. Extensive historical analysis shows thatthe Company’s deposit volumes are relatively insensitive to interest ratemovements within the range encompassed in the parallel shift scenarios.

 

Based on this model, at June 30, 2002, the Company’s potential netinterest income at risk to a gradual, parallel 200 basis point decline inmarket interest rates over the next twelve months, was a decline ofapproximately 4.7% in net income over the next twelve months. Conversely, agradual 300 basis point increase in interest rates over the next twelve monthswould result in a projected increase in net interest income of 4.8% over whatwould be earned if rates remained constant. GreenPoint does not havesignificant exposure to risk on instruments held for trading purposes.

 

Management has included all derivative and other financial instrumentsthat have a material effect in calculating the Company’s potential earnings atrisk.

 

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These measures of risk represent the Company’s exposure to interestrate movements at a particular point in time. The risk position is alwayschanging. ALCO continuously monitors the Company’s risk profile as it changes,and alters the rate sensitivity to ensure limits are adhered to, and that theresulting risk profile is appropriate to its views on the likely course ofinterest rates and developments in its core businesses.

 

The fair values of the mortgage company’s servicing assets and retainedinterests from securitizations are directly affected by the level ofprepayments associated with the underlying loans. As interest rates decline thevalue of these assets will decline. Conversely as interest rates rise, thevalue of these assets will increase.

 

# **Credit Risk Management**

 

The Company originates mortgage and manufactured housing loans for itsown portfolio and for disposition in the secondary markets in the form of wholeloan sales and securitizations. In general, whole loan sales transfer thecredit risk to the purchasers. In contrast, for loans placed in the portfolio,or for loans securitized, the Company retains all or much of the credit risk.As of December 31, 2001, the Company discontinued the origination ofmanufactured housing loans. However, it continues to service its manufacturedhousing loan portfolio, including its securitized loan pools.

 

GreenPoint Mortgage maintains underwriting policies, procedures andapproval authorities appropriate to its business. The chief credit executivereports directly to the chief executive of the business, outside of theproduction organization. With respect to loans originated for whole loan saleto the secondary markets, where credit risk is transferred, underwritingcriteria are established to meet investor requirements. An executive-level RiskManagement Division determines the criteria required for loans which will betransferred to GreenPoint’s portfolio or sold through securitizations.

 

Oversight of the appraiser approval and appraisal review process isprovided independent of the production organization. Appraisers are required tomeet strict standards for approval by GreenPoint, and their performance is monitoredon a regular basis. With oversight by Risk Management, a comprehensive qualitycontrol process is in place to ensure that loans being originated meet theCompany’s underwriting standards, and that required operating procedures arefollowed. Loans are selected monthly on a pre and post funding basis for reviewby quality control analysts and staff appraisers.

 

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

 

Risk Management reviews monthly the delinquency and loss trends in allof the mortgage and manufactured housing loans serviced by the Company, whetheror not it retains credit exposure. These reviews are intended to identifysignificant changes in credit quality which may indicate changes to theCompany’s exposures or to the efficacy of its underwriting of loans sold toother investors. Such changes could prompt adjustments to the Company’sunderwriting criteria or servicing procedures.

 

GreenPoint’s loan origination activity is geographically diversifiedthroughout the U.S. GreenPoint began originating loans outside of New YorkState in 1996. The Company also closely monitors trends in delinquent andnon-performing loans through cycles in the economy and in the real estatemarket. These economic and performance trends are analyzed in the ongoingfine-tuning of lending practices.

 

The Company uses various collection strategies and works to maintaincontact with the borrowers in order to obtain repayment. Collection activitiesfor GreenPoint Mortgage are centralized in a servicing unit in Columbus,Georgia. GreenPoint Credit’s remarketing activities are decentralized among itsregional offices in order to repossess and liquidate collateral moreeffectively, thereby minimizing the loss severity. During the third quarter of2002 certain collection activities previously conducted through the regionaloffices will be centralized in a new default management center in Atlanta,Georgia. The centralization is expected to enhance effective and timelycollection activities and loss mitigation efforts.

 

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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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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**PART II****- OTHER INFORMATION**

**Item 1****- Legal Proceedings**

 

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

 

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**PART II -OTHER INFORMATION**

**Item 4****- Submission of Matters to a Vote ofSecurity Holders**

 

At the Company’s annualmeeting of shareholders held on May 14, 2002, the following matters were votedupon with the results of the voting on such matters indicated:

 

1.               Electionof the following four directors of the Company to three-year terms:

 
|               |   | **For**    |   | **Withheld** |
|--------------------|--------|------------|--------|--------------|
| Dan F. Huebner     |   | 89,776,808 |   | 1,379,712    |
| William M. Jackson |   | 89,797,121 |   | 1,359,399    |
| Thomas S. Johnson  |   | 89,789,396 |   | 1,367,124    |
| Charles B. McQuade |   | 89,330,639 |   | 1,825,881    |

 

The following sets forththe names of Directors continuing in office after the annual meeting;

 
| Bharat B. Bhatt  | Robert P. Quinn    |
|------------------|--------------------|
| Robert M. McLane | Edward C. Schmults |
| Peter T. Paul    | Robert F. Vizza    |
| Alvin N. Puryear |               |

 

2.               Ratificationof the appointment of PricewaterhouseCoopers LLP as the Corporation’sindependent auditor for the year ending December 31, 2002:

 
| For:    |   | 86,651,654 |
|---------|--------|------------|
| Against |   | 4,109,000  |
| Abstain |   | 395,866    |

 

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**GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES**

**PART II - OTHER INFORMATION**

## **Item5** - Other Information

 

**Shareholder Proposals**

 

The Company’s 2003annual meeting of shareholders is currently scheduled to be held on April 8,2003, which date is more than 30 days from the date of the Company’s 2002annual meeting. Accordingly, in order to be eligible for inclusion in theCompany’s proxy materials for its 2003 annual meeting, any shareholder proposalto take action at such meeting must be received at the Company’s main office at90 Park Avenue, New York, New York 10016, no later than October 24, 2002. Anysuch proposal shall be subject to the requirements of the Company’s Bylaws andthe proxy rules adopted under the Securities Exchange Act of 1934.

 

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**GREENPOINTFINANCIAL CORP. AND SUBSIDIARIES**

**PART II -OTHER INFORMATION**

**Item 6****- Exhibits and Reports on Form 8-K**

 

**(a)     Exhibits**

 
| **Exhibit Number:** |
|---------------------|
| 12.1                |   | Ratios of Earnings to  Combined Fixed Charges |
|                |   |   |
| 99.1                |   | Certification of  Periodic Report of Thomas S. Johnson, Chairman and Chief Executive Officer |
|                |   |   |
| 99.2                |   | Certification of  Periodic Report of Jeffrey R. Leeds, Executive Vice President and Chief  Financial Officer |

 

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

 

No reports were filed forthe quarter ended June 30, 2002.

 

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**GREENPOINT FINANCIAL CORP. ANDSUBSIDIARIES**

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.

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

 

Dated August 9, 2002

 

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