**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM10-Q**

 

**ý****  Quarterly Report Pursuant to Section 13or 15(d) of theSecurities Exchange Act of 1934**

 

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**For the Quarterly Period Ended**

**September 30, 2003**

 

**OR**

 

**o****  Transition Report Pursuant toSection 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**0-22516**

**Commission File Number**

 

**GreenPointFinancial Corp.**

(Exactname of registrant as specified in its charter)

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

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90days.  ý **Yes **o **No**

 

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

 

As of October 31, 2003, there were133,350,795 shares of common stock outstanding.

 

 

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**GreenPoint Financial Corp.FORM 10-QFor the Quarterly Period EndedSeptember 30, 2003**

 

**TABLE OF CONTENTS**

 
| **PART I  – FINANCIAL INFORMATION**                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                        |
| Item 1 - Financial Statements                                                                                                               |
|                                                                                                                                        |
| Consolidated  Statements of Financial Condition (unaudited) as of September 30, 2003  and December 31, 2002                       |
|                                                                                                                                        |
| Consolidated Statements  of Income (unaudited) for the quarter and nine month periods ended  September 30, 2003 and 2002               |
|                                                                                                                                        |
| Consolidated  Statements of Comprehensive Income (unaudited) for the quarter and nine month  periods ended September 30, 2003 and 2002 |
|                                                                                                                                        |
| Consolidated  Statements of Changes in Stockholders’ Equity (unaudited) for the nine months  ended September 30, 2003 and 2002    |
|                                                                                                                                        |
| Consolidated  Statements of Cash Flows (unaudited) for the nine months ended  September 30, 2003 and 2002                              |
|                                                                                                                                        |
| Notes to the  Unaudited Consolidated Financial Statements                                                                                   |
|                                                                                                                                        |
| Item 2 - Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                        |
|                                                                                                                                        |
| Item 3 - Quantitative  and Qualitative Disclosures about Market Risk                                                                        |
|                                                                                                                                        |
| Item 4 - Controls and  Procedures                                                                                                           |
|                                                                                                                                        |
| **PART  II – OTHER INFORMATION**                                                                                                       |
|                                                                                                                                        |
| Item 1 - Legal Proceedings                                                                                                                  |
|                                                                                                                                        |
| Item 6 - Exhibits and Reports on Form 8-K                                                                                                   |

 

2

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**GreenPoint Financial Corp. andSubsidiaries**

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

 

**Consolidated Statements of Financial Condition**

**(Unaudited)**

 
| **(In millions, except share  amounts)**                                                   |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|--------------------------------------------------------------------------------------------|--------|---------------------|--------|--------------------|--------|
| **ASSETS**                                                                                 |   |                |   |               |   |
| Cash and due from banks                                                                    |   | $                   | 227    |               | $      | 277 |   |
| Money market  investments:                                                                 |   |                |   |               |   |
| Interest-bearing deposits in other banks                                                   |   | 3                   |   | 21                 |   |
| Federal funds sold and securities purchased under agreements to  resell                    |   | 13                  |   | 71                 |   |
| Total cash and cash equivalents                                                            |   | 243                 |   | 369                |   |
| Securities:                                                                                |   |                |   |               |   |
| Securities available for sale                                                              |   | 2,574               |   | 2,006              |   |
| Securities available for sale-pledged to creditors                                         |   | 2,822               |   | 2,087              |   |
| Retained interests in securitizations available for sale                                   |   | 58                  |   | 108                |   |
| Federal Home Loan Bank of New York stock                                                   |   | 195                 |   | 300                |   |
| Securities held to maturity (fair value of $5 and $3, respectively)                        |   | 5                   |   | 3                  |   |
| Total securities                                                                           |   | 5,654               |   | 4,504              |   |
| Loans receivable held  for sale                                                            |   | 6,010               |   | 5,595              |   |
| Loans receivable held  for investment (net of allowance for loan losses of $78)            |   | 9,431               |   | 9,901              |   |
| Other interest-earning  assets                                                             |   | 142                 |   | 141                |   |
| Accrued interest  receivable                                                               |   | 74                  |   | 87                 |   |
| Banking premises and  equipment, net                                                       |   | 182                 |   | 168                |   |
| Servicing assets                                                                           |   | 159                 |   | 117                |   |
| Goodwill (net of  accumulated amortization and impairment of $788)                         |   | 395                 |   | 395                |   |
| Other assets                                                                               |   | 576                 |   | 537                |   |
| Total assets                                                                               |   | $                   | 22,866 |               | $      | 21,814 |   |
|                                                                                       |   |                |   |               |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                              |   |                |   |               |   |
| **Liabilities:**                                                                           |   |                |   |               |   |
| Deposits:                                                                                  |   |                |   |               |   |
| N.O.W. and checking                                                                        |   | $                   | 2,690  |               | $      | 1,877 |   |
| Savings                                                                                    |   | 1,493               |   | 1,323              |   |
| Variable rate savings                                                                      |   | 2,211               |   | 2,296              |   |
| Money market                                                                               |   | 1,299               |   | 948                |   |
| Total core deposits                                                                        |   | 7,693               |   | 6,444              |   |
| Wholesale money market deposits                                                            |   | 328                 |   | 43                 |   |
| Term certificates of deposit                                                               |   | 4,490               |   | 5,309              |   |
| Total deposits                                                                             |   | 12,511              |   | 11,796             |   |
| Borrowings:                                                                                |   |                |   |               |   |
| Securities sold under agreements to repurchase                                             |   | 2,799               |   | 2,000              |   |
| Other short term borrowings                                                                |   | 870                 |   | 285                |   |
| Federal Home Loan Bank of New York advances                                                |   | 3,300               |   | 4,600              |   |
| Senior notes                                                                               |   | 350                 |   | —             |   |
| Subordinated bank notes                                                                    |   | 150                 |   | 150                |   |
| Guaranteed preferred beneficial interest in Company’s junior  subordinated debentures |   | 200                 |   | 200                |   |
| Total borrowings                                                                           |   | 7,669               |   | 7,235              |   |
| Mortgagors’ escrow                                                                    |   | 74                  |   | 68                 |   |
| Liability under recourse  exposure                                                         |   | 256                 |   | 301                |   |
| Other liabilities                                                                          |   | 513                 |   | 490                |   |
| Total liabilities                                                                          |   | 21,023              |   | 19,890             |   |
| Commitments and  contingencies                                                             |   |                |   |               |   |
| **Stockholders’  equity:**                                                            |   |                |   |               |   |
| Preferred stock ($0.01 par value; 50,000,000 shares authorized; none  issued)              |   | —              |   | —             |   |
| Common stock ($0.01 par value; 220,000,000 shares authorized;  165,391,746 shares issued)  |   | 2                   |   | 1                  |   |
| Additional paid-in capital                                                                 |   | 936                 |   | 907                |   |
| Unallocated Employee Stock Ownership Plan (ESOP) shares                                    |   | (85                 | )      | (89                | )      |
| Retained earnings                                                                          |   | 1,840               |   | 1,563              |   |
| Accumulated other comprehensive income, net                                                |   | (18                 | )      | 24                 |   |
| Treasury stock, at cost (30,987,870 shares and 20,930,000 shares,  respectively)           |   | (832                | )      | (482               | )      |
| Total stockholders’ equity                                                            |   | 1,843               |   | 1,924              |   |
| Total liabilities and stockholders’ equity                                            |   | $                   | 22,866 |               | $      | 21,814 |   |

 

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

 

3

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**Consolidated Statements of Income**

**(Unaudited)**

 
|                                                         |   | **Quarter Ended  September 30,** |       | **Nine Months Ended  September 30,** |       |
|--------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------------|------------|
| **(In  millions, except per share amounts)**                 |   | **2003**                              | ** ** | **2002**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Interest  income:**                                        |   |                                  |       |                                      |       |   |   |   |   |
| Mortgage loans held for investment                           |   | $                                     | 147.6      |                                      | $          | 181.1 |   | $ | 471.4 |   | $ | 561.9 |   |
| Loans held for sale                                          |   | 76.7                                  |       | 85.8                                      |       | 223.2 |   | 212.2 |   |
| Securities                                                   |   | 44.5                                  |       | 58.9                                      |       | 156.2 |   | 185.6 |   |
| Other                                                        |   | 4.1                                   |       | 3.3                                       |       | 12.2 |   | 15.8 |   |
| Total interest income                                        |   | 272.9                                 |       | 329.1                                     |       | 863.0 |   | 975.5 |   |
| **Interest  expense:**                                       |   |                                  |       |                                      |       |   |   |   |   |
| Deposits                                                     |   | 55.6                                  |       | 69.1                                      |       | 178.7 |   | 220.1 |   |
| Other borrowed funds                                         |   | 54.1                                  |       | 60.6                                      |       | 161.4 |   | 164.9 |   |
| Long-term debt                                               |   | 11.0                                  |       | 8.5                                       |       | 28.0 |   | 29.1 |   |
| Total interest expense                                       |   | 120.7                                 |       | 138.2                                     |       | 368.1 |   | 414.1 |   |
| Net interest income                                          |   | 152.2                                 |       | 190.9                                     |       | 494.9 |   | 561.4 |   |
| Provision for loan  losses                                   |   | (1.1                                  | )          | (0.5                                      | )          | (2.0 | ) | (1.2 | ) |
| Net interest income after provision for loan losses          |   | 151.1                                 |       | 190.4                                     |       | 492.9 |   | 560.2 |   |
| **Non-interest  income:**                                    |   |                                  |       |                                      |       |   |   |   |   |
| Income from fees and commissions:                            |   |                                  |       |                                      |       |   |   |   |   |
| Loan servicing fees                                          |   | 11.7                                  |       | (0.4                                      | )          | 17.1 |   | 10.7 |   |
| Banking services fees and commissions                        |   | 18.6                                  |       | 15.4                                      |       | 50.3 |   | 42.4 |   |
| Fees, commissions and other income                           |   | 4.2                                   |       | 4.2                                       |       | 10.7 |   | 11.2 |   |
| Total income from fees and commissions                       |   | 34.5                                  |       | 19.2                                      |       | 78.1 |   | 64.3 |   |
| Net gain on sales of loans                                   |   | 105.9                                 |       | 89.2                                      |       | 375.9 |   | 265.2 |   |
| Change in valuation of retained interests                    |   | (1.1                                  | )          | (0.1                                      | )          | (2.5 | ) | (7.2 | ) |
| Net gain on sale of securities                               |   | 1.4                                   |       | 1.8                                       |       | 2.0 |   | 5.6 |   |
| Total non-interest income                                    |   | 140.7                                 |       | 110.1                                     |       | 453.5 |   | 327.9 |   |
| **Non-interest  expense:**                                   |   |                                  |       |                                      |       |   |   |   |   |
| General and administrative expenses:                         |   |                                  |       |                                      |       |   |   |   |   |
| Salaries and benefits                                        |   | 66.8                                  |       | 49.2                                      |       | 194.9 |   | 145.9 |   |
| Employee Stock Ownership and stock plans expense             |   | 6.9                                   |       | 6.3                                       |       | 19.7 |   | 19.3 |   |
| Net expense of premises and equipment                        |   | 22.3                                  |       | 18.1                                      |       | 64.1 |   | 53.6 |   |
| Federal deposit insurance premiums                           |   | 0.5                                   |       | 0.4                                       |       | 1.5 |   | 1.4 |   |
| Other administrative expenses                                |   | 33.9                                  |       | 27.6                                      |       | 97.2 |   | 84.8 |   |
| Total general and administrative expenses                    |   | 130.4                                 |       | 101.6                                     |       | 377.4 |   | 305.0 |   |
| Other real estate owned operating income                     |   | (0.7                                  | )          | —                                    |       | (2.2 | ) | (1.1 | ) |
| Total non-interest expense                                   |   | 129.7                                 |       | 101.6                                     |       | 375.2 |   | 303.9 |   |
| Income from continuing  operations before income taxes       |   | 162.1                                 |       | 198.9                                     |       | 571.2 |   | 584.2 |   |
| Income taxes related to  earnings from continuing operations |   | 61.0                                  |       | 72.4                                      |       | 213.4 |   | 214.6 |   |
| Net income from  continuing operations                       |   | 101.1                                 |       | 126.5                                     |       | 357.8 |   | 369.6 |   |
| **Discontinued  operations:**                                |   |                                  |       |                                      |       |   |   |   |   |
| Net income (loss) from disposal of discontinued business     |   | 0.2                                   |       | (0.2                                      | )          | 0.6 |   | 1.5 |   |
| **Net  income**                                              |   | $                                     | 101.3      |                                      | $          | 126.3 |   | $ | 358.4 |   | $ | 371.1 |   |
|                                                         |   |                                  |       |                                      |       |   |   |   |   |
| **Basic  earnings per share:**                               |   |                                  |       |                                      |       |   |   |   |   |
| Net income from continuing operations                        |   | $                                     | 0.84       |                                      | $          | 0.96 |   | $ | 2.89 |   | $ | 2.79 |   |
| Net income from discontinued operations                      |   | —                                |       | —                                    |       | 0.01 |   | 0.01 |   |
| Net income                                                   |   | $                                     | 0.84       |                                      | $          | 0.96 |   | $ | 2.90 |   | $ | 2.80 |   |
| **Diluted  earnings per share:**                             |   |                                  |       |                                      |       |   |   |   |   |
| Net income from continuing operations                        |   | $                                     | 0.82       |                                      | $          | 0.94 |   | $ | 2.84 |   | $ | 2.72 |   |
| Net income from discontinued operations                      |   | —                                |       | —                                    |       | — |   | 0.01 |   |
| Net income                                                   |   | $                                     | 0.82       |                                      | $          | 0.94 |   | $ | 2.84 |   | $ | 2.73 |   |
| **Dividends  declared per share**                            |   | $                                     | 0.24       |                                      | $          | 0.17 |   | $ | 0.66 |   | $ | 0.50 |   |

 

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

 

4

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**Consolidated Statements of Comprehensive Income**

**(Unaudited)**

 
|                                                                         |   | **Quarter Ended  September 30,** |       | **Nine Months Ended  September 30,** |       |
|------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------------|------------|
| **(In  millions)**                                                           |   | **2003**                              | ** ** | **2002**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                         |   |                                  |       |                                      |       |   |   |   |   |
| Net income                                                                   |   | $                                     | 101.3      |                                      | $          | 126.3 |   | $ | 358.4 |   | $ | 371.1 |   |
| Other comprehensive  income, before tax:                                     |   |                                  |       |                                      |       |   |   |   |   |
| Unrealized (losses) gains on securities:                                     |   |                                  |       |                                      |       |   |   |   |   |
| Unrealized holding (losses) gains arising during period                      |   | (41.7                                 | )          | 11.1                                      |       | (70.6 | ) | 50.3 |   |
| Less: reclassification adjustment for (gains) included in net income         |   | (1.4                                  | )          | (1.8                                      | )          | (2.0 | ) | (5.6 | ) |
| Other comprehensive  (loss) income, before tax                               |   | (43.1                                 | )          | 9.3                                       |       | (72.6 | ) | 44.7 |   |
| Income tax benefit (expense) related to items of other comprehensive  income |   | 18.5                                  |       | (3.9                                      | )          | 31.1 |   | (19.0 | ) |
| Other comprehensive  (loss) income, net of tax                               |   | (24.6                                 | )          | 5.4                                       |       | (41.5 | ) | 25.7 |   |
| **Total  comprehensive income, net of tax**                                  |   | $                                     | 76.7       |                                      | $          | 131.7 |   | $ | 316.9 |   | $ | 396.8 |   |

 

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

 

5

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

**(Unaudited)**

 
|                                                       |   | **Nine Months Ended  September 30,** |       |
|------------------------------------------------------------|--------|-------------------------------------------|------------|
| **(In millions)**                                          |   | **2003**                                  | ** ** | **2002** | ** ** |
| **Common stock**                                           |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | $                                         | 1          |   | $ | 1 |   |
| 3 for 2 stock split                                        |   | 1                                         |       | — |   |
| Balance at end of period                                   |   | 2                                         |       | 1 |   |
| **Additional paid-in capital**                             |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | 907                                       |       | 877 |   |
| 3 for 2 stock split                                        |   | (1                                        | )          | — |   |
| Reissuance of treasury  stock                              |   | —                                    |       | (8 | ) |
| Amortization of ESOP  shares committed to be released      |   | 20                                        |       | 18 |   |
| Amortization of stock  plans shares                        |   | —                                    |       | 1 |   |
| Tax benefit for vested  stock plans shares                 |   | 10                                        |       | 14 |   |
| Balance at end of period                                   |   | 936                                       |       | 902 |   |
| **Unallocated ESOP shares**                                |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | (89                                       | )          | (95 | ) |
| Amortization of ESOP  shares committed to be released      |   | 4                                         |       | 4 |   |
| Balance at end of period                                   |   | (85                                       | )          | (91 | ) |
| **Unearned stock plans shares**                            |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | —                                    |       | (1 | ) |
| Balance at end of period                                   |   | —                                    |       | (1 | ) |
| **Retained earnings**                                      |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | 1,563                                     |       | 1,148 |   |
| Net income                                                 |   | 358                                       |       | 371 |   |
| Dividends declared                                         |   | (81                                       | )          | (67 | ) |
| Balance at end of period                                   |   | 1,840                                     |       | 1,452 |   |
| **Accumulated other comprehensive income, net**            |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | 24                                        |       | 11 |   |
| Net change in  accumulated other comprehensive income, net |   | (42                                       | )          | 26 |   |
| Balance at end of period                                   |   | (18                                       | )          | 37 |   |
| **Treasury stock, at cost**                                |   |                                      |       |   |   |
| Balance at beginning of  period                            |   | (482                                      | )          | (285 | ) |
| Reissuance of treasury  stock                              |   | 35                                        |       | 51 |   |
| Purchase of treasury  stock                                |   | (385                                      | )          | (157 | ) |
| Balance at end of period                                   |   | (832                                      | )          | (391 | ) |
| **Total stockholders’ equity**                        |   | $                                         | 1,843      |   | $ | 1,909 |   |

 

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

 

6

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**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                               |   | **Nine Months Ended  September 30,** |       |
|------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|
| **(In millions)**                                                                  |   | **2003**                                  | ** ** | **2002** | ** ** |
| **Cash flows from operating activities:**                                          |   |                                      |       |   |   |
| Net income                                                                         |   | $                                         | 358        |   | $ | 371 |   |
| Adjustments to reconcile net income to net cash used in operating  activities:     |   |                                      |       |   |   |
| Provision for loan losses                                                          |   | 1                                         |       | 1 |   |
| Depreciation and amortization                                                      |   | 27                                        |       | 25 |   |
| Gain on sales of loans                                                             |   | (376                                      | )          | (265 | ) |
| Gain on sale of securities                                                         |   | (2                                        | )          | (6 | ) |
| ESOP and stock plans expense                                                       |   | 24                                        |       | 24 |   |
| Capitalization of servicing assets                                                 |   | (90                                       | )          | (47 | ) |
| Net premium amortization on:                                                       |   |                                      |       |   |   |
| Mortgage loans                                                                     |   | 36                                        |       | 12 |   |
| Available for sale securities                                                      |   | 31                                        |       | 8 |   |
| Amortization and impairment of servicing assets                                    |   | 28                                        |       | 43 |   |
| (Increase) decrease in  assets associated with operating activities:               |   |                                      |       |   |   |
| Loans receivable held for sale:                                                    |   |                                      |       |   |   |
| Loan originations                                                                  |   | (30,120                                   | )          | (23,310 | ) |
| Proceeds from loan sales                                                           |   | 29,785                                    |       | 22,008 |   |
| Other                                                                              |   | 296                                       |       | 176 |   |
| Retained interests in securitizations                                              |   | 47                                        |       | 22 |   |
| Accrued interest receivable                                                        |   | 13                                        |       | 4 |   |
| Other assets                                                                       |   | (5                                        | )          | (25 | ) |
| Increase (decrease) in  liabilities associated with operating activities:          |   |                                      |       |   |   |
| Liabilities under recourse exposure                                                |   | (45                                       | )          | (113 | ) |
| Other liabilities                                                                  |   | (1                                        | )     | 6 |   |
| Other, net                                                                         |   | 1                                         |       | (5 | ) |
| Net cash provided by (used in) operating activities                                |   | 8                                         |       | (1,071 | ) |
| **Cash flows from investing activities:**                                          |   |                                      |       |   |   |
| Net change in:                                                                     |   |                                      |       |   |   |
| Loans receivable held for investment                                               |   | 400                                       |       | 116 |   |
| Premises and equipment                                                             |   | (41                                       | )          | (37 | ) |
| Available for sale securities:                                                     |   |                                      |       |   |   |
| Proceeds from maturities                                                           |   | 126                                       |       | 154 |   |
| Proceeds from sales                                                                |   | 2,075                                     |       | 1,547 |   |
| Purchase of securities                                                             |   | (6,684                                    | )          | (4,344 | ) |
| Principal repayments                                                               |   | 3,125                                     |       | 1,579 |   |
| Proceeds from sales (purchases) of Federal Home Loan Bank Stock                    |   | 105                                       |       | (42 | ) |
| Other, net                                                                         |   | 36                                        |       | 22 |   |
| Net cash used in investing activities                                              |   | (858                                      | )          | (1,005 | ) |
| **Cash flows from financing activities:**                                          |   |                                      |       |   |   |
| Net change in:                                                                     |   |                                      |       |   |   |
| Domestic deposits                                                                  |   | 715                                       |       | 651 |   |
| Mortgagors’ escrow accounts                                                   |   | 6                                         |       | 8 |   |
| Proceeds from Securities sold under agreements to repurchase and  other borrowings |   | 76,388                                    |       | 100,740 |   |
| Repayments of Securities sold under agreements to repurchase and  other borrowings |   | (75,004                                   | )          | (100,015 | ) |
| Proceeds from advances from Federal Home Loan Bank                                 |   | 223,610                                   |       | 195,295 |   |
| Repayments of advances from Federal Home Loan Bank                                 |   | (224,910                                  | )          | (194,295 | ) |
| Proceeds from Senior notes                                                         |   | 350                                       |       | — |   |
| Cash dividends paid                                                                |   | (81                                       | )          | (67 | ) |
| Treasury stock purchased                                                           |   | (385                                      | )          | (157 | ) |
| Exercise of stock options                                                          |   | 35                                        |       | 43 |   |
| Retirement of long term debt                                                       |   | —                                    |       | (134 | ) |
| Net cash provided by financing activities                                          |   | 724                                       |       | 2,069 |   |
| Net decrease in cash and  cash equivalents                                         |   | (126                                      | )          | (7 | ) |
| Cash and cash  equivalents at beginning of period                                  |   | 369                                       |       | 357 |   |
| Cash and cash  equivalents at end of period                                        |   | $                                         | 243        |   | $ | 350 |   |
| **Non-cash activities:**                                                           |   |                                      |       |   |   |
| Additions to other real estate owned, net                                          |   | $                                         | (34        | ) | $ | (21 | ) |
| Unsettled trades                                                                   |   | $                                         | (43        | ) | $ | — |   |
| **Supplemental disclosure of cash flow information:**                              |   |                                      |       |   |   |
| Cash paid for income taxes                                                         |   | $                                         | 272        |   | $ | 116 |   |
| Interest paid                                                                      |   | $                                         | 376        |   | $ | 436 |   |

 

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

 

7

----

 

**Notes To****The Unaudited Consolidated Financial Statements**

 

**NOTE 1****                           ****Summary of Significant Accounting Policies**

 

**Basis of Presentation**

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

The Company adopted a planto 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.

These unaudited consolidatedinterim financial statements presented should be read in conjunction with theconsolidated financial statements and notes included in the Company’s AnnualReport to shareholders for the year ended December 31, 2002.

 

**Accounting for Loan Sales**

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

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

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

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

 

**RetainedInterests**

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

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

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

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

 

8

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**ServicingAssets**

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

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

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

 

**GoodwillAmortization**

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

 

# **Stock-BasedCompensation Plans**

The Company adopted the disclosure approachunder Statement of Financial Accounting Standards No. 123, “Accounting forStock-Based Compensation” (“SFAS 123”), as amended by Statement of FinancialAccounting Standards No. 148, “Accounting for Stock-Based Compensation –Transition and Disclosure”. Under these standards the Company discloses in thenotes to the financial statements the pro forma effects on net income andearnings per share, determined as if the fair value-based method had beenapplied in measuring compensation cost. The Company continues to apply APBOpinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) inaccounting for its plans. Accordingly, no compensation cost has been recognizedfor the Company’s stock option plans.

The following tableillustrates the effect on net income and earnings per share if the Company hadapplied the fair value recognition provisions of FASB Statement No. 123,“Accounting for Stock-Based Compensation”, to stock-based employeecompensation.

 
|                                                                                                                         |   | **Quarter Ended  September 30,** |       | **Nine Months Ended  September 30,** |       |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------------|------------|
| **(In millions)**                                                                                                            |   | **2003**                              | ** ** | **2002**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                         |   |                                  |       |                                      |       |   |   |   |   |
| Net income as reported                                                                                                       |   | $                                     | 101.3      |                                      | $          | 126.3 |   | $ | 358.4 |   | $ | 371.1 |   |
| Deduct: Total stock-based employee compensation expense determined  under fair value based method net of related tax effects |   | (2.4                                  | )          | (2.3                                      | )          | (7.2 | ) | (6.6 | ) |
| Proforma net income                                                                                                          |   | $                                     | 98.9       |                                      | $          | 124.0 |   | $ | 351.2 |   | $ | 364.5 |   |
|                                                                                                                         |   |                                  |       |                                      |       |   |   |   |   |
| Earnings per share:                                                                                                          |   |                                  |       |                                      |       |   |   |   |   |
| Basic – as reported                                                                                                     |   | $                                     | 0.84       |                                      | $          | 0.96 |   | $ | 2.90 |   | $ | 2.80 |   |
| Basic – pro forma                                                                                                       |   | $                                     | 0.82       |                                      | $          | 0.94 |   | $ | 2.84 |   | $ | 2.75 |   |
| Diluted – as reported                                                                                                   |   | $                                     | 0.82       |                                      | $          | 0.94 |   | $ | 2.84 |   | $ | 2.73 |   |
| Diluted – pro forma                                                                                                     |   | $                                     | 0.80       |                                      | $          | 0.92 |   | $ | 2.78 |   | $ | 2.68 |   |

 

9

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**NOTE 2****                            LoansReceivable**

 

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

 
| **(In millions)**                      |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|----------------------------------------|--------|---------------------|--------|--------------------|--------|
| Conventional first mortgage loans:     |   |                |   |               |   |
| Residential one-to four-family         |   | $                   | 4,962  |               | $      | 5,062 |   |
| Commercial property                    |   | 110                 |   | 78                 |   |
| Second mortgage and home  equity loans |   | 885                 |   | 404                |   |
| Other                                  |   | 1                   |   | 1                  |   |
| Total loans receivable held for sale   |   | 5,958               |   | 5,545              |   |
| Net deferred loan  origination costs   |   | 52                  |   | 50                 |   |
| Loans receivable held for sale, net    |   | $                   | 6,010  |               | $      | 5,595 |   |

 

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

 
| **(In millions)**                                         |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|-----------------------------------------------------------|--------|---------------------|--------|--------------------|--------|
| Conventional first  mortgage loans:                       |   |                |   |               |   |
| Residential one-to four-family                            |   | $                   | 7,928  |               | $      | 8,666 |   |
| Residential multi-family                                  |   | 245                 |   | 319                |   |
| Commercial property                                       |   | 900                 |   | 620                |   |
| Second mortgage and home  equity loans                    |   | 319                 |   | 267                |   |
| Other                                                     |   | 76                  |   | 69                 |   |
| Total loans receivable held for investment                |   | 9,468               |   | 9,941              |   |
| Net deferred loan  origination costs and purchase premium |   | 41                  |   | 38                 |   |
| Allowance for loan  losses                                |   | (78                 | )      | (78                | )      |
| Loans receivable held for investment, net                 |   | $                   | 9,431  |               | $      | 9,901 |   |

 

**NOTE 3****                           ****Securities Available for Sale**

 

The amortizedcost and estimated fair value of securities available for sale at June 30,2003 and December 31, 2002 are summarized as follows:

 
|                                                 |   | **September 30, 2003** |       |
|------------------------------------------------------|--------|-----------------------------|------------|
| **(In millions)**                                    |   | **Amortized  Cost**         | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. Government and Federal Agency Obligations:      |   |                        |       |   |   |   |   |   |   |
| U.S. Treasury notes/bills                            |   | $                           | 106        |   | $ | — |   | $ | (1 | ) | $ | 105 |   |
| Agency notes                                         |   | 115                         |       | — |   | (4 | ) | 111 |   |
| Mortgage-backed securities                           |   | 578                         |       | 10 |   | (2 | ) | 586 |   |
| Collateralized mortgage obligations                  |   | 4,166                       |       | 8 |   | (32 | ) | 4,142 |   |
| Trust certificates collateralized by GNMA securities |   | 3                           |       | — |   | — |   | 3 |   |
| Corporate bonds                                      |   | 142                         |       | — |   | (2 | ) | 140 |   |
| Municipal bonds                                      |   | 46                          |       | 3 |   | — |   | 49 |   |
| Equity securities                                    |   | 274                         |       | 1 |   | (15 | ) | 260 |   |
| Total securities available for sale                  |   | $                           | 5,430      |   | $ | 22 |   | $ | (56 | ) | $ | 5,396 |   |

 

10

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|                                                 |   | **December 31, 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                            |   | $                          | 6          |   | $ | — |   | $ | — |   | $ | 6 |   |
| Agency notes                                         |   | 107                        |       | — |   | — |   | 107 |   |
| Mortgage-backed securities                           |   | 388                        |       | 18 |   | — |   | 406 |   |
| Collateralized mortgage obligations                  |   | 3,197                      |       | 29 |   | (7 | ) | 3,219 |   |
| Trust certificates collateralized by GNMA securities |   | 4                          |       | — |   | — |   | 4 |   |
| Corporate bonds                                      |   | 122                        |       | — |   | (4 | ) | 118 |   |
| Municipal bonds                                      |   | 56                         |       | 4 |   | — |   | 60 |   |
| Equity securities                                    |   | 177                        |       | 3 |   | (7 | ) | 173 |   |
| Total securities available for sale                  |   | $                          | 4,057      |   | $ | 54 |   | $ | (18 | ) | $ | 4,093 |   |

 

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

 

The following describes the balancesassociated with recourse arrangements, the balances and activity in thecorresponding retained interests, the balances and activity in servicing assetsand the economic assumptions used in valuing the retained interests andservicing assets.

 

**Recourse Arrangements**

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

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

 
|                                  |   | **September 30,  2003** |       |
|---------------------------------------|--------|------------------------------|------------|
| **(In  millions)**                    |   | **Principal****Balance**     | ** ** | **Maximum  Recourse  Exposure (1)** |   | **Recorded  Liability** | ** ** |
| Manufactured housing  securitizations |   | $                            | 3,751      |   | $ | 557 |   | $ | 245 |   |
| Manufactured housing  sales           |   | 229                          |       | 229 |   | 10 |   |
| Mortgage securitizations  *(2)*       |   | 596                          |       | 57 |   | — |   |
| Mortgage sales *(3)*                  |   | 201                          |       | 197 |   | 1 |   |
|                                       |        |                              |            |  |  |  |  |  |  |  |

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

 

----

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

*(2)**                              **The net present value ofexpected cash outflows on the mortgage securitization recourse arrangements isreflected in the valuation of the mortgage retained interests.*

*(3)**                              **The recourse arrangementsunder the mortgage sale transactions represent a risk sharing arrangement inwhich GreenPoint has transferred the first 2% of losses to the purchaser.*

 

11

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Manufactured housing securitization letter of credit exposure is asfollows:

 
| **(In millions)**                    |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|--------------------------------------|--------|---------------------|--------|--------------------|--------|
| Letters of credit  outstanding       |   | $                   | 556    |               | $      | 617 |   |
| Projected letter of  credit draws    |   | (268                | )      | (326               | )      |
| Remaining letter of  credit exposure |   | $                   | 288    |               | $      | 291 |   |

 

At September 30, 2003, GreenPoint has sixmanufactured housing securitizations with principal balances of$1.6 billion, which have cumulative (actual plus projected) letter ofcredit draws equal to the maximum recourse exposure for those securitizations.GreenPoint records a liability based on the net present value of the projectedletter of credit draws. At September 30, 2003, the projected draws exceedthe recorded liability by $23 million, representing future interest expense.

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

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

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

 
|                                                      |   | **Sept. 30,  2003**      |       | **Dec. 31,  2002** |       | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|-----------------------------------------------------------|--------|--------------------------|------------|--------------------|------------|---------------------|--------|--------------------|--------|
| **(In  millions)**                                        |   | **Manufactured Housing** | ** ** | **Mortgage**       | ** ** |
| Principal balance of  loans                               |   | $                        | 3,980      |               | $          | 4,460               |   | $                  | 797    |   | $ | 1,152 |   |
| Principal balance of loans 90 days or more past due *(1)* |   | 176                      |       | 220                |       | 47                  |   | 62                 |   |
|                                                           |        |                          |            |                    |            |                     |        |                    |        |  |  |  |  |

 

----

*(1)**                              **Manufactured housing pastdue loans include repossessed inventory.*

 

In addition to therecourse arrangements described in the tables above, GreenPoint has establisheda reserve related to representations and warranties for mortgage loans sold.The activity in the representations and warranty reserve is summarized asfollows:

 
|                               |   | **At and for  the  Quarter Ended  September 30,** | ** ** | **At and for  the  Nine Months Ended  September 30,** | ** ** |
|------------------------------------|--------|--------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In  millions)**                 |   | **2003**                                               | ** ** | **2002**                                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| Balance at beginning of  period    |   | $                                                      | 43         |                                                       | $          | 21 |   | $ | 32 |   | $ | 19 |   |
| Provision charged to  income *(1)* |   | 15                                                     |       | 8                                                          |       | 41 |   | 18 |   |
| Losses                             |   | (6                                                     | )          | (4                                                         | )          | (21 | ) | (12 | ) |
| Balance at end of period           |   | $                                                      | 52         |                                                       | $          | 25 |   | $ | 52 |   | $ | 25 |   |

 

----

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

 

12

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

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

 
|                                      |   | **At and for  the  Quarter Ended  September 30,** | ** ** | **At and for  the  Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------|--------|--------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In  millions)**                        |   | **2003**                                               | ** ** | **2002**                                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Liability  for Recourse Exposure**      |   |                                                   |       |                                                       |       |   |   |   |   |
| Balance at beginning of period            |   | $                                                      | 279        |                                                       | $          | 343 |   | $ | 300 |   | $ | 467 |   |
| Interest expense                          |   | 5                                                      |       | 5                                                          |       | 14 |   | 19 |   |
| Letter of credit draws and other charges  |   | (21                                                    | )          | (35                                                        | )          | (63 | ) | (172 | ) |
| Change in valuation of retained interests |   | (7                                                     | )          | 41                                                         |       | 5 |   | 40 |   |
| Balance at end of period                  |   | $                                                      | 256        |                                                       | $          | 354 |   | $ | 256 |   | $ | 354 |   |

 

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

 
|                                      |   | **At and for the Quarter Ended  September 30,** |       | **At and for the Nine Months  Ended  September 30,** |       |
|-------------------------------------------|--------|------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|                                      |   | **2003**                                             |       | **2002**                                                  | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **(In  millions)**                        |   | **Manufactured  Housing**                            | ** ** | **Mortgage**                                              | ** ** | **Manufactured  Housing** | ** ** | **Mortgage** | ** ** |
| **Retained Interests in Securitizations** |   |                                                 |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period            |   | $                                                    | 1          |                                                      | $          | — |   | $ | 83 |   | $ | 106 |   | $ | 4 |   | $ | 1 |   | $ | 104 |   | $ | 130 |   |
| Additions from securitizations            |   | —                                               |       | —                                                    |       | 1 |   | 1 |   | — |   | — |   | 9 |   | 8 |   |
| Interest and other income                 |   | —                                               |       | —                                                    |       | 3 |   | 2 |   | — |   | 2 |   | 8 |   | 13 |   |
| Cash received                             |   | —                                               |       | —                                                    |       | (8 | ) | (5 | ) | — |   | (3 | ) | (17 | ) | (34 | ) |
| Clean-up call exercise                    |   | —                                               |       | —                                                    |       | (19 | ) | — |   | — |   | — |   | (42 | ) | — |   |
| Change in unrealized gain                 |   | —                                               |       | —                                                    |       | (1 | ) | 3 |   | — |   | — |   | (2 | ) | (3 | ) |
| Change in valuation of retained interests |   | —                                               |       | —                                                    |       | (2 | ) | — |   | (3 | ) | — |   | (3 | ) | (7 | ) |
| Balance at end of period                  |   | $                                                    | 1          |                                                      | $          | — |   | $ | 57 |   | $ | 107 |   | $ | 1 |   | $ | — |   | $ | 57 |   | $ | 107 |   |
|                                           |        |                                                      |            |                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

13

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**Valuation Assumptions**

There were no newsecuritizations recorded during the quarter ended September 30, 2003. Thekey economic assumptions used in estimating the fair value of the entireportfolio of retained interests at September 30, 2003 andDecember 31, 2002 were as follows:

 
|                                            |   | **Estimate of Fair Value at** |       |
|-------------------------------------------------|--------|-------------------------------|------------|
|                                            |   | **Sept. 30,  2003**           |       | **Dec. 31,  2002** | ** ** | **Sept. 30,  2003** | ** ** | **Dec. 31,  2002** | ** ** |
|                                            |   | **Manufactured  Housing**     | ** ** | **Mortgage** | ** ** |
| Weighted average life (in years)                |   | 5.7                           |       | 4.9 |   | 0.8 |   | 0.9 |   |
| Weighted average prepayment rate *(1)*          |   | 5.8                           | %          | 8.2 | % | 58.2 | % | 52.6 | % |
| Weighted average default rate                   |   | 5.6                           | %          | 6.3 | % | N/A |   | N/A |   |
| Loss severity rate                              |   | 94.4                          | %          | 86.6 | % | N/A |   | N/A |   |
| Weighted average loss rate                      |   | 5.3                           | %          | 5.5 | % | 2.8 | % | 3.3 | % |
| Cumulative loss *(2)*                           |   | 30.2                          | %          | 27.0 | % | 2.2 | % | 3.0 | % |
| Weighted average discount rate – asset     |   | 14.0                          | %          | 14.0 | % | 8.1 | % | 9.3 | % |
| Weighted average discount rate – liability |   | 6.6                           | %          | 6.6 | % | — |   | — |   |

 

----

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

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

 

**ServicingAssets**

On a quarterly basis, GreenPoint reviewscapitalized servicing rights for impairment. This review is performed based onrisk strata, which are determined on a disaggregated basis given thepredominant risk characteristics of the underlying loans. For manufacturedhousing loans, the predominant risk characteristics are loan type and interestrate type. For mortgage loans, the predominant risk characteristics are loantype and interest rate. The asset pools underlying certain mortgage andmanufactured housing servicing assets at times do not meet agreed-uponservicing covenants. Management evaluates the impact of these covenants on thevalue of the servicing assets and incorporates the assessment in theirquarterly impairment review.

The activity in servicingassets is summarized as follows:

 
|                                           |   | **At and for  the Quarter Ended  September 30,** |       | **At and for  the Nine Months Ended  September 30,** |       |
|------------------------------------------------|--------|-------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|                                           |   | **2003**                                              |       | **2002**                                                  | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **(In  millions)**                             |   | **Manufactured  Housing**                             | ** ** | **Mortgage**                                              | ** ** | **Manufactured  Housing** | ** ** | **Mortgage** | ** ** |
| **Servicing Assets**                           |   |                                                  |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                 |   | $                                                     | 97         |                                                      | $          | 115 |   | $ | 122 |   | $ | 90 |   | $ | 101 |   | $ | 127 |   | $ | 112 |   | $ | 86 |   |
| Additions                                      |   | —                                                |       | —                                                    |       | 43 |   | 17 |   | — |   | 3 |   | 90 |   | 44 |   |
| Sales                                          |   | —                                                |       | —                                                    |       | — |   | — |   | — |   | — |   | (20 | ) | (8 | ) |
| Amortization                                   |   | (2                                                    | )          | (8                                                        | )          | (11 | ) | (8 | ) | (6 | ) | (23 | ) | (28 | ) | (23 | ) |
| Balance at end of period                       |   | 95                                                    |       | 107                                                       |       | 154 |   | 99 |   | 95 |   | 107 |   | 154 |   | 99 |   |
| **Reserve for impairment of servicing assets** |   |                                                  |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                 |   | (70                                                   | )          | (70                                                       | )          | (29 | ) | (23 | ) | (69 | ) | (67 | ) | (27 | ) | (23 | ) |
| Recoveries (additions)                         |   | 2                                                     |       | 10                                                        |       | 7 |   | (4 | ) | 1 |   | 7 |   | 5 |   | (4 | ) |
| Balance at end of period                       |   | (68                                                   | )          | (60                                                       | )          | (22 | ) | (27 | ) | (68 | ) | (60 | ) | (22 | ) | (27 | ) |
| Servicing assets, net                          |   | $                                                     | 27         |                                                      | $          | 47 |   | $ | 132 |   | $ | 72 |   | $ | 27 |   | $ | 47 |   | $ | 132 |   | $ | 72 |   |
|                                                |        |                                                       |            |                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

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The estimated fair valuesof manufactured housing servicing assets were $37 million and $54 million atSeptember 30, 2003 and 2002, respectively, and $38 million atDecember 31, 2002.

The estimated fair valuesof mortgage servicing assets were $138 million and $78 million at September 30,2003 and 2002, respectively, and $90 million at December 31, 2002.

Servicer advancesreceivable totaled $97 million and $85 million at September 30, 2003 andDecember 31, 2002, respectively.

The significantassumptions used in estimating the fair value of the servicing assets atSeptember 30, 2003 and December 31, 2002 were as follows:

 
|                              |   | **Sept. 30,  2003**       |       | **Dec. 31,  2002** |       | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|-----------------------------------|--------|---------------------------|------------|--------------------|------------|---------------------|--------|--------------------|--------|
|                              |   | **Manufactured  Housing** | ** ** | **Mortgage**       | ** ** |
| Weighted average  prepayment rate |   | 6.5                       | %*(1)*     | 7.4                | %*(1)*     | 28.3                | %*(2)* | 25.4               | %*(2)* |
| Weighted average life  (in years) |   | 5.4                       |       | 5.1                |       | 5.1                 |   | 4.6                |   |
| Weighted average default  rate    |   | 5.0                       | %          | 5.2                | %          | N/A                 |   | N/A                |   |
| Cash flows discounted at          |   | 14.0                      | %          | 14.0               | %          | 10.1                | %      | 10.2               | %      |

 

----

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

*(2)**                              **Includes weighted averagedefault rate.*

 

**NOTE 5****                           ****Derivative Financial Instruments**

 

GreenPoint enters into mandatorycommitments to deliver mortgage whole loans to various investors and to issueprivate securities and Fannie Mae and Freddie Mac securities (“forward deliverycommitments”). The forward delivery commitments are used to manage the interestrate risk associated with funded mortgage loans and interest rate lockcommitments made by GreenPoint to mortgage borrowers. The notional amounts ofthese contracts were $3.3 billion and $3.2 billion at September 30,2003 and December 31, 2002, respectively. The forward delivery commitmentsdesignated as fair value hedges associated with funded loans had notionalvalues of $2.3 billion and $2.4 billion at September 30, 2003 and December 31,2002, respectively. The notional amounts of forward delivery commitments usedto manage the interest rate risk associated with interest rate lock commitmentson mortgage loans were $836 million and $833 million at September 30, 2003and December 31, 2002, respectively. The amount of hedge ineffectivenessfor the three months ended September 30, 2003 was a gain of$4 million and is included in gain on sale of loans. There was no gain orloss from hedge ineffectiveness for the three months ended September 30,2002.

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

The risks inherent inderivatives are the potential inability of a counterpart to meet the terms ofits contract and the risk associated with changes in the fair values of thecontracts due to movements in the underlying interest rates. The current creditexposure of derivatives is represented by the fair value of contracts with apositive fair value at the reporting date. At December 31, 2002, thereceivable on contracts with a positive fair value was $1 million. There was noreceivable at September 30, 2003. To reduce credit risk, management maydeem it necessary to obtain collateral.

 

15

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**NOTE 6****                           ****Stock Incentive Plans**

 

For the nine months endedSeptember 30, 2003, the Company granted options to purchase 2,092,800shares of the Company’s common stock to certain officers and directors, at anexercise price range of between $30.52 and $34.26. These awards vest at variousintervals over three years, on the anniversary dates of the awards.

 

**NOTE 7****                           ****Discontinued Operations**

 

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

 
| **(In  millions)**                       |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|------------------------------------------|--------|---------------------|--------|--------------------|--------|
| **Assets:**                              |   |                |   |               |   |
| Cash, cash equivalents  and securities   |   | $                   | 36     |               | $      | 34 |   |
| Retained interests in  securitizations   |   | 1                   |   | 4                  |   |
| Loans receivable held  for investment    |   | 48                  |   | 44                 |   |
| Servicing assets                         |   | 27                  |   | 32                 |   |
| Other assets                             |   | 241                 |   | 243                |   |
| Total assets                             |   | $                   | 353    |               | $      | 357 |   |
| Liabilities:                             |   |                |   |               |   |
| Liability under recourse  exposure       |   | $                   | 256    |               | $      | 300 |   |
| Other liabilities and  allocated capital |   | 97                  |   | 57                 |   |
| Total liabilities and equity             |   | $                   | 353    |               | $      | 357 |   |

 

Net income (loss) fromdiscontinued operations was $0.2 million and $0.6 million for the quarter andnine months ended September 30, 2003 versus $(0.2) million and $1.5million in the year ago periods of 2002, respectively.

The notional value ofswaps related to specific manufactured housing securitizations was $556 millionand $639 million at September 30, 2003 and December 31, 2002,respectively.

During the quarter andnine months ended September 30, 2002, GreenPoint originated manufacturedhousing loans totaling $2 million and $106 million. These loans related tocommitments outstanding at December 31, 2001 and were recorded at theirestimated fair value. These loans were sold during the third quarter of 2002 ata sales price, which approximated their previously estimated fair value.

 

**NOTE 8****                           ****Business Segments**

 

The Company consists of three domesticbusiness segments offering unique products and services. The Mortgage Bankingsegment specializes in “A” quality loans, including agency qualifying loans andJumbo A loans and specializes in Alternative A mortgage loan products, whichare primarily obtained from the Company’s network of registered mortgagebrokers. The Retail Banking segment consists of 85 full service banking officesoffering a variety of financial services to the Greater New York area. TheBalance Sheet Management segment includes earnings from the held for investmentmortgage portfolios and other corporate investment activities.

The accounting policies ofthe 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. Creditlosses are charged to the balance sheet management segment in an amount equalto net charge-offs. The expenses relating to administrative units of theCompany such as executive, finance and audit are not allocated to individualoperating segments.

 

16

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|                                                |   | **Quarter Ended  September 30, 2003** |       |
|-----------------------------------------------------|--------|--------------------------------------------|------------|
| **(In  millions)**                                  |   | **Balance  Sheet  Management (1)**         | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** |   | **Segment  Totals** | ** ** | **Other (4)** |   | **Consolidated  Continuing  Operations** |   |
| Net interest income                                 |   | $                                          | 39.1       |   | $ | 61.1 |   | $ | 100.2 |   | $ | 52.0 |   | $ | 152.2 |   | $ | — |   | $ | 152.2 |   |
| Provision for loan  losses                          |   | (1.1                                       | )          | — |   | (1.1 | ) | — |   | (1.1 | ) | — |   | (1.1 | ) |
| Net interest income after provision for loan losses |   | 38.0                                       |       | 61.1 |   | 99.1 |   | 52.0 |   | 151.1 |   | — |   | 151.1 |   |
| Non-interest income:                                |   |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                 |   | —                                     |       | — |   | — |   | 22.7 |   | 22.7 |   | (11.0 | ) | 11.7 |   |
| Banking fees and commissions                        |   | —                                     |       | 18.6 |   | 18.6 |   | — |   | 18.6 |   | — |   | 18.6 |   |
| Other income                                        |   | 6.1                                        |       | — |   | 6.1 |   | (1.9 | ) | 4.2 |   | — |   | 4.2 |   |
| Net gain on sale of loans                           |   | —                                     |       | — |   | — |   | 121.6 |   | 121.6 |   | (15.7 | ) | 105.9 |   |
| Change in valuation of retained interests           |   | —                                     |       | — |   | — |   | (1.1 | ) | (1.1 | ) | — |   | (1.1 | ) |
| Net gain on sale of securities                      |   | 1.4                                        |       | — |   | 1.4 |   | — |   | 1.4 |   | — |   | 1.4 |   |
| Total non-interest income                           |   | 7.5                                        |       | 18.6 |   | 26.1 |   | 141.3 |   | 167.4 |   | (26.7 | ) | 140.7 |   |
| Non-interest expense:                               |   |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                        |   | —                                     |       | 2.7 |   | 2.7 |   | 4.9 |   | 7.6 |   | 1.3 |   | 8.9 |   |
| ESOP and stock plans expense                        |   | —                                     |       | 1.4 |   | 1.4 |   | 4.2 |   | 5.6 |   | 1.3 |   | 6.9 |   |
| Other expenses                                      |   | 0.5                                        |       | 31.2 |   | 31.7 |   | 64.7 |   | 96.4 |   | 17.5 |   | 113.9 |   |
| Total non-interest expense                          |   | 0.5                                        |       | 35.3 |   | 35.8 |   | 73.8 |   | 109.6 |   | 20.1 |   | 129.7 |   |
| Segment income (loss) before taxes                  |   | $                                          | 45.0       |   | $ | 44.4 |   | $ | 89.4 |   | $ | 119.5 |   | $ | 208.9 |   | $ | (46.8 | ) | $ | 162.1 |   |
| Total Assets                                        |   | $                                          | 15,549     |   | $ | 496 | *(2)* | $ | 16,045 |   | $ | 6,452 |   | $ | 22,497 |   | $ | 369 | *(3)* | $ | 22,866 | * * |

 
|                                                |   | **Quarter  Ended September 30, 2002** |       |
|-----------------------------------------------------|--------|--------------------------------------------|------------|
| **(In  millions)**                                  |   | **Balance  Sheet  Management (1)**         | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** |   | **Segment  Totals** | ** ** | **Other (4)** |   | **Consolidated  Continuing  Operations** |   |
| Net interest income                                 |   | $                                          | 77.0       |   | $ | 59.4 |   | $ | 136.4 |   | $ | 54.5 |   | $ | 190.9 |   | $ | — |   | $ | 190.9 |   |
| Provision for loan losses                           |   | (0.5                                       | )          | — |   | (0.5 | ) | — |   | (0.5 | ) | — |   | (0.5 | ) |
| Net interest income after provision for loan losses |   | 76.5                                       |       | 59.4 |   | 135.9 |   | 54.5 |   | 190.4 |   | — |   | 190.4 |   |
| Non-interest income:                                |   |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                 |   | —                                     |       | — |   | — |   | (7.6 | ) | (7.6 | ) | 7.2 |   | (0.4 | ) |
| Banking fees and commissions                        |   | —                                     |       | 15.4 |   | 15.4 |   | — |   | 15.4 |   | — |   | 15.4 |   |
| Other income                                        |   | 3.9                                        |       | 0.2 |   | 4.1 |   | 0.1 |   | 4.2 |   | — |   | 4.2 |   |
| Net gain on sale of loans                           |   | —                                     |       | — |   | — |   | 97.7 |   | 97.7 |   | (8.5 | ) | 89.2 |   |
| Change in valuation of retained interests           |   | —                                     |       | — |   | — |   | (0.1 | ) | (0.1 | ) | — |   | (0.1 | ) |
| Net gain on sale of securities                      |   | 1.8                                        |       | — |   | 1.8 |   | — |   | 1.8 |   | — |   | 1.8 |   |
| Total non-interest income                           |   | 5.7                                        |       | 15.6 |   | 21.3 |   | 90.1 |   | 111.4 |   | (1.3 | ) | 110.1 |   |
| Non-interest expense:                               |   |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                        |   | —                                     |       | 2.2 |   | 2.2 |   | 3.1 |   | 5.3 |   | 1.6 |   | 6.9 |   |
| ESOP and stock plans expense                        |   | (0.1                                       | )          | 1.3 |   | 1.2 |   | 4.4 |   | 5.6 |   | 0.7 |   | 6.3 |   |
| Other expenses                                      |   | 0.6                                        |       | 27.1 |   | 27.7 |   | 45.8 |   | 73.5 |   | 14.9 |   | 88.4 |   |
| Total non-interest expense                          |   | 0.5                                        |       | 30.6 |   | 31.1 |   | 53.3 |   | 84.4 |   | 17.2 |   | 101.6 |   |
| Segment income (loss) before taxes                  |   | $                                          | 81.7       |   | $ | 44.4 |   | $ | 126.1 |   | $ | 91.3 |   | $ | 217.4 |   | $ | (18.5 | ) | $ | 198.9 |   |
| Total Assets                                        |   | $                                          | 14,947     |   | $ | 485 | *(2)* | $ | 15,432 |   | $ | 6,767 |   | $ | 22,199 |   | $ | 383 | *(3)* | $ | 22,582 |   |

 

----

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

*(2)          Retail Banking segment excludesintercompany funds transfers. Intersegment assets and liabilities eliminatedfor consolidation purposes were $12.5 billion and $11.4 billion for the quarterended September 30, 2003 and 2002, respectively.*

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

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

*(5)          Intersegment revenues, in the mortgagebanking segment, for the quarter ended September 30, 2003 and 2002 were$26.7 million and $1.3 million.*

 

17

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|                                                |   | **Nine Months Ended  September 30, 2003** |       |
|-----------------------------------------------------|--------|------------------------------------------------|------------|
| **(In  millions)**                                  |   | **Balance  Sheet  Management (1)**             | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** |   | **Segment  Totals** | ** ** | **Other (4)** | ** ** | **Consolidated  Continuing  Operations** |   |
| Net interest income                                 |   | $                                              | 167.1      |   | $ | 180.0 |   | $ | 347.1 |   | $ | 147.8 |   | $ | 494.9 |   | $ | — |   | $ | 494.9 |   |
| Provision for loan losses                           |   | (2.0                                           | )          | — |   | (2.0 | ) | — |   | (2.0 | ) | — |   | (2.0 | ) |
| Net interest income after provision for loan losses |   | 165.1                                          |       | 180.0 |   | 345.1 |   | 147.8 |   | 492.9 |   | — |   | 492.9 |   |
| Non-interest income:                                |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                 |   | —                                         |       | — |   | — |   | 23.5 |   | 23.5 |   | (6.4 | ) | 17.1 |   |
| Banking fees and commissions                        |   | —                                         |       | 50.3 |   | 50.3 |   | — |   | 50.3 |   | — |   | 50.3 |   |
| Other income                                        |   | 15.3                                           |       | — |   | 15.3 |   | (4.6 | ) | 10.7 |   | — |   | 10.7 |   |
| Net gain on sale of loans                           |   | —                                         |       | — |   | — |   | 423.2 |   | 423.2 |   | (47.3 | ) | 375.9 |   |
| Change in valuation of retained interests           |   | —                                         |       | — |   | — |   | (2.5 | ) | (2.5 | ) | — |   | (2.5 | ) |
| Net gain on sale of securities                      |   | 2.0                                            |       | — |   | 2.0 |   | — |   | 2.0 |   | — |   | 2.0 |   |
| Total non-interest income                           |   | 17.3                                           |       | 50.3 |   | 67.6 |   | 439.6 |   | 507.2 |   | (53.7 | ) | 453.5 |   |
| Non-interest expense:                               |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                        |   | —                                         |       | 7.2 |   | 7.2 |   | 12.6 |   | 19.8 |   | 4.1 |   | 23.9 |   |
| ESOP and stock plans expense                        |   | 0.1                                            |       | 4.4 |   | 4.5 |   | 12.0 |   | 16.5 |   | 3.2 |   | 19.7 |   |
| Other expenses                                      |   | 1.3                                            |       | 92.1 |   | 93.4 |   | 182.4 |   | 275.8 |   | 55.8 |   | 331.6 |   |
| Total non-interest expense                          |   | 1.4                                            |       | 103.7 |   | 105.1 |   | 207.0 |   | 312.1 |   | 63.1 |   | 375.2 |   |
| Segment income (loss) before taxes                  |   | $                                              | 181.0      |   | $ | 126.6 |   | $ | 307.6 |   | $ | 380.4 |   | $ | 688.0 |   | $ | (116.8 | ) | $ | 571.2 |   |
| Total Assets                                        |   | $                                              | 15,549     |   | $ | 496 | *(2)* | $ | 16,045 |   | $ | 6,452 |   | $ | 22,497 |   | $ | 369 | *(3)* | $ | 22,866 |   |

 
|                                                |   | **Nine Months Ended  September 30, 2002** |       |
|-----------------------------------------------------|--------|------------------------------------------------|------------|
| **(In  millions)**                                  |   | **Balance  Sheet  Management (1)**             | ** ** | **Retail  Banking** | ** ** | **Sub-total  Banking** | ** ** | **Mortgage  Banking (5)** |   | **Segment  Totals** | ** ** | **Other (4)** | ** ** | **Consolidated  Continuing  Operations** |   |
| Net interest income                                 |   | $                                              | 244.3      |   | $ | 177.8 |   | $ | 422.1 |   | $ | 139.3 |   | $ | 561.4 |   | $ | — |   | $ | 561.4 |   |
| Provision for loan losses                           |   | (1.2                                           | )          | — |   | (1.2 | ) | — |   | (1.2 | ) | — |   | (1.2 | ) |
| Net interest income after provision for loan losses |   | 243.1                                          |       | 177.8 |   | 420.9 |   | 139.3 |   | 560.2 |   | — |   | 560.2 |   |
| Non-interest income:                                |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan servicing fees                                 |   | —                                         |       | — |   | — |   | 3.2 |   | 3.2 |   | 7.5 |   | 10.7 |   |
| Banking fees and commissions                        |   | —                                         |       | 42.4 |   | 42.4 |   | — |   | 42.4 |   | — |   | 42.4 |   |
| Other income                                        |   | 9.9                                            |       | 0.7 |   | 10.6 |   | 0.6 |   | 11.2 |   | — |   | 11.2 |   |
| Net gain on sale of loans                           |   | —                                         |       | — |   | — |   | 299.5 |   | 299.5 |   | (34.3 | ) | 265.2 |   |
| Change in valuation of retained interests           |   | —                                         |       | — |   | — |   | (7.2 | ) | (7.2 | ) | — |   | (7.2 | ) |
| Net gain on sale of securities                      |   | 5.6                                            |       | — |   | 5.6 |   | — |   | 5.6 |   | — |   | 5.6 |   |
| Total non-interest income                           |   | 15.5                                           |       | 43.1 |   | 58.6 |   | 296.1 |   | 354.7 |   | (26.8 | ) | 327.9 |   |
| Non-interest expense:                               |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                        |   | —                                         |       | 6.8 |   | 6.8 |   | 10.0 |   | 16.8 |   | 4.3 |   | 21.1 |   |
| ESOP and stock plans expense                        |   | —                                         |       | 3.5 |   | 3.5 |   | 11.4 |   | 14.9 |   | 4.4 |   | 19.3 |   |
| Other expenses                                      |   | 1.4                                            |       | 77.5 |   | 78.9 |   | 136.1 |   | 215.0 |   | 48.5 |   | 263.5 |   |
| Total non-interest expense                          |   | 1.4                                            |       | 87.8 |   | 89.2 |   | 157.5 |   | 246.7 |   | 57.2 |   | 303.9 |   |
| Segment income (loss) before taxes                  |   | $                                              | 257.2      |   | $ | 133.1 |   | $ | 390.3 |   | $ | 277.9 |   | $ | 668.2 |   | $ | (84.0 | ) | $ | 584.2 |   |
| Total Assets                                        |   | $                                              | 14,947     |   | $ | 485 | *(2)* | $ | 15,432 |   | $ | 6,767 |   | $ | 22,199 |   | $ | 383 | *(3)* | $ | 22,582 |   |

 

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

*(2)**                              **Retail Banking segmentexcludes intercompany funds transfers. Intersegment assets and liabilitieseliminated for consolidation purposes were $12.5 billion and $11.4 billion forthe nine months ended September 30, 2003 and 2002, respectively.*

*(3)**                              **Includes the assets ofthe discontinued business segment.*

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

*(5)**                              **Intersegment revenues, inthe mortgage banking segment, for the nine months ended September 30, 2003and 2002 were $53.7 million and $26.8 million.*

 

18

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**NOTE 9****                           ****Earnings Per Share**

 
|                                                                                                                 |   | **Quarter  Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------|
| **(In millions, except per share amounts)**                                                                          |   | **2003**                               |   | **2002**                                   |   | **2003** |   | **2002** |   |
|                                                                                                                 |   |                                   |   |                                       |   |   |   |   |   |
| Net income from continuing operations                                                                                |   | $                                      | 101.1  |                                       | $      | 126.5 |   | $ | 357.8 |   | $ | 369.6 |   |
| Net income from discontinued operations                                                                              |   | 0.2                                    |   | (0.2                                       | )      | 0.6 |   | 1.5 |   |
| Net income                                                                                                           |   | $                                      | 101.3  |                                       | $      | 126.3 |   | $ | 358.4 |   | $ | 371.1 |   |
|                                                                                                                 |   |                                   |   |                                       |   |   |   |   |   |
| Weighted average number of common shares outstanding during each  period – basic                                |   | 120.9                                  |   | 131.8                                      |   | 123.8 |   | 132.6 |   |
| Effect of dilutive securities – stock options                                                                   |   | 2.4                                    |   | 3.1                                        |   | 2.4 |   | 3.5 |   |
| Weighted average number of common shares and common stock equivalents  outstanding during each period – diluted |   | 123.3                                  |   | 134.9                                      |   | 126.2 |   | 136.1 |   |
|                                                                                                                 |   |                                   |   |                                       |   |   |   |   |   |
| **Basic earnings per share:**                                                                                        |   |                                   |   |                                       |   |   |   |   |   |
| Net income from continuing operations                                                                                |   | $                                      | 0.84   |                                       | $      | 0.96 |   | $ | 2.89 |   | $ | 2.79 |   |
| Net income from discontinued operations                                                                              |   | —                                 |   | —                                     |   | 0.01 |   | 0.01 |   |
| Net income                                                                                                           |   | $                                      | 0.84   |                                       | $      | 0.96 |   | $ | 2.90 |   | $ | 2.80 |   |
|                                                                                                                 |   |                                   |   |                                       |   |   |   |   |   |
| **Diluted earnings per share:**                                                                                      |   |                                   |   |                                       |   |   |   |   |   |
| Net income from continuing operations                                                                                |   | $                                      | 0.82   |                                       | $      | 0.94 |   | $ | 2.84 |   | $ | 2.72 |   |
| Net income from discontinued operations                                                                              |   | —                                 |   | —                                     |   | — |   | 0.01 |   |
| Net income                                                                                                           |   | $                                      | 0.82   |                                       | $      | 0.94 |   | $ | 2.84 |   | $ | 2.73 |   |

 

----

*(1)**                              **Options to purchase55,500 shares of common stock at prices between $33.40 and $34.26 per sharewere outstanding at September 30, 2003, but were not included in thecomputation of diluted earnings per share because the options’ exercise priceswere greater than the average market price of the common shares for the quarterended September 30, 2003. For the nine months ended September 30,2003, options to purchase 111,750 shares of common stock at prices between$31.84 and $34.26 where not included in the computation of diluted earnings pershare because the options’ exercise prices were greater than the average marketprice of common shares.*

*(2)**                              **Options to purchase79,500 shares of common stock at prices between $31.49 and $33.40 per sharewere outstanding at September 30, 2002, but were not included in thecomputation of diluted earnings per share because the options’ exercise priceswere greater than the average market price of the common shares for both thequarter and nine months ended September 30, 2002.*

 

**NOTE 10****                                            ****Three for Two Stock Split**

 

On July 8, 2003, GreenPoint approved athree-for-two stock split which was distributed on August 20, 2003 toshareholders of record on August 8, 2003. Accordingly, the stock splitrequired retroactive restatement of all historical per share data atSeptember 30, 2003.

 

19

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**GreenPoint Financial Corp. andSubsidiariesPart I – Item 2.Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 
|                                                                                       |   | **Quarter Ended** |       | **Nine Months Ended** |       |
|--------------------------------------------------------------------------------------------|--------|-------------------|------------|-----------------------|------------|
|                                                                                       |   | **Sept. 30,**     |       | **June 30,**     |       | **March 31,** |   | **Dec. 31,** |   | **Sept. 30,** |   | **September 30,** |   |
| **(Dollars in millions, except per share data)**                                           |   | **2003**          | ** ** | **2003**              | ** ** | **2003** | ** ** | **2002** | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Performance  Ratios – Continuing Operations (Annualized):**                         |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                                                                   |   | 1.76              | %          | 2.34                  | %          | 2.40 | % | 2.28 | % | 2.38 | % | 2.16 | % | 2.44 | % |
| Return on average equity                                                                   |   | 21.86             |       | 27.46                 |       | 26.52 |   | 27.05 |   | 27.32 |   | 25.31 |   | 27.44 |   |
| Net interest margin                                                                        |   | 2.84              |       | 3.23                  |       | 3.51 |   | 3.64 |   | 3.85 |   | 3.19 |   | 3.98 |   |
| Net interest spread                                                                        |   | 2.73              |       | 3.11                  |       | 3.37 |   | 3.52 |   | 3.72 |   | 3.07 |   | 3.83 |   |
| Operating expense to average assets                                                        |   | 2.26              |       | 2.24                  |       | 2.28 |   | 2.17 |   | 1.91 |   | 2.27 |   | 2.02 |   |
| Total non-interest expense to operating revenue                                            |   | 31.4              |       | 27.3                  |       | 27.0 |   | 26.4 |   | 23.2 |   | 28.5 |   | 23.3 |   |
| Efficiency ratio *(1)*                                                                     |   | 44.3              |       | 37.5                  |       | 37.3 |   | 37.6 |   | 33.8 |   | 39.8 |   | 34.3 |   |
| Average interest-earning assets to average interest-bearing  liabilities                   |   | 1.05              | x          | 1.05                  | x          | 1.06 | x | 1.05 | x | 1.05 | x | 1.05 | x | 1.05 | x |
|                                                                                       |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| **Per Share Data:**                                                                        |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share – continuing operations                                      |   | $                 | 0.84       |                  | $          | 1.05 |   | $ | 1.00 |   | $ | 0.99 |   | $ | 0.96 |   | $ | 2.89 |   | $ | 2.79 |   |
| Diluted earnings per share – continuing operations                                    |   | 0.82              |       | 1.03                  |       | 0.98 |   | 0.97 |   | 0.94 |   | 2.84 |   | 2.72 |   |
| Book value per common share                                                                |   | 15.17             |       | 15.35                 |       | 15.00 |   | 14.71 |   | 14.24 |   | N/A |   | N/A |   |
| Tangible book value per common share                                                       |   | 11.91             |       | 12.19                 |       | 11.89 |   | 11.69 |   | 11.29 |   | N/A |   | N/A |   |
| Dividends per share                                                                        |   | 0.24              |       | 0.21                  |       | 0.21 |   | 0.17 |   | 0.17 |   | 0.66 |   | 0.50 |   |
| Shares used in calculations (in thousands):                                                |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Average *(2)*                                                                              |   | 123,253           |       | 126,035               |       | 129,327 |   | 132,238 |   | 134,858 |   | 126,214 |   | 136,100 |   |
| Period-end *(3)*                                                                           |   | 121,351           |       | 125,011               |       | 126,879 |   | 130,765 |   | 134,123 |   | N/A |   | N/A |   |
| Total shares outstanding (shares issued less treasury stock  purchased)                    |   | 134,404           |       | 138,110               |       | 140,541 |   | 144,462 |   | 147,544 |   | N/A |   | N/A |   |
|                                                                                       |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| **Asset  Quality Ratios – continuing operations:**                                    |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Non-accruing loans held for investment to mortgage loans held for  investment              |   | 1.72              | %          | 1.62                  | %          | 1.67 | % | 1.61 | % | 1.57 | % |   |   |   |   |
| Non-accruing loans held for sale to mortgage loans held for sale                           |   | 1.60              |       | 1.60                  |       | 1.87 |   | 1.18 |   | 0.99 |   |   |   |   |   |
| Non-performing assets to total assets                                                      |   | 1.22              |       | 1.18                  |       | 1.23 |   | 1.12 |   | 1.02 |   |   |   |   |   |
| Allowance for loan losses to non-performing loans held for investment                      |   | 46.0              |       | 46.0                  |       | 46.4 |   | 46.6 |   | 48.4 |   |   |   |   |   |
| Allowance for loan losses to mortgage loans held for investment                            |   | 0.79              |       | 0.75                  |       | 0.78 |   | 0.75 |   | 0.76 |   |   |   |   |   |
| Net loan charge-off experience (annualized) to average mortgage loans  held for investment |   | 0.05              |       | 0.03                  |       | 0.01 |   | 0.04 |   | 0.02 |   |   |   |   |   |
| Ratio of allowance for loan losses to annualized net charge-offs                           |   | 16.94             | x          | 30.13                 | x          | 64.4 | x | 20.8 | x | 42.8 | x |   |   |   |   |
|                                                                                       |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| **Capital  Data:**                                                                         |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to risk weighted assets)                                                   |   | 10.96             | %          | 11.28                 | %          | 11.53 | % | 11.43 | % | 11.66 | % |   |   |   |   |
| Total Risk Based Capital (to risk weighted assets)                                         |   | 12.47             |       | 12.79                 |       | 13.08 |   | 12.96 |   | 13.25 |   |   |   |   |   |
| Tier I Capital to average assets                                                           |   | 7.18              |       | 7.68                  |       | 7.97 |   | 7.51 |   | 7.86 |   |   |   |   |   |
| Tangible equity to tangible managed assets                                                 |   | 5.71              |       | 5.89                  |       | 5.87 |   | 5.98 |   | 5.68 |   |   |   |   |   |
| Tangible equity to managed receivables                                                     |   | 7.78              |       | 7.96                  |       | 8.13 |   | 7.69 |   | 7.27 |   |   |   |   |   |
| Purchase of treasury stock                                                                 |   | $                 | 147        |                  | $          | 113 |   | $ | 125 |   | $ | 93 |   | $ | 72 |   | $ | 385 |   | $ | 157 |   |
|                                                                                       |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| **Other  Data:**                                                                           |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage loan originations                                                                 |   | $                 | 9,449      |                  | $          | 11,343 |   | $ | 9,328 |   | $ | 9,985 |   | $ | 9,730 |   | $ | 30,120 |   | $ | 23,205 |   |
| Total managed assets *(4)*                                                                 |   | 26,053            |       | 26,135                |       | 25,856 |   | 25,595 |   | 26,456 |   | N/A |   | N/A |   |
| Total managed receivables *(5)*                                                            |   | 18,848            |       | 19,053                |       | 18,354 |   | 19,555 |   | 20,338 |   | N/A |   | N/A |   |
| Earnings to combined fixed charges: *(6)*                                                  |   |              |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Excluding interest on deposits                                                             |   | 13.25             | x          | 19.66                 | x          | 20.67 | x | 20.61 | x | 19.09 | x | 17.51 | x | 17.22 | x |
| Including interest on deposits                                                             |   | 3.36              | x          | 3.89                  | x          | 3.77 | x | 3.58 | x | 3.49 | x | 3.68 | x | 3.28 | x |
| Full-service consumer bank offices                                                         |   | 85                |       | 85                    |       | 84 |   | 81 |   | 75 |   |   |   |   |   |

 

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

*(2)**                              **Used in the calculationof fully diluted earnings per share.*

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

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

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

*(6)**                              **For purposes of computingthe ratio of earnings to combined fixed charges, earnings represent net incomeplus applicable income taxes and fixed charges of a consolidated subsidiary.Fixed charges represent interest expense on long-term debt and one-third (theportion deemed to be representative of the interest factor) of rents.*

 

20

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**Forward Looking 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; interest andnon-interest income levels; fees from product sales; credit performance onloans made by the Company; tangible capital generation; margins on sales orsecuritizations of loans; market share; expense levels; results from newbusiness initiatives in the retail banking business; and other businessoperations and strategies. For these statements, GreenPoint claims theprotection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995 to the extent provided byapplicable law. Forward-looking statements involve inherent risks anduncertainties. We caution you that a number of important factors could causeactual results to differ materially from those contained in any forward-lookingstatement. Such factors include, but are not limited to: risks anduncertainties related to acquisitions, divestitures and terminating businesssegments, including related integration and restructuring activities;prevailing economic conditions; changes in interest rates, loan demand, realestate values, and competition, which can materially affect origination levels,interest and non-interest income levels, gain on sale results in the Company’smortgage business and other aspects of our financial performance; the level ofdefaults, losses and prepayments on loans made by the Company, whether held inportfolio, sold in the whole loan secondary markets or securitized, which canmaterially affect charge-off levels, required loan loss reserve levels and theCompany’s periodic valuation of its retained interests from securitizations;changes in accounting principles, policies, and guidelines; adverse changes orconditions in capital or financial markets, which can adversely affect theability of the Company to sell or securitize loan originations on a timelybasis or at prices which are acceptable to the Company, as well as otheraspects of our financial performance; actions by rating agencies and theaffects of these actions on the Company’s businesses, operations and fundingrequirements; changes in any applicable law, rule, regulation or practice withrespect to tax or legal issues, whether of general applicability or specific tothe Company and its subsidiaries; other economic, competitive, governmental,regulatory, and technological factors affecting the Company’s operations,pricing, products and services; and the risk factors or other uncertaintiesdescribed from time to time in the Company’s filings with the Securities andExchange Commission, including the Risk Factors section included in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2002filed with the Securities and Exchange Commission on March 28, 2003. Theforward-looking statements are made as of the date of this Report, and theCompany assumes no obligation to update the forward-looking statements or toupdate the reasons why actual results could differ from those projected in theforward-looking statements.

The Company regularlyexplores opportunities for acquisitions of and holds discussions with financialinstitutions and related businesses, and also regularly explores opportunitiesfor acquisitions of liabilities and assets of financial institutions and otherfinancial services providers. The Company routinely analyzes its lines ofbusiness and from time to time may increase, decrease or terminate one or moreactivities.

 

**General**

 

GreenPoint Financial Corp. (the“Corporation”, “Company” or “GreenPoint”), a $22 billion asset bank holdingcompany consists of two primary businesses – a New York retail bank and anational mortgage business. The retail bank is a New York State charteredsavings bank and is the second largest thrift depository in the Greater NewYork area with $13 billion in deposits in 85 branches serving more than 450,000households. GreenPoint Mortgage (“GPM”), headquartered in Novato, California,originates a wide variety of exclusively “A” quality loans. This includesagency qualifying loans and Jumbo A loans, and GreenPoint’s specialtyAlternative A mortgages.

 

21

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**Overview Of Third Quarter 2003 Financial Results**

 

•                                          Net income from continuing operations forthe third quarter of 2003 was $0.82 per diluted share, or $101 million, adecrease of 13% compared with the third quarter of 2002. The results reflectthe sudden increase in interest rates during the third quarter, which had a negativeimpact on net interest income and mortgage banking revenues.

               The normal process of reviewing and verifyingfinancial information for the filing of the Form 10Q for the third quarterended September 30, 2003 led to an adjustment in the net interest income andearnings per share that was reported in the Company’s earnings announcement vianews release on October 16, 2003.

               The change occurred in the accrual of interest forloans held for sale. Some loans that had been sold during the quarter continuedto accrue interest beyond the sale date. The adjustment reversed thoseaccruals. No adjustments were necessary for prior quarters.

               The change to accrued interest led to a reduction ofnet interest income, and therefore a reduction in net income after tax of $3.1million and diluted earnings per share of $0.03 from $0.85 to $0.82. Allchanges resulting from the adjustment are reflected in the financial statementscontained in this Form 10Q.

 

•                                          Total mortgage loan originations for thethird quarter of 2003 were $9.4 billion, a decrease of 3% over the $9.7 billionoriginated during the third quarter of 2002. Applications declined 25% over theyear ago quarter. The decreases reflected a decline in refinancing activityassociated with the rise in interest rates.

 

•                                          Mortgage sales and securitizations totaled$7.5 billion resulting in realized gains of $106 million, compared with salesand securitizations of $6.3 billion and a gain of $89 million in thecomparative quarter a year ago.

 

•                                          The gain on sale of specialty loans was 227basis points, down from 306 basis points in the second quarter of 2003 and 286basis points in the year ago quarter.

 

•                                          Net interest income from continuingoperations totaled $152 million, a decrease of 20% from the $191 millionin the third quarter of 2002. The net interest margin was 2.84%, decreasingfrom 3.85% in the third quarter of 2002. The decline in net interest income andmargin reflected the record level of mortgage prepayments incurred during thequarter.

 

•                                          Core deposits grew to $7.7 billion, up 26%from $6.1 billion a year ago, as the Company continued to benefit from aneffective sales culture, free checking programs, small business bankinginitiative and the *de novo*branching program. The Company opened seven new branches in the last fourmonths of 2002 and four additional branches in the first nine months of 2003.

 

•                                          Asset quality in the mortgage portfolioremained strong. Net charge-offs of $1.1 million represented 0.05% annualizedof average mortgage loans held for investment.

 

•                                          GreenPoint continues to maintain a strongcapital position with a leverage ratio of 7.18%, a Tier 1 risk-based ratio of10.96% and a total risk-based capital ratio of 12.47% at September 30,2003.

 

•                                          Net income from the discontinuedmanufactured housing business was $0.2 million, reflecting a performanceconsistent with management’s most recent projections.

 

**Business Segment Results**

 

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

 

22

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**BankingBusiness**

 
|                                                |   | **Quarter Ended  September 30,** |   |
|-----------------------------------------------------|--------|----------------------------------|--------|
| **(In millions)**                                   |   | **2003**                         |   | **2002** |   |
| Net interest income                                 |   | $                                | 100.2  |   | $ | 136.4 |   |
| Provision for loan losses                           |   | (1.1                             | )      | (0.5 | ) |
| Net interest income after provision for loan losses |   | 99.1                             |   | 135.9 |   |
| Non-interest income:                                |   |                             |   |   |   |
| Banking fees and commissions                        |   | 18.6                             |   | 15.4 |   |
| Other income                                        |   | 6.1                              |   | 4.1 |   |
| Net gain on securities                              |   | 1.4                              |   | 1.8 |   |
| Total non-interest income                           |   | 26.1                             |   | 21.3 |   |
| Non-interest expense                                |   | 35.8                             |   | 31.1 |   |
| Income before income taxes                          |   | $                                | 89.4   |   | $ | 126.1 |   |
| Total Assets                                        |   | $                                | 16,045 |   | $ | 15,432 |   |

 

The banking business reported pre-taxincome of $89 million for the third quarter of 2003, a decrease of 29% from the$126 million reported for the third quarter a year ago. The results includedpre-tax income of $44 million from the retail banking segment, unchangedfrom a year ago, and $45 million from the balance sheet management segment, adecrease of 45% from a year ago. The decrease from a year ago quarter wasprimarily the result of higher prepayment activity and lower interest rates,which reduced the net interest income in the balance sheet management segment.

The Company deliberatelymaintains an asset-sensitive balance sheet (see Market Risk Management, page36). Since mortgage banking revenues strengthen in periods of low interestrates, and weaken when rates rise, the asset-sensitive position is designed tooffset mortgage banking cyclicality over time. The benefits of thecounter-cyclical relationship between the mortgage and retail bankingbusinesses were not realized during the third quarter of 2003. Going forward,we expect this balance to reassert itself as balance sheet and retail bankingrevenues increase in a higher interest rate environment.

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

 

**MortgageBanking**

 
|                                      |   | **Quarter Ended  September 30,** |   |
|-------------------------------------------|--------|----------------------------------|--------|
| **(In millions)**                         |   | **2003**                         |   | **2002** |   |
| Net interest income                       |   | $                                | 52.0   |   | $ | 54.5 |   |
| Non-interest income:                      |   |                             |   |   |   |
| Loan servicing fees                       |   | 22.7                             |   | (7.6 | ) |
| Other income                              |   | (1.9                             | )      | 0.1 |   |
| Net gain on sale of loans                 |   | 121.6                            |   | 97.7 |   |
| Change in valuation of retained interests |   | (1.1                             | )      | (0.1 | ) |
| Total non-interest income                 |   | 141.3                            |   | 90.1 |   |
| Non-interest expense                      |   | 73.8                             |   | 53.3 |   |
| Net income before income taxes            |   | $                                | 119.5  |   | $ | 91.3 |   |
| Total Assets                              |   | $                                | 6,452  |   | $ | 6,767 |   |

 

The mortgage banking business reportedpre-tax income of $120 million, an increase of 31% from the $91 millionreported in the third quarter of 2002. Net interest income decreased $3million, or 5% due to a lower yield earned on the loans held for sale portfoliowhich was partially offset by a higher average balance. Net gain on sale ofmortgage loans increased $24 million or 25% from the year ago period, due to ahigher volume of loans sales due to record origination levels in the secondquarter of 2003. Service fee income increased $30 million from the prior yearquarter as servicing recoveries (both internal and external) of $20 millionwere recorded in the current quarter, compared with $10 million of impairmentreported in the prior year quarter. Non-interest expense increased $21 millionto $74 million versus the third quarter a year ago, reflecting the higher levelof mortgage originations during the first half of 2003.

 

23

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**Net Interest Income**

Net interest income on a fullytaxable-equivalent basis, decreased by $39 million and $69 million, or 20% and12%, to $154 million and $500 million for the quarter and nine months endedSeptember 30, 2003. Net interest margin declined to 2.84% and 3.19% from 3.85%and 3.98% in the comparable quarter and nine months periods a year ago.

The net interest margindecline resulted from the reduction in asset yields associated with the highlevel of mortgage prepayments, which led to accelerated premium amortization.The accelerated amortization negatively affected the yield on the held forinvestment mortgage portfolio and the mortgage-backed securities portfolio. Thepremium amortization on these two portfolios totaled $32 million in the thirdquarter of 2003, compared with $20 million in the second quarter of 2003 and$10 million in the prior year third quarter. Year to date premium amortizationtotaled $68 million, compared with $20 million in the prior year.

Net interest income in thethird quarter of 2003 was also affected by the suspension of the quarterlydividend by the Federal Home Loan Bank of New York. No income was recognized inthe current quarter compared with income of $4 million in the second quarter of2003 and $2 million in the prior year third quarter.

Average earning assetsincreased by $1.7 billion and $1.9 billion for the quarter and nine monthperiods, or 9% and 10% to $21.8 billion and $21.0 billion from $20.1 billionand $19.1 billion in the year ago periods. The increase from the prior yearthird quarter and nine month periods reflected growth in loans held for saledue to higher origination volume, and higher investment securities. The yieldon interest-earning assets and rates paid on interest-bearing liabilities, inboth periods, decreased due to higher premium amortization and declining marketinterest rates from a year ago.

The growth in averageearning assets was funded in part by a substantial growth in core deposits asthe average balance increased 27% and 32% over the comparable quarter and ninemonth periods a year ago. The growth resulted from the continued success of theCompany’s sales culture, checking programs, *denovo* branching program and small business banking initiative.

 

24

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

The following table sets forth certaininformation relating to the continuing operations of the Company’s averagestatements of financial condition (unaudited) and statements of income(unaudited) for the quarter and nine months ended September 30, 2003 and2002, and reflects the average yield on assets and average cost of liabilitiesfor the periods indicated. Such annualized yields and costs are derived by dividingincome or expense by the average balance of assets or liabilities,respectively, for the periods shown. Average balances are derived from averagedaily balances. Average balances and yields include non-accrual loans. Theyields and costs include fees that are considered adjustments to yields.Interest and yields are presented on a taxable-equivalent yield basis.

 
|                                                                                       |   | **Quarter Ended**      |   |
|--------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                       |   | **September 30, 2003** |   | **September 30, 2002** |   |
| **(Taxable-equivalent  interest and rates, in millions) (1)**                              |   | **Average  Balance**   |   | **Interest** |   | **Average  Yield/  Cost** |   | **Average  Balance** |   | **Interest** |   | **Average  Yield/  Cost** |   |
| **Assets:**                                                                                |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage loans held for  investment *(2)*                                                  |   | $                      | 9,777  |   | $ | 147.2 |   | 6.02 | % | $ | 9,944 |   | $ | 181.1 |   | 7.28 | % |
| Other loans *(2)*                                                                          |   | 24                     |   | 0.4 |   | 7.14 |   | 20 |   | 0.4 |   | 8.22 |   |
| Loans held for sale *(2)*                                                                  |   | 5,901                  |   | 76.7 |   | 5.20 |   | 5,354 |   | 85.8 |   | 6.35 |   |
| Securities *(3)*                                                                           |   | 5,875                  |   | 45.9 |   | 3.12 |   | 4,531 |   | 58.9 |   | 5.20 |   |
| Other interest-earning  assets                                                             |   | 267                    |   | 4.2 |   | 6.41 |   | 280 |   | 5.1 |   | 7.31 |   |
| Total interest-earning  assets                                                             |   | 21,844                 |   | 274.4 |   | 5.02 |   | 20,129 |   | 331.3 |   | 6.57 |   |
| Non-interest earning  assets *(4)*                                                         |   | 1,144                  |   |   |   |   |   | 1,136 |   |   |   |   |   |
| Total assets                                                                               |   | $                      | 22,988 |   |   |   |   |   | $ | 21,265 |   |   |   |   |   |
|                                                                                       |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholders’ Equity:**                                            |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                                             |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                    |   | $                      | 1,512  |   | 2.3 |   | 0.60 |   | $ | 1,310 |   | 4.2 |   | 1.30 |   |
| Demand deposits and  N.O.W.                                                                |   | 2,628                  |   | 8.5 |   | 1.29 |   | 1,558 |   | 6.6 |   | 1.67 |   |
| Money market and  variable rate savings                                                    |   | 3,487                  |   | 10.5 |   | 1.19 |   | 3,155 |   | 14.5 |   | 1.83 |   |
| Total core deposits                                                                        |   | 7,627                  |   | 21.3 |   | 1.12 |   | 6,023 |   | 25.3 |   | 1.68 |   |
| Wholesale money market  deposits                                                           |   | 280                    |   | 1.0 |   | 1.39 |   | 42 |   | 0.2 |   | 1.99 |   |
| Term certificates of  deposit                                                              |   | 4,581                  |   | 33.3 |   | 2.87 |   | 5,207 |   | 43.6 |   | 3.32 |   |
| Total deposits                                                                             |   | 12,488                 |   | 55.6 |   | 1.76 |   | 11,272 |   | 69.1 |   | 2.44 |   |
| Mortgagors’ escrow                                                                    |   | 65                     |   | 0.3 |   | 1.88 |   | 81 |   | 0.3 |   | 1.68 |   |
| Borrowed funds                                                                             |   | 7,572                  |   | 53.8 |   | 2.78 |   | 7,444 |   | 60.3 |   | 3.18 |   |
| Senior notes                                                                               |   | 350                    |   | 3.0 |   | 3.41 |   | — |   | — |   | — |   |
| Senior bank notes                                                                          |   | —                 |   | — |   | — |   | 20 |   | 0.4 |   | 6.86 |   |
| Subordinated bank notes                                                                    |   | 150                    |   | 3.5 |   | 9.36 |   | 150 |   | 3.5 |   | 9.36 |   |
| Guaranteed preferred  beneficial interest in Company’s junior subordinated debentures |   | 200                    |   | 4.5 |   | 9.16 |   | 200 |   | 4.6 |   | 9.16 |   |
| Total interest-bearing  liabilities                                                        |   | 20,825                 |   | 120.7 |   | 2.29 |   | 19,167 |   | 138.2 |   | 2.85 |   |
| Other liabilities *(5)*                                                                    |   | 312                    |   |   |   |   |   | 246 |   |   |   |   |   |
| Total liabilities                                                                          |   | 21,137                 |   |   |   |   |   | 19,413 |   |   |   |   |   |
| Stockholders’ equity                                                                  |   | 1,851                  |   |   |   |   |   | 1,852 |   |   |   |   |   |
| Total liabilities and  stockholders’ equity                                           |   | $                      | 22,988 |   |   |   |   |   | $ | 21,265 |   |   |   |   |   |
| Net interest  income/interest rate spread *(6)*                                            |   |                   |   | $ | 153.7 |   | 2.73 | % |   |   | $ | 193.1 |   | 3.72 | % |
| Net interest-earning  assets/net interest margin *(7)*                                     |   | $                      | 1,019  |   |   |   | 2.84 | % | $ | 962 |   |   |   | 3.85 | % |
| Ratio of  interest-earning assets to interest-earning liabilities                          |   | 1.05                   | x      |   |   |   |   | 1.05 | x |   |   |   |   |

 

25

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|                                                                                       |   | **Nine Months Ended**  |   |
|--------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                       |   | **September 30, 2003** |   | **September 30, 2002** |   |
| ***(*****Taxable-equivalent  interest and rates, in millions) (1)**                        |   | **Average  Balance**   |   | **Interest** |   | **Average  Yield/  Cost** |   | **Average  Balance** |   | **Interest** |   | **Average  Yield/  Cost** |   |
| **Assets:**                                                                                |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage loans held for  investment *(2)*                                                  |   | $                      | 9,779  |   | $ | 470.2 |   | 6.41 | % | $ | 10,019 |   | $ | 561.9 |   | 7.48 | % |
| Other loans *(2)*                                                                          |   | 22                     |   | 1.2 |   | 7.47 |   | 20 |   | 1.3 |   | 8.49 |   |
| Loans held for sale *(2)*                                                                  |   | 5,364                  |   | 223.2 |   | 5.56 |   | 4,355 |   | 212.2 |   | 6.51 |   |
| Securities *(3)*                                                                           |   | 5,535                  |   | 160.2 |   | 3.86 |   | 4,419 |   | 185.6 |   | 5.60 |   |
| Other interest-earning  assets                                                             |   | 294                    |   | 13.2 |   | 6.02 |   | 291 |   | 22.1 |   | 10.20 |   |
| Total interest-earning  assets                                                             |   | 20,994                 |   | 868.0 |   | 5.52 |   | 19,104 |   | 983.1 |   | 6.86 |   |
| Non-interest earning  assets *(4)*                                                         |   | 1,143                  |   |   |   |   |   | 1,060 |   |   |   |   |   |
| Total assets                                                                               |   | $                      | 22,137 |   |   |   |   |   | $ | 20,164 |   |   |   |   |   |
|                                                                                       |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholders’ Equity:**                                            |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                                             |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                    |   | $                      | 1,446  |   | 7.8 |   | 0.72 |   | $ | 1,284 |   | 13.1 |   | 1.36 |   |
| Demand deposits and  N.O.W.                                                                |   | 2,371                  |   | 25.5 |   | 1.44 |   | 1,083 |   | 10.3 |   | 1.28 |   |
| Money market and  variable rate savings                                                    |   | 3,429                  |   | 35.1 |   | 1.37 |   | 3,115 |   | 43.9 |   | 1.89 |   |
| Total core deposits                                                                        |   | 7,246                  |   | 68.4 |   | 1.26 |   | 5,482 |   | 67.3 |   | 1.64 |   |
| Wholesale money market  deposits                                                           |   | 121                    |   | 1.3 |   | 1.42 |   | 42 |   | 0.7 |   | 2.12 |   |
| Term certificates of  deposit                                                              |   | 4,858                  |   | 109.0 |   | 3.00 |   | 5,463 |   | 152.1 |   | 3.72 |   |
| Total deposits                                                                             |   | 12,225                 |   | 178.7 |   | 1.95 |   | 10,987 |   | 220.1 |   | 2.68 |   |
| Mortgagors’ escrow                                                                    |   | 65                     |   | 0.9 |   | 1.91 |   | 83 |   | 1.1 |   | 1.72 |   |
| Borrowed funds                                                                             |   | 7,190                  |   | 160.5 |   | 2.95 |   | 6,653 |   | 163.8 |   | 3.25 |   |
| Senior notes                                                                               |   | 150                    |   | 3.8 |   | 3.35 |   | — |   | — |   | — |   |
| Senior bank notes                                                                          |   | —                 |   | — |   | — |   | 96 |   | 4.9 |   | 6.76 |   |
| Subordinated bank notes                                                                    |   | 150                    |   | 10.5 |   | 9.36 |   | 150 |   | 10.5 |   | 9.36 |   |
| Guaranteed preferred  beneficial interest in Company’s junior subordinated debentures |   | 200                    |   | 13.7 |   | 9.16 |   | 200 |   | 13.7 |   | 9.16 |   |
| Total interest-bearing  liabilities                                                        |   | 19,980                 |   | 368.1 |   | 2.45 |   | 18,169 |   | 414.1 |   | 3.03 |   |
| Other liabilities *(5)*                                                                    |   | 272                    |   |   |   |   |   | 199 |   |   |   |   |   |
| Total liabilities                                                                          |   | 20,252                 |   |   |   |   |   | 18,368 |   |   |   |   |   |
| Stockholders’ equity                                                                  |   | 1,885                  |   |   |   |   |   | 1,796 |   |   |   |   |   |
| Total liabilities and  stockholders’ equity                                           |   | $                      | 22,137 |   |   |   |   |   | $ | 20,164 |   |   |   |   |   |
| Net interest income/interest  rate spread *(6)*                                            |   |                   |   | $ | 499.9 |   | 3.07 | % |   |   | $ | 569.0 |   | 3.83 | % |
| Net interest-earning  assets/net interest margin *(7)*                                     |   | $                      | 1,014  |   |   |   | 3.19 | % | $ | 935 |   |   |   | 3.98 | % |
| Ratio of  interest-earning assets to interest-earning liabilities                          |   | 1.05                   | x      |   |   |   |   | 1.05 | x |   |   |   |   |

 

----

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

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

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

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

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

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

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

 

26

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**Rate/Volume Analysis**

The following table presents the effects ofchanges in interest rates and changes in volume of interest-earning assets andinterest-bearing liabilities on the Company’s interest income on a taxequivalent basis and interest expense during the periods indicated. Informationis provided in each category on changes (i) attributable to changes in volume(changes in volume multiplied by prior rate), (ii) changes attributable tochanges in rate (changes in rate multiplied by prior volume), and (iii) the netchange. The changes attributable to the combined impact of volume and rate havebeen allocated proportionately to volume and rate.

 
|                                                                                       |   | **Quarter Ended Sept. 30, 2003  Compared to  Quarter Ended Sept. 30, 2002  Increase/(Decrease)** |   | **Nine Months Ended Sept. 30,  2003  Compared to  Nine Months Ended Sept. 30, 2002  Increase/(Decrease)** |   |
|--------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|
|                                                                                       |   | **Due to**                                                                                       |   | **Due to**                                                                                                |   |
| **(In millions)**                                                                          |   | **Average  Volume**                                                                              |   | **Average  Rate**                                                                                         |   | **Net  Change** |   | **Average  Volume** |   | **Average  Rate** |   | **Net  Change** |   |
| Mortgage loans held for investment *(1)*                                                   |   | $                                                                                                | (3.0   | )                                                                                                         | $      | (30.9 | ) | $ | (33.9 | ) | $ | (13.2 | ) | $ | (78.5 | ) | $ | (91.7 | ) |
| Other loans *(1)*                                                                          |   | 0.1                                                                                              |   | (0.1                                                                                                      | )      | — |   | 0.1 |   | (0.2 | ) | (0.1 | ) |
| Loans held for sale                                                                        |   | 8.2                                                                                              |   | (17.3                                                                                                     | )      | (9.1 | ) | 44.8 |   | (33.8 | ) | 11.0 |   |
| Securities                                                                                 |   | 14.5                                                                                             |   | (27.5                                                                                                     | )      | (13.0 | ) | 40.4 |   | (65.8 | ) | (25.4 | ) |
| Other interest-earning assets                                                              |   | (0.3                                                                                             | )      | (0.6                                                                                                      | )      | (0.9 | ) | 0.2 |   | (9.1 | ) | (8.9 | ) |
| Total interest earned on assets                                                            |   | 19.5                                                                                             |   | (76.4                                                                                                     | )      | (56.9 | ) | 72.3 |   | (187.4 | ) | (115.1 | ) |
| Savings                                                                                    |   | 0.6                                                                                              |   | (2.5                                                                                                      | )      | (1.9 | ) | 1.5 |   | (6.8 | ) | (5.3 | ) |
| Demand deposits and N.O.W.                                                                 |   | 3.7                                                                                              |   | (1.8                                                                                                      | )      | 1.9 |   | 13.6 |   | 1.6 |   | 15.2 |   |
| Money market and variable rate savings                                                     |   | 1.4                                                                                              |   | (5.4                                                                                                      | )      | (4.0 | ) | 4.1 |   | (12.9 | ) | (8.8 | ) |
| Wholesale money market deposits                                                            |   | 0.9                                                                                              |   | (0.1                                                                                                      | )      | 0.8 |   | 0.9 |   | (0.3 | ) | 0.6 |   |
| Term certificates of deposit                                                               |   | (4.9                                                                                             | )      | (5.4                                                                                                      | )      | (10.3 | ) | (15.6 | ) | (27.5 | ) | (43.1 | ) |
| Mortgagors’ escrow                                                                    |   | —                                                                                           |   | —                                                                                                    |   | — |   | (0.3 | ) | 0.1 |   | (0.2 | ) |
| Borrowed funds                                                                             |   | 1.0                                                                                              |   | (7.5                                                                                                      | )      | (6.5 | ) | 12.7 |   | (16.0 | ) | (3.3 | ) |
| Senior notes                                                                               |   | 3.0                                                                                              |   | —                                                                                                    |   | 3.0 |   | 3.8 |   | — |   | 3.8 |   |
| Senior bank notes                                                                          |   | (0.4                                                                                             | )      | —                                                                                                    |   | (0.4 | ) | (4.9 | ) | — |   | (4.9 | ) |
| Subordinated bank notes                                                                    |   | —                                                                                           |   | —                                                                                                    |   | — |   | — |   | — |   | — |   |
| Guaranteed preferred beneficial interest in Company’s junior  subordinated debentures |   | —                                                                                           |   | (0.1                                                                                                      | )      | (0.1 | ) | — |   | — |   | — |   |
| Total interest paid on liabilities                                                         |   | 5.3                                                                                              |   | (22.8                                                                                                     | )      | (17.5 | ) | 15.8 |   | (61.8 | ) | (46.0 | ) |
| Net change in net interest income                                                          |   | $                                                                                                | 14.2   |                                                                                                      | $      | (53.6 | ) | $ | (39.4 | ) | $ | 56.5 |   | $ | (125.6 | ) | $ | (69.1 | ) |

 

----

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

 

**Provision for loan losses**

The provision for loan losses was $1.1million and $2.0 million for the third quarter and nine months periods endedSeptember 30, 2003, an increase of $0.6 million $0.8 million from the year agoquarter and nine month periods. The provision equaled net charge-offs for allperiods.

 

27

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**Non-Interest Income**

The following table summarizes thecomponents of non-interest income:

 
|                                      |   | **Quarter Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|-------------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
| **(In millions)**                         |   | **2003**                         |   | **2002**                             |   | **2003** |   | **2002** |   |
| Income from fees and commissions:         |   |                             |   |                                 |   |   |   |   |   |
| Loan servicing fees                       |   | $                                | 11.7   |                                 | $      | (0.4 | ) | $ | 17.1 |   | $ | 10.7 |   |
| Banking services fees and commissions     |   | 18.6                             |   | 15.4                                 |   | 50.3 |   | 42.4 |   |
| Fees, commissions and other income        |   | 4.2                              |   | 4.2                                  |   | 10.7 |   | 11.2 |   |
| Total income from fees and commissions    |   | 34.5                             |   | 19.2                                 |   | 78.1 |   | 64.3 |   |
| Net gain on sales of mortgage loans       |   | 105.9                            |   | 89.2                                 |   | 375.9 |   | 265.2 |   |
| Change in valuation of retained interests |   | (1.1                             | )      | (0.1                                 | )      | (2.5 | ) | (7.2 | ) |
| Net gain on securities                    |   | 1.4                              |   | 1.8                                  |   | 2.0 |   | 5.6 |   |
| Total non-interest income                 |   | $                                | 140.7  |                                 | $      | 110.1 |   | $ | 453.5 |   | $ | 327.9 |   |

 

Non-interest income in thethird quarter and nine months ended September 30, 2003 was $141 million and$454 million, up 28% and 38% from the comparable periods a year ago. Theincrease versus the year ago period was due to a substantial increase in netgain on sale of mortgage loans. The gain on sale of loans is described infurther detail in the following paragraphs.

Income from fees andcommissions totaled $35 million and $78 million for the quarter and nine monthsended September 30, 2003, versus $19 million and $64 million in the sameperiods a year ago. Loan servicing fees increased for both the current quarterand nine month periods versus the year ago periods reflecting a recovery ofservicing rights impairment of $7 million versus temporary impairmentsrecognized in the prior periods. The $3 million and $8 million increase inbanking fees for the quarter and nine months periods, versus a year ago, wasdue to an increase in the number of checking accounts as a result of *de novo* branch expansion along withconsumer bank marketing initiatives that increased core deposit accounts.

 

**Gain onsale of loans**

The following table summarizes loans soldand average margins earned:

 
|                                 |   | **Quarter Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|--------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
| **(In millions)**                    |   | **2003**                         |   | **2002**                             |   | **2003** |   | **2002** |   |
| **Whole loan – Mortgage:**      |   |                             |   |                                 |   |   |   |   |   |
| Sales                                |   | $                                | 7,445  |                                 | $      | 6,293 |   | $ | 24,933 |   | $ | 17,690 |   |
| Gain on sale                         |   | $                                | 105.3  |                                 | $      | 88.1 |   | $ | 369.8 |   | $ | 258.2 |   |
| Average margin                       |   | 1.42                             | %      | 1.40                                 | %      | 1.48 | % | 1.46 | % |
| Average margin by product type:      |   |                             |   |                                 |   |   |   |   |   |
| Specialty products *(1)*             |   | 2.27                             | %      | 2.86                                 | %      | 2.75 | % | 2.93 | % |
| Home equity / Seconds                |   | 1.50                             | %      | 1.13                                 | %      | 1.42 | % | 1.23 | % |
| Agency / Jumbo                       |   | 0.95                             | %      | 0.59                                 | %      | 0.88 | % | 0.62 | % |
| **Securitizations – Mortgage:** |   |                             |   |                                 |   |   |   |   |   |
| Sales                                |   | $                                | 32     |                                 | $      | 49 |   | $ | 385 |   | $ | 275 |   |
| Gain on sale *(2)*                   |   | $                                | 0.6    |                                 | $      | 1.1 |   | $ | 6.1 |   | $ | 7.0 |   |
| Average margin                       |   | 1.87                             | %      | 2.27                                 | %      | 1.60 | % | 2.53 | % |

 

----

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

*(2)**               **Includes draws from priorperiod securitizations.*

 

28

----

 

Gain on sale of mortgageloans increased for the quarter and nine months ended September 30, 2003,versus the comparable periods a year ago, principally due to a higher volume ofloans sold along with slightly higher margins earned on the sales. The averagesale margin was 142 basis points compared to 140 basis points for the thirdquarter of 2002.

The margin earned onspecialty products declined to 2.27% in the third quarter of 2003 from 2.86%reported in the prior year third quarter. Year to date, the gain on sale marginfor specialty products was 2.75% in 2003 compared with 2.93% in 2002. Thenarrower sales margins reflect, in part, an increase in competition as moremortgage originators compete in the specialty product market.

The decline during thethird quarter also resulted from the projected drop in refinance activity giventhe rise in interest rates during the period. While investors pay a premium forthe slower expected prepayments associated with the Alt A and No Doc products,prepayment expectations lowered across all mortgage products, reducing theincremental value investors placed on the prepay benefit of specialty productsrelative to conforming products. The Company will take account of the newrelationship between specialty loans and conforming products, as well ascompetitive market conditions, in pricing its loans to achieve a desirablecombination of sales margins and volumes.

In the third quarter of2003, the Company recognized a gain of $1 million related to priorsecuritizations of home equity lines of credit. The year ago period gainrepresented gains on previously securitized home equity lines.

 

**Non-Interest Expense**

The following is a summary of thecomponents of non-interest expense:

 
|                                             |   | **Quarter Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|--------------------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
| **(In millions)**                                |   | **2003**                         |   | **2002**                             |   | **2003** |   | **2002** |   |
| Salaries and benefits                            |   | $                                | 66.8   |                                 | $      | 49.2 |   | $ | 194.9 |   | $ | 145.9 |   |
| Employee Stock Ownership and stock plans expense |   | 6.9                              |   | 6.3                                  |   | 19.7 |   | 19.3 |   |
| Net expense of premises and equipment            |   | 22.3                             |   | 18.1                                 |   | 64.1 |   | 53.6 |   |
| Advertising                                      |   | 4.3                              |   | 4.0                                  |   | 13.2 |   | 12.6 |   |
| Federal deposit insurance premiums               |   | 0.5                              |   | 0.4                                  |   | 1.5 |   | 1.4 |   |
| Other administrative expenses                    |   | 29.6                             |   | 23.6                                 |   | 84.0 |   | 72.2 |   |
| Total general and administrative expenses        |   | 130.4                            |   | 101.6                                |   | 377.4 |   | 305.0 |   |
| Other real estate owned operating income, net    |   | (0.7                             | )      | —                               |   | (2.2 | ) | (1.1 | ) |
| Total non-interest expense                       |   | $                                | 129.7  |                                 | $      | 101.6 |   | $ | 375.2 |   | $ | 303.9 |   |

 

Total general andadministrative expense increased $29 million to $130 million from $102million for the quarter ended September 30, 2002 and increased $72 million to$377 million from $305 million for the nine month periods. The non-interestexpense increase versus a year ago reflected the increased mortgage originationvolume and higher costs associated with the *denovo* branching program. The salaries and benefits expense increaseof $18 million and $49 million for the quarter and nine months ended September30, 2003 versus a year ago related to the significant increase in mortgageproduction.

 

29

----

 

**Income Tax Expense**

Income tax expense decreased $11 million,or 16%, to $61 million for the third quarter of 2003 and decreased$1 million to $213 million for the first nine months of 2003, versus thecomparable periods a year ago. The decrease for the third quarter is due tolower pre-tax income offset by a rise in the effective tax rate from 36.4% to37.6%. The rise for the nine months, compared to 2002, is due to higher pre-taxincome and an increase in the effective tax rate from 36.9% to 37.4%.

 

**LoanOriginations**

The following table summarizes loanorigination activity for each of the reported periods:

 
|                                                 |   | **Quarter Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
| **(In millions)**                                    |   | **2003**                         |   | **2002**                             |   | **2003** |   | **2002** |   |
| **Mortgage:**                                        |   |                             |   |                                 |   |   |   |   |   |
| Total applications received                          |   | $                                | 15,409 |                                 | $      | 20,478 |   | $ | 56,987 |   | $ | 47,552 |   |
| Loans originated:                                    |   |                             |   |                                 |   |   |   |   |   |
| Specialty products *(1)*                             |   | $                                | 3,132  |                                 | $      | 2,689 |   | $ | 8,813 |   | $ | 7,335 |   |
| Home equity / Seconds                                |   | 616                              |   | 646                                  |   | 1,758 |   | 1,958 |   |
| Agency / Jumbo                                       |   | 5,701                            |   | 6,395                                |   | 19,549 |   | 13,912 |   |
| Total loans originated *(2)*                         |   | $                                | 9,449  |                                 | $      | 9,730 |   | $ | 30,120 |   | $ | 23,205 |   |
| Commitments to originate loans (end of period):      |   |                             |   |                                 |   |   |   |   |   |
| Locked *(3)*                                         |   | $                                | 2,191  |                                 | $      | 2,960 |   | $ | 2,191 |   | $ | 2,960 |   |
| Un-locked                                            |   | 6,916                            |   | 6,455                                |   | 6,916 |   | 6,455 |   |
| Total commitments to originate loans (end of period) |   | $                                | 9,107  |                                 | $      | 9,415 |   | $ | 9,107 |   | $ | 9,415 |   |
| Loans held for sale (end of period)                  |   | $                                | 6,010  |                                 | $      | 6,336 |   | $ | 6,010 |   | $ | 6,336 |   |

 

----

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

*(2)**                              **Total loans originated include correspondent purchases forthe held for investment portfolio, which totaled $286 million and $1.8 billionfor the quarter and nine months ended September 30, 2003.*

*(3)**                              **Represents commitments on which the Company is committed tolend at an agreed upon interest rate.*

 

Total loan originationsduring the quarter and nine month periods for the mortgage business were$9.4 billion and $30.1 billion, down from $9.7 billion in the thirdquarter a year ago and up from $23.2 billion during the first nine months of2002. Specialty product originations were $3.1 billion and $8.8 billion for thequarter and nine month periods, up from $2.7 billion and $7.3 billion in thecomparable periods a year ago. Agency / Jumbo originations decreased from $6.4billion to $5.7 billion in the third quarter versus a year ago and increasedfrom $13.9 billion to $19.5 billion for the nine months ended September30, 2003 versus the same period a year ago. The change in loan originationproduct mix for the nine months ended September 30, 2003 versus a year ago,reflects the declining interest rate environment and the strong demand formortgage refinancing during the first half of 2003.

 

**Non-Performing Assets:**

Non-performing assets consist ofnon-accruing loans and other real estate owned. GreenPoint reports non-accruingloans separately for the held for investment and held for sale portfolios. Theratio of non-accruing loans held for investment to mortgage loans held forinvestment increased to 1.72% at September 30, 2003 from 1.61% at December 31,2002 and the ratio of non-performing assets to total assets increased to 1.22%at September 30, 2003 from 1.12% at December 31, 2002. GreenPoint attempts toconvert these assets to interest-earning assets as quickly as possible, whileminimizing potential losses on conversion.

 

30

----

 

Non-performing loans heldfor sale represent delinquent loans in the mortgage warehouse that mostly havebeen acquired as repurchases against representations and warranties. Theseloans increased to $96 million at the end of the third quarter from $66 millionat December 31, 2002. This increase has resulted from the substantial growth inloans sold over the past two years. GreenPoint maintains a valuation reservethrough which the value of these loans is adjusted to the estimated fair value.

Non-performing assets,were as follows:

 
| **(In millions)**                                         |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|-----------------------------------------------------------|--------|---------------------|--------|--------------------|--------|
| Non-accrual loans receivable held for investment *(1)*    |   | $                   | 162    |               | $      | 160 |   |
| Non-accrual loans receivable held for sale                |   | 96                  |   | 66                 |   |
| Total non-performing loans                                |   | 258                 |   | 226                |   |
| Total other real estate owned, net                        |   | 21                  |   | 17                 |   |
| Total non-performing assets                               |   | $                   | 279    |               | $      | 243 |   |
|                                                      |   |                |   |               |   |
| Other loans 90 days or more delinquent and still accruing |   | $                   | 1      |               | $      | 1 |   |

 

----

*(1)**                              **Includes $4 and $5 million of non-accrual mortgage loansunder 90 days past due at September 30, 2003 and December 31, 2002,respectively.*

 

**LoanServicing Portfolio**

The following table summarizes the dollaramount of loans serviced for GreenPoint and for others:

 
| **(In millions)**                   |   | **Sept. 30,  2003** |   | **Dec. 31,  2002** |   |
|-------------------------------------|--------|---------------------|--------|--------------------|--------|
| **Mortgage:**                       |   |                |   |               |   |
| Serviced for GreenPoint *(1)*       |   | $                   | 13,260 |               | $      | 14,936 |   |
| Serviced for others (third parties) |   | 17,042              |   | 14,647             |   |
| **Total loan servicing portfolio**  |   | $                   | 30,302 |               | $      | 29,583 |   |

 

----

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

 

**Allowance for Possible Loan Losses:**

The following is a summary of the provisionand allowance for possible loan losses:

 
|                                                                   |   | **Quarter Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
| **(In millions)**                                                      |   | **2003**                         |   | **2002**                             |   | **2003** |   | **2002** |   |
| Balance at beginning of period                                         |   | $                                | 77.7   |                                 | $      | 77.7 |   | $ | 77.7 |   | $ | 80.6 |   |
| Provision charged to income:                                           |   |                             |   |                                 |   |   |   |   |   |
| Continuing                                                             |   | 1.1                              |   | 0.5                                  |   | 2.0 |   | 1.2 |   |
| Discontinued                                                           |   | (0.3                             | )      | (0.3                                 | )      | (0.6 | ) | (0.4 | ) |
| Charge-offs:                                                           |   |                             |   |                                 |   |   |   |   |   |
| Mortgage                                                               |   | (1.2                             | )      | (0.5                                 | )      | (2.3 | ) | (1.2 | ) |
| Manufactured housing                                                   |   | (1.1                             | )      | —                               |   | (3.7 | ) | — |   |
| Manufactured housing – transfer to loans receivable held for sale |   | —                           |   | —                               |   | — |   | (2.9 | ) |
| Recoveries:                                                            |   |                             |   |                                 |   |   |   |   |   |
| Mortgage                                                               |   | 0.1                              |   | —                               |   | 0.3 |   | — |   |
| Manufactured housing                                                   |   | 1.4                              |   | 0.3                                  |   | 4.3 |   | 0.4 |   |
| Balance at end of period                                               |   | $                                | 77.7   |                                 | $      | 77.7 |   | $ | 77.7 |   | $ | 77.7 |   |

 

Net mortgage loancharge-offs were $1.1 million and $2.0 million for the quarter and nine monthsended September 30, 2003, up from $0.5 million and $1.2 million inthe year ago periods.

 

31

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** **

**Capital Ratios**

The Company and the Bank are subject tovarious regulatory capital requirements administered by the federal and statebanking agencies. The Board of Governors of the Federal Reserve Systemestablishes minimum capital requirements for the consolidated bank holdingcompany, 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 September 30, 2003, that the Company and the Bank meet allcapital adequacy requirements to which it is subject.

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 September 30, 2003, the Bank was wellcapitalized based on the prompt corrective action guidelines.

The most recent notificationfrom the FDIC categorized the Bank as well capitalized under the regulatoryframework for prompt corrective action. To be categorized as well capitalized,the Bank must maintain minimum Tier 1 capital, total capital and leverageratios of 6%, 10% and 5%, respectively. There have been no conditions or eventssince that notification that management believes have changed the Company’s orBank’s category.

The Company’s TotalCapital and Tier 1 Capital (to risk weighted assets) declined from 12.96% and11.43%, respectively, at December 31, 2002 to 12.47% and 10.96%, respectivelyat September 30, 2003. The Company’s ratio of period-end stockholders’ equityto ending total assets at September 30, 2003 was 8.06% compared to 8.82% atDecember 31, 2002.

 
|                                      |   | **Actual** |   | **Required for Capital  Adequacy Purposes** |   |
|-------------------------------------------|--------|------------|--------|---------------------------------------------|--------|
| **(In millions)**                         |   | **Amount** |   | **Ratio**                                   |   | **Amount** |   | **Ratio** |   |
| **As of  September 30, 2003**             |   |       |   |                                        |   |   |   |   |   |
| Total Capital (to Risk Weighted Assets):  |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,876  |                                        | 12.47  | % | $ | 1,204 |   | 8.00 | % |
| Bank                                      |   | 1,979      |   | 13.18                                       |   | 1,201 |   | 8.00 |   |
| Tier 1 Capital (to Risk Weighted Assets): |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,649  |                                        | 10.96  | % | $ | 602 |   | 4.00 | % |
| Bank                                      |   | 1,751      |   | 11.66                                       |   | 601 |   | 4.00 |   |
| Tier 1 Capital (to Average Assets):       |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,649  |                                        | 7.18   | % | $ | 918 |   | 4.00 | % |
| Bank                                      |   | 1,751      |   | 7.63                                        |   | 918 |   | 4.00 |   |
|                                      |   |       |   |                                        |   |   |   |   |   |
| **As of  December 31, 2002**              |   |       |   |                                        |   |   |   |   |   |
| Total Capital (to Risk Weighted Assets):  |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,924  |                                        | 12.96  | % | $ | 1,188 |   | 8.00 | % |
| Bank                                      |   | 1,905      |   | 12.83                                       |   | 1,188 |   | 8.00 |   |
| Tier 1 Capital (to Risk Weighted Assets): |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,696  |                                        | 11.43  | % | $ | 594 |   | 4.00 | % |
| Bank                                      |   | 1,678      |   | 11.30                                       |   | 594 |   | 4.00 |   |
| Tier 1 Capital (to Average Assets):       |   |       |   |                                        |   |   |   |   |   |
| Company                                   |   | $          | 1,696  |                                        | 7.51   | % | $ | 904 |   | 4.00 | % |
| Bank                                      |   | 1,678      |   | 7.42                                        |   | 904 |   | 4.00 |   |

 

32

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**StockRepurchase Program**

In September 2003, the Company’s Board ofDirectors authorized a new share repurchase program of up to 5%, orapproximately 6.8 million, of its outstanding shares. The repurchase will be atthe Company’s discretion, based on ongoing assessments of the capital needs ofthe business and the market valuation of its stock.

The Company’s previousshare repurchase program was completed during the third quarter. Under thisprogram, the Company repurchased 7.2 million shares, at a cost of approximately$238 million. The repurchased shares are being held in treasury.

Shares repurchased andcost for the quarters and nine months ended September 30, 2003 and 2002 aresummarized as follows:

 
|                         |   | **Quarter Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
| **(Dollars in millions)**    |   | **2003**                         |   | **2002**                             |   | **2003** |   | **2002** |   |
|                         |   |                             |   |                                 |   |   |   |   |   |
| Number of shares repurchased |   | 4,416,000                        |   | 2,295,000                            |   | 12,193,650 |   | 4,951,800 |   |
| Cost of repurchases          |   | $                                | 147    |                                 | $      | 72 |   | $ | 385 |   | $ | 157 |   |
|                              |        |                                  |        |                                      |        |  |  |  |  |  |  |  |  |

 

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

Cash earnings is a non-GAAPmeasurement that GreenPoint defines as net income from continuing operationsless a non-cash charge related to the Employee Stock Ownership Plan (“ESOP”).This non-cash expense, unlike other expenses incurred by the Company, does notreduce GreenPoint’s tangible capital thereby enabling the Company to increaseshareholder value through the growth of earning assets, increases in cashdividends and additional repurchases of the Company’s stock.

 
|                                                   |   | **Quarter Ended**   |       | **Nine Months Ended  September 30,** |       |
|--------------------------------------------------------|--------|---------------------|------------|--------------------------------------|------------|
|                                                   |   | **Sept. 30,  2003** | ** ** | **June 30,  2003**                   | ** ** | **March 31,  2003** | ** ** | **Dec. 31,  2002** | ** ** | **Sept. 30,  2002** |   |   |
| **2003**                                               |   | **2002**            |       |
| Net income from continuing operations                  |   | $                   | 101.1      |                                 | $          | 129.8 |   | $ | 126.9 |   | $ | 128.6 |   | $ | 126.5 |   | $ | 357.8 |   | $ | 369.6 |   |
| Add back:                                              |   |                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Employee Stock Ownership and stock plans  expense      |   | 6.9                 |       | 6.7                                  |       | 6.1 |   | 6.9 |   | 6.3 |   | 19.7 |   | 19.3 |   |
| Cash earnings from continuing operations               |   | $                   | 108.0      |                                 | $          | 136.5 |   | $ | 133.0 |   | $ | 135.5 |   | $ | 132.8 |   | $ | 377.5 |   | $ | 388.9 |   |
|                                                   |   |                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share from continuing  operations |   | $                   | 0.82       |                                 | $          | 1.03 |   | $ | 0.98 |   | $ | 0.97 |   | $ | 0.94 |   | $ | 2.84 |   | $ | 2.72 |   |
| Effect of employee stock plans expense                 |   | 0.06                |       | 0.05                                 |       | 0.05 |   | 0.05 |   | 0.04 |   | 0.15 |   | 0.14 |   |
| Cash earnings per share *(1)*                          |   | $                   | 0.88       |                                 | $          | 1.08 |   | $ | 1.03 |   | $ | 1.02 |   | $ | 0.98 |   | $ | 2.99 |   | $ | 2.86 |   |
|                                                   |   |                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Performance  Ratios (Annualized)**                   |   |                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Cash earnings return on average assets                 |   | 1.88                | %          | 2.46                                 | %          | 2.51 | % | 2.40 | % | 2.50 | % | 2.27 | % | 2.57 | % |
| Cash earnings return on average equity                 |   | 23.36               |       | 28.87                                |       | 27.80 |   | 28.50 |   | 28.67 |   | 26.71 |   | 28.87 |   |
| Cash earnings return on tangible equity                |   | 29.44               |       | 36.95                                |       | 35.58 |   | 36.89 |   | 37.43 |   | 32.24 |   | 37.60 |   |
|                                                        |        |                     |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

**ConsolidatedStatement of Financial Condition**

Total assets of $22.9 billion at September30, 2003 increased from $21.8 billion at December 31, 2002. The balance sheetreflects growth in the securities portfolio of $1.2 billion and growth in thebalance of loans held for sale of $415 million. This was partially offset by adecrease in loans receivable held for investment of $470 million.

Core deposits increased$1.2 billion since year-end 2002, reflecting the continued success of a varietyof initiatives to attract checking accounts. This growth was offset in part bya decline of $819 million in higher-cost term certificates of deposit. Marketborrowings increased $434 million since year-end 2002, reflecting the netadditional funding needed.

 

33

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**Risk Management**

 

The Company has a Corporate Risk OversightCommittee which monitors and supervises the wide variety of risks encounteredin the course of business. The Committee is chaired by the President and ChiefOperating Officer and includes the heads of its two businesses, the ChiefFinancial Officer, the Head of Risk Management and the General Counsel. TheCommittee meets periodically to review credit risk, including both on-balancesheet and off-balance sheet exposure, market risk and operating and businessrisks which include, but are not limited to, legal and systems risks. Theseindividual types of risks are also analyzed and monitored by separatecommittees comprised of experts within the business units and on the corporatestaff. Liquidity and Credit Risk Management are described fully below. TheMarket Risk analysis is included in Part I – Item 3 (page 36).

 

**LiquidityRisk Management**

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

Funds provided fromfinancing activities totaled $724 million for the nine months ended September30, 2003. At September 30, 2003 total borrowings were $7.7 billion, up$434 million from $7.2 billion at December 31, 2002. Membership in the FHLBallows the Bank to secure advances in proportion to its investment in FHLBstock. At September 30, 2003 the Bank had $3.3 billion in outstanding FHLB termadvances. The Bank’s ability to secure further advances from the FHLB is basedon the market value of the pledged loan portfolio. At September 30, 2003, basedon the then current market value of the pledged portfolio, the Bank hadadditional FHLB borrowing capacity of $1.2 billion. The Bank also uses itsmortgage-backed and other investment securities as collateral under short andlong-term repurchase agreements. As of September 30, 2003 the Bank had $2.8billion in outstanding repurchase agreements, which was an increase of $799million from December 31, 2002. At September 30, 2003 the company hadun-pledged securities eligible as collateral for repurchase agreements of$1.8 billion. The Bank also secures overnight and term funding in theFederal Funds market. At September 30, 2003 the Bank had $870 million ofovernight purchased Federal Funds.

Deposits continue to bethe primary funding source for the Company. Deposit balances experienced a net$715 million increase in the first nine months of 2003. Lower-cost coredeposits increased by $1.2 billion offset by a decrease in higher cost termcertificates of deposit of $819 million. The decline in certificate of depositbalances resulted from management’s decision to utilize lower cost alternativefunding sources rather than pay higher priced retail rates. Time depositsmaturing within one year totaled $3.1 billion at September 30, 2003. Consistentwith historical trends, a substantial portion of these deposits are expected tobe renewed. To the extent these deposits are not renewed, funding is expectedto be provided through continued growth in core deposits (checking, savings andmoney market deposits) and through alternative financing sources.

 

# **Credit Risk Management**

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

 

34

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GreenPoint Bank andGreenPoint Mortgage maintain underwriting policies, procedures and approvalauthorities appropriate to their businesses. The chief credit executive inGreenPoint Mortgage reports directly to the Executive Vice President of CreditOperations and Technology, outside of the production organization. The chiefcredit executive in the small business banking group within GreenPoint Bankreports directly to the head of the small business banking group. With respectto mortgage loans originated for whole loan sale to the secondary markets,where credit risk is transferred, underwriting criteria are established to meetthe investor requirements. An executive-level Risk Management Divisiondetermines the criteria required for loans which will be transferred toGreenPoint’s portfolio or sold through securitizations. With respect tobusiness loans at GreenPoint Bank, a sophisticated scoring system is one of thetools being utilized in the underwriting process.

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

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

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

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

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

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

 

35

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**GreenPointFinancial Corp. and Subsidiaries**

**Part I – Item 3. Quantitative andQualitative Disclosures about Market Risk**

** **

**Market Risk Management**

 

**Overview**

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

 

**MarketRisk Management Process**

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

 

**InterestRate Risk Management Strategies**

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

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

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

 

**InterestRate Risk Measurement**

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

The most crucialmanagement assumptions concern prepayments on the Company’s mortgage loan andsecurities portfolios and the pricing of retail deposits in various interestrate environments. As interest rates decline, mortgage prepayments tend toincrease, reducing loan portfolio growth and lowering the portfolio’s averageyield. Management’s assumptions are guided by analyzing the prepaymentperformance of the Company’s portfolio in past rate cycles as well as publiclyavailable research on the prepayment behavior of similar mortgage assets.

 

36

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

The following tablepresents the results of the simulations under a variety of hypotheticalinterest rate scenarios, based on the Company’s balance sheet position atSeptember 30, 2003. The results are expressed as the percentage change inpretax net interest income from the base scenario in which interest rates areunchanged. The change in income is measured over a period of twelve months.

 
|            |   | **Short-term Rate Changes:** |   |
|-----------------|--------|------------------------------|--------|
| **Yield Curve** |   | **-200 bps**                 |   | **+200 bps** |   |
| -150 bps        |   | (14.9                        | )%     | 1.4 | % |
| Parallel        |   | (8.7                         | )%     | 4.0 | % |
| +150 bps        |   | (3.2                         | )%     | 7.3 | % |

 

The columns represent 200basis point changes—down and up—in the level of short-term interest rates overa twelve-month time span. The rows indicate changes in the shape of the yieldcurve over the same time period. The parallel row corresponds to changes inrate levels in which the yield curve retains its shape. In the -150 basis pointscenarios, the yield curve flattens, and in the +150 basis point simulationsthe curve steepens. (As of September 30, 2003 not all rates could fall 200basis points without reaching zero. In these scenarios rates are reduced untilthey reach zero. These scenarios are retained to allow for historicalcomparisons.) For example, a parallel upward shift of 200 basis points wouldincrease net interest income by 4.0% from what would be earned if rates remainedconstant. An increase of 200 basis points at the short end of the yield curve,accompanied by a 150 basis point flatter curve, would increase net interestincome by 1.4% compared with the unchanged scenario.

At September 30, 2002 aparallel 200 basis point downward movement in interest rates was estimated toreduce net interest income by 8.8% from the base case. A parallel 200 basispoint rise in rates was estimated to benefit net interest income by 5.5%. Usingthis parallel case for comparative purposes, the degree of asset sensitivity inthe third quarter of 2003 is similar to that reported in the third quarter of2002. However, asset sensitivity is lower than reported at June 30, 2003,reflecting the increase in interest rates during the third quarter. Some of thebenefits from rising rates in the June 30 simulation are embodied in the basecase scenario as of September 30. The asset sensitivity at September 30 is theremaining impact from further rate increases.

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

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

 

**DerivativeFinancial Instruments**

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

 

37

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

Prior to the closing ofthe loan, the Company generally extends an interest rate lock commitment to theborrower. The Company is exposed to subsequent changes in the level of marketinterest rates, and the spread over Treasuries required by investors. Anincrease in market interest rates or a widening of spreads will reduce theprices paid by investors and the resultant gain on sale. To mitigate this risk,at the time the Company extends the interest rate lock commitment to theborrower, the Company will enter into mandatory commitments to deliver mortgagewhole loans to various investors, or to issue private securities and/or FannieMae and Freddie Mac securities (forward delivery commitments.) Thesecommitments effectively establish the price the Company will receive for therelated mortgage loan thereby minimizing the risk of subsequent changes ininterest rates. At September 30, 2003, the Company had mandatory forwarddelivery commitments outstanding amounting to $3.3 billion.

 

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**GreenPointFinancial Corp. and Subsidiaries**

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

 

 

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

 

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**GreenPointFinancial Corp. and Subsidiaries**

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

 

 

In the ordinary course of business, theCorporation and its subsidiaries are defendants in or parties to a number ofpending and threatened legal actions and proceedings, and are also involvedfrom time to time in investigations and administrative proceedings bygovernmental agencies. Certain of such actions and proceedings involve allegedviolations of consumer protection laws, including claims relating to theCorporation’s loan origination and collection efforts, and other federal andstate banking laws. Certain of such actions and proceedings include claims forbreach of contract, restitution, compensatory damages, punitive damages andother forms of relief. Due to the difficulty of predicting the outcome of suchmatters, the Corporation can give no assurance that it will prevail on allclaims made against it; however, management believes, based on currentknowledge and after consultation with counsel, that these legal matters andadministrative proceedings and the losses, if any, resulting from the finaloutcome thereof, will not have a material adverse effect on the Corporation andits subsidiaries’ financial position, results of operations or liquidity, butcan give no assurance that they will not have such an effect.

 

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**GreenPointFinancial Corp. and Subsidiaries**

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

** **
| **(a)** | **Exhibits**        |
|---------|---------------------|
|    |                |
|    | **Exhibit Number:** |
|    | 3.1                 | Bylaws of GreenPoint  Bank |
|    |                |   |
|    | 12.1                | Ratios of Earnings to  Combined Fixed Charges |
|    |                |   |
|    | 31.1                | Certification Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 of Thomas S. Johnson,  Chairman and Chief Executive Officer |
|    |                |   |
|    | 31.2                | Certification Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 of Jeffrey R. Leeds,  Executive Vice President and Chief Financial Officer |
|    |                |   |
|    | 32.1                | Certification Pursuant  to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Thomas S. Johnson, Chairman and Chief Executive  Officer |
|    |                |   |
|    | 32.2                | Certification Pursuant  to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Jeffrey R. Leeds, Executive Vice President and  Chief Financial Officer |

 

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**(b)           Reports onForm 8-K**

 

On July 15, 2003, GreenPoint Financial Corp., aDelaware corporation (the “Company”), filed a current report on Form 8-K inconnection with the issuance of a press release announcing second quarterresults for the period ended June 30, 2003.

On August 26, 2003, GreenPoint Mortgage Securities Inc. filed a current report on Form 8-K in connection with the following: GreenPoint Mortgage Securities Inc. (formerly known as Headlands Mortgage Securities Inc. (the “Registrant”)), is a wholly owned subsidiary of GreenPoint Mortgage Funding, Inc. (the “Company”). The Company is a wholly owned subsidiary of GreenPoint Financial Corp. (“GreenPoint Financial”), a national specialty housing finance company. GreenPoint Financial is listed on the New York Stock Exchange under the symbol “GPT.”  The Company’s present business operations were formed through the transfer to the Company effective October 1, 1999 of the assets and liabilities of Headlands Mortgage Company (“Headlands”). Simultaneously with this transfer, GreenPoint Mortgage Corp., a subsidiary of GreenPoint Financial specializing in non-conforming, no documentation loans, was merged into the Company. All of the mortgage operations of GreenPoint Financial are now conducted through the Company. In connection with this transfer, the stock of the Registrant was transferred by Headlands to the Company and the Registrant was renamed GreenPoint Mortgage Securities Inc. Copies of the Amended and Restated Certificate of Incorporation and By-Laws of the Registrant are filed herewith as Exhibits 3.1 and 3.2, respectively.

On August 26, 2003, GreenPoint Mortgage Securities Inc. (the “Company”)filed a currentreport on Form 8-K in connection with the filing of aprospectus and prospectus supplement with the Securities and ExchangeCommission relating to its GreenPoint Mortgage Securities Inc., GreenPointMortgage-Backed Pass-Through Certificates, Series 2003-1.

On August 27, 2003, GreenPoint Mortgage Securities Inc. (the “Company”) filed a currentreport on Form 8-K in connection with a previously registered offer and sale ofthe GreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2003-1(“Series 2003-1 Notes”).

On August 27, 2003,GreenPoint Mortgage Securities Inc. (the “Company”) filed a currentreport on Form 8-K in connection with a previously registered offer and sale ofthe GreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2003-1(“Series 2003-1 Notes”).

On August 28, 2003, GreenPoint Mortgage Securities Inc.filed a current report on Form 8-K enclosing the TaxOpinion and Consent of McKee Nelson LLP as they have acted as counsel forGreenPoint Mortgage Securities Inc., in connection with a registrationstatement on Form S-3 relating to the proposed offering from time to time byone or more trusts in one or more series of Mortgage Pass-Through Certificates.

On September 9, 2003, GreenPoint Mortgage Securities Inc. (the“Company”) filed a current report on Form 8-K in connection with entering intoa Pooling and Servicing Agreement dated as of August 1, 2003 (the “Agreement”)among the Company, in its capacity as sponsor (in such capacity, the“Sponsor”), GreenPoint Mortgage Funding, Inc., as seller and master servicer(in each such capacity together, the “Seller” and the “Master Servicer”) andJ.P. Morgan Chase Bank, as trustee (in such capacity, the “Trustee”). TheCertificates were issued on August 29, 2003.

On September 16,2003, GreenPoint Mortgage Securities Inc. (the “Company”) filed a current reporton Form 8-K in connection with the previously registered offer and sale of theGreenPoint Home Equity Loan Trust Asset-Backed Notes, Series 2003-1 (“Series2003-1 Notes”).

On September 17,2003, GreenPoint Mortgage Securities Inc. (the “Company”) filed a currentreport on Form 8-K in connection with the filing of an opinion (the “Opinion”)with the Securities and Exchange Commission relating to the Mortgage-BackedPass-Through Certificates, Series 2003-1 for incorporation by referenceinto the Registration Statement on Form S-3 (RegistrationNo. 333-83605).

 

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**GreenPointFinancial Corp. and Subsidiaries**

 

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|                    | GreenPoint Financial  Corp. |
|-------------------------|-----------------------------|
|                    |                        |   |
|                    |                        |   |
|                    | By:                         |  /s/ Thomas S.  Johnson |   |
|                    |                        | Thomas S. Johnson |   |
|                    |                        | Chairman of the Board  and |   |
|                    |                        | Chief Executive Officer |   |
|                    |                        |   |   |
|                    |                        |   |   |
|                    | By:                         |  /s/ Jeffrey R.  Leeds |   |
|                    |                        | Jeffrey R. Leeds |   |
|                    |                        | Executive Vice President  and |   |
|                    |                        | Chief Financial Officer |   |
|                    |                        |   |   |
|                    |                        |   |   |
|                    | By:                         |  /s/ Joseph D.  Perillo |   |
|                    |                        | Joseph D. Perillo |   |
|                    |                        | Senior Vice President  and |   |
|                    |                        | Controller |   |
|                    |                        |   |   |
|                    |                        |   |   |
| Dated November 14, 2003 |                        |   |   |

 

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