UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
--------------------
For the Quarter Ended
September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
0-22516
-------
Securities and Exchange Commission File Number
GreenPoint Financial Corp.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1379001
-------- ----------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
90 Park Avenue, New York, New York 10016
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 834-1711 Not Applicable
-------------- --------------
(Registrant's telephone number, (Former name, former address and former
including area code) fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
--- ---
As of November 11, 1996 there were 47,569,000 shares of common stock
outstanding.
<PAGE>
GreenPoint Financial Corp.
FORM 10-Q
For the Quarter Ended
September 30, 1996
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Consolidated Statements of Financial Condition (unaudited) as of
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (unaudited) for the quarters and
nine month periods ended September 30, 1996 and 1995 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited)
for the nine month periods ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (unaudited) for the nine month
periods ended September 30, 1996 and 1995 6
Notes to the Unaudited Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 24
Item 6 - Exhibits and Reports on Form 8-K 25
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------- -----------------
ASSETS (In thousands, except share amounts)
------
<S> <C> <C>
Cash and due from banks $ 67,408 $ 153,679
Money market investments 1,032,366 1,550,700
Loans receivable held for sale 6,780 175,052
Securities available for sale 4,486,671 5,896,505
Securities held to maturity (estimated fair value of $4,158
and $4,361 respectively) 4,160 4,307
Loans receivable held for investment:
Mortgage loans 6,909,062 5,992,776
Other loans 24,779 29,669
Deferred loan fees and unearned discount (51,298) (58,297)
Allowance for possible loan losses (105,000) (105,500)
------------ ------------
Loans receivable held for investment, net 6,777,543 5,858,648
------------ ------------
Accrued interest receivable, net 91,426 72,944
Banking premises and equipment, net 124,550 113,673
Deferred income taxes, net 101,570 70,134
Other real estate owned, net 28,753 29,245
Excess of cost over fair value of net assets acquired, net 635,230 670,201
Other assets 53,834 75,375
------------ ------------
Total assets $ 13,410,291 $ 14,670,463
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
N.O.W. and checking $ 487,834 $ 501,842
Savings and club 1,946,446 2,034,669
Variable rate savings 1,905,229 1,995,292
Money market 579,286 635,696
Term certificates of deposit 6,774,357 7,730,824
------------ ------------
Total deposits 11,693,152 12,898,323
------------ ------------
Mortgagors' escrow 80,733 58,935
Accrued interest payable 6,888 2,353
Accrued income taxes payable 26,956 7,618
Other liabilities 180,602 151,917
------------ ------------
Total liabilities 11,988,331 13,119,146
------------ ------------
Commitments and Contingencies
Preferred shares of subsidiary 3,500 --
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;
55,115,582 and 54,965,582 shares issued, respectively) 551 550
Additional paid-in capital 808,682 801,382
Unallocated Employee Stock Ownership Plan (ESOP) shares (119,860) (123,987)
Unearned stock plans shares (9,452) (9,838)
Retained earnings 1,012,928 942,137
Net unrealized (loss) gain on securities available for sale, net (45,762) 14,862
Treasury stock, at cost (7,459,481 and 2,748,200 shares, respectively) (228,627) (73,789)
------------ ------------
Total stockholders' equity 1,418,460 1,551,317
------------ ------------
Total liabilities and stockholders' equity $ 13,410,291 $ 14,670,463
============ ============
</TABLE>
(See the accompanying notes to the unaudited consolidated financial statements)
3
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgages $ 147,763 $ 133,605 $ 433,678 $ 393,086
Money market investments 15,685 8,937 60,431 21,040
Securities 74,966 12,841 240,549 28,824
Other loans 617 386 1,958 1,183
--------- --------- --------- ---------
Total interest income 239,031 155,769 736,616 444,133
--------- --------- --------- ---------
Interest expense:
Deposits 126,779 72,788 402,954 194,817
Short-term and other borrowing 127 -- 1,731 --
--------- --------- --------- ---------
Total interest expense 126,906 72,788 404,685 194,817
--------- --------- --------- ---------
Net interest income 112,125 82,981 331,931 249,316
Provision for possible loan losses (3,435) (3,789) (10,782) (11,964)
--------- --------- --------- ---------
Net interest income after provision for possible loan losses 108,690 79,192 321,149 237,352
--------- --------- --------- ---------
Non-interest income:
Income from fees and commissions:
Mortgage loan operations fee income 3,687 3,897 11,229 9,545
Mortgage servicing fees 1,993 2,385 6,375 7,639
Banking services fees and commissions 4,463 1,137 12,522 2,618
Securities lending fees 537 48 1,654 249
Other income 8 1,073 1,857 2,749
Net gain (loss) on securities 397 -- 751 (610)
Net gain on sales of loans 104 843 2,884 895
Gain on sale of branches -- -- 8,876 --
--------- --------- --------- ---------
Total non-interest income 11,189 9,383 46,148 23,085
--------- --------- --------- ---------
Non-interest expense:
Salaries and benefits 21,801 16,713 64,878 44,727
Employee Stock Ownership and stock plans expense 2,872 3,916 11,814 11,205
Net expense of premises and equipment 11,179 4,759 34,767 12,090
Advertising 1,799 1,152 5,998 3,434
Federal deposit insurance premiums (refund) 1,748 (155) 5,183 6,013
Charitable and educational foundation 1,882 576 4,294 1,726
Other administrative expenses 12,538 6,723 38,608 20,071
--------- --------- --------- ---------
Operating expense 53,819 33,684 165,542 99,266
--------- --------- --------- ---------
Other real estate owned operating income, net (501) (1,625) (451) (3,220)
Goodwill amortization 11,623 1,660 34,881 1,753
--------- --------- --------- ---------
Total non-interest expense 64,941 33,719 199,972 97,799
--------- --------- --------- ---------
Income before income taxes 54,938 54,856 167,325 162,638
Income taxes 20,891 24,652 68,771 74,579
--------- --------- --------- ---------
Net income $ 34,047 $ 30,204 $ 98,554 $ 88,059
========= ========= ========= =========
Earnings per share $ 0.79 $ 0.64 $ 2.22 $ 1.86
========= ========= ========= =========
</TABLE>
(See the accompanying notes to the unaudited consolidated financial statements)
4
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Common stock
Balance at beginning of period $ 550 $ 549
Issuance of common stock to stock plans 1 --
----------- -----------
Balance at end of period 551 549
----------- -----------
Additional paid-in capital
Balance at beginning of period 801,382 794,615
Issuance of common stock to stock plans 3,693 --
Amortization of ESOP shares committed to be released 3,205 2,300
Amortization of stock plans shares during the period 402 113
Tax benefit for vested RRP shares -- 900
Exercise of stock options -- 804
Adjustment to initial public offering issuance costs -- 1,226
----------- -----------
Balance at end of period 808,682 799,958
----------- -----------
Unallocated ESOP shares
Balance at beginning of period (123,987) (131,039)
Amortization of ESOP shares committed to be released 4,127 5,289
----------- -----------
Balance at end of period (119,860) (125,750)
----------- -----------
Unearned stock plans shares
Balance at beginning of period (9,838) (14,307)
Issuance of common stock to stock plans (3,694) --
Amortization of stock plans shares during the period 4,080 3,503
----------- -----------
Balance at end of period (9,452) (10,804)
----------- -----------
Retained earnings
Balance at beginning of period 942,137 871,374
Net income for the period 98,554 88,059
Dividends declared (26,056) (27,888)
Exercise of stock options from treasury stock (1,707) --
----------- -----------
Balance at end of period 1,012,928 931,545
----------- -----------
Net unrealized gain (loss) on securities available for sale, net
Balance at beginning of period 14,862 --
Net unrealized loss on securities available for sale (60,624) (1,486)
----------- -----------
Balance at end of period (45,762) (1,486)
----------- -----------
Treasury stock, at cost
Balance at beginning of period (73,789) --
Exercise of stock options from treasury stock 3,929 --
Purchase of treasury stock (158,767) (15,169)
----------- -----------
Balance at end of period (228,627) (15,169)
----------- -----------
Total stockholders' equity $ 1,418,460 $ 1,578,843
=========== ===========
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
5
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
-----------------------
1996 1995
----------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 98,554 $ 88,059
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for possible loan losses 10,782 11,964
Provision for potential declines in value of other real estate 1,213 33
Depreciation and amortization of premises and equipment 12,255 5,750
Accretion of discount, net of amortization of premium (56,117) (13,021)
ESOP and stock plans expense 11,814 11,205
Net (gain) loss on securities (751) 610
Net gain on sales of loans (2,884) (895)
Net gain on sales of other real estate owned (4,999) (6,000)
Net gain on sale of branches (8,876) --
Foreclosure expenses on other real estate (1,307) (1,589)
Goodwill amortization 34,881 1,753
Net change in loans held for sale 168,272 (169,368)
Decrease (increase) in other assets 21,452 (7,046)
Increase (decrease) in other liabilities 52,558 (35,434)
Other, net 10,650 (2,180)
----------- ---------
Net cash provided by (used in) operating activities 347,497 (116,159)
----------- ---------
Cash flows from investing activities:
Mortgage loan originations, net of principal repayments (1,181,079) (4,221)
Proceeds from sales of mortgages 247,078 1,124
Proceeds from sales of other real estate owned 12,648 19,920
Purchases of mortgage loans held for investment -- (116,866)
Repurchases of loans sold with recourse (2,079) (11,075)
Other loan originations, net of principal repayments 4,890 (3,092)
Purchases of securities available for sale (5,444,177) --
Purchase of securities held to maturity (931) (1,276)
Proceeds from maturities of securities available for sale 3,898,250 150,165
Proceeds from maturities of securities held to maturity -- 479,000
Sales of securities available for sale 2,707,838 --
Principal repayments on securities available for sale 194,566 3,264
Purchases of premises and equipment (23,132) (5,630)
Net cash received in branch transactions -- 453,977
----------- ---------
Net cash provided by investing activities 413,872 965,290
----------- ---------
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
6
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Cash flows from financing activities:
Net withdrawals from depositors' accounts (1,052,437) (73,437)
Deposits sold (152,734) --
Payments for cash dividends (26,056) (27,888)
Net increase in mortgagors' escrow 21,798 17,625
Exercise of stock options 2,222 804
Purchase of treasury stock (158,767) (15,169)
----------- -----------
Net cash used in financing activities (1,365,974) (98,065)
----------- -----------
Net (decrease) increase in cash and cash equivalents (604,605) 751,066
Cash and cash equivalents at beginning of period 1,704,379 293,270
----------- -----------
Cash and cash equivalents at end of period $ 1,099,774 $ 1,044,336
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 21,512 $ 9,612
=========== ===========
Non-cash investing and financing activities:
Additions to other real estate owned, net $ (492) $ 19,111
=========== ===========
Loans to facilitate sales of other real estate $ 13,216 $ 23,092
=========== ===========
Interest credited on deposits $ 407,489 $ 211,468
=========== ===========
</TABLE>
In addition to the non-cash investing and financing activities previously
stated, during the quarter ended September 30, 1995, GreenPoint Bank purchased
selected assets and assumed selected liabilities of Barclays/American Mortgage
Corp. (BAM) for $7.09 million, and also acquired approximately $8.14 billion of
deposits and 60 New York branches of Home Savings of America, FSB ("HSA").
<TABLE>
<S> <C>
Fair value of net assets acquired, principally cash, cash equivalents and securities $ 7,462,380
Excess of cost over fair value of net assets acquired 685,039
Cash paid in BAM transaction (7,088)
-----------
Liabilities assumed, principally deposits $ 8,140,331
===========
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
7
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited consolidated financial statements of GreenPoint Financial Corp.
and Subsidiaries ("GreenPoint" or the "Company") are prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the Company's interim financial
condition as of the dates indicated and the results of operations for the
periods presented have been included. The results of operations for the interim
periods shown are not necessarily indicative of results that may be expected for
the entire year.
The unaudited consolidated interim financial statements presented herein should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report to shareholders for the period
ended December 31, 1995.
2. Stock Incentive Plan
During the nine months ended September 30, 1996, GreenPoint granted 375,000
shares of the Company's common stock to certain executive officers pursuant to
plans approved by the Company's shareholders in 1994. These shares vest ratably
over five years on the anniversary dates of the awards. The market price at the
grant date was $24.63.
For the nine month period ended September 30, 1996, the Company granted options
of 215,000 shares of the Company's common stock to certain officers, at an
average exercise price of $31.07. These awards vest ratably over five years on
the anniversary dates of the awards.
3. Common Stock Repurchase Program
Under the second 1996 5% stock repurchase announced in July, the Company has
used $82.0 million to repurchase shares of GreenPoint common stock. The current
program has not yet been completed. The repurchase is at the Company's
discretion, based on ongoing assessments of the capital needs of the business
and the market valuation of its stock.
8
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Securities Available for Sale and Held to Maturity
Securities held at September 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
U.S. Government and Federal Agency
Obligations:
U.S. Treasury notes/bills $1,738,626 $100 $(23,268) $1,715,458
Agency discount notes 51,551 3 -- 51,554
Mortgage-backed securities 2,298,606 27 (53,716) 2,244,917
Trust certificates collateralized by GNMA
securities 416,891 -- (5,343) 411,548
Other 64,052 -- (858) 63,194
---------- ---- -------- ----------
Total securities available for sale $4,569,726 $130 $(83,185) $4,486,671
========== ==== ======== ==========
Securities Held to Maturity
Tax exempt municipals $ 660 $-- $ (2) $ 658
Other 3,500 -- -- 3,500
---------- ---- -------- ----------
Total securities held to maturity $ 4,160 $-- $ (2) $ 4,158
========== ==== ======== ==========
</TABLE>
Securities held at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
U.S. Government and Federal Agency
Obligations:
U.S. Treasury notes/bills $1,352,276 $ 4,004 $ -- $1,356,280
Agency discount notes 2,417,009 55 (88) 2,416,976
Mortgage-backed securities 1,668,847 24,979 -- 1,693,826
Trust certificates collateralized by GNMA
securities 430,340 285 (1,753) 428,872
Other 550 1 -- 551
---------- ------- ------- ----------
Total securities available for sale $5,869,022 $29,324 $(1,841) $5,896,505
========== ======= ======= ==========
Securities Held to Maturity
Tax exempt municipals $ 675 $ 54 $ -- $ 729
Other 3,632 -- -- 3,632
---------- ------- ------- ----------
Total securities held to maturity $ 4,307 $ 54 $ -- $ 4,361
========== ======= ======= ==========
</TABLE>
Estimated fair values for securities are based on published market or
securities dealers' estimated prices.
During the quarter ended September 30, 1996, the Company sold available-for-sale
securities aggregating $1.4 billion, resulting in gross realized gains of $0.2
million and no realized losses.
The average maturities of the securities available for sale and held to maturity
at September 30, 1996 are approximately 10.8 years and 11.3 years, respectively.
Mortgage-backed securities, almost all of which have contractual maturities of
more than 10 years, are subject to scheduled and non-scheduled principal
payments which shorten the average life to an estimated 6.5 years. The estimated
average life for all securities available for sale is approximately 4.6 years.
9
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Restructuring Reserve
In December 1995, the Company recorded a pre-tax restructuring charge of $8.0
million that reflects actions taken during the fourth quarter of 1995 and
taken and to be taken during 1996 to improve operating efficiency. The charge
included employee severance benefits, costs associated with planned branch
consolidations and fixed asset write downs. At September 30, 1996 the reserve
balance associated with this charge was approximately $3.0 million of which
$0.6 million related to severance and $2.4 million related to the disposition
of certain facilities, premises and equipment and termination of leases.
10
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------
Sept. 30, Jun. 30, Mar. 31, Dec. 31, Sept. 30,
1996 1996 1996 1995 1995
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Performance Ratios (Annualized):
Core cash earnings return on average assets 1.42% 1.36%(1) 1.18% 0.95% 1.88%
Core cash earnings return on average equity 13.55 13.04(1) 11.12 9.11 9.17
Return on average assets 1.00 0.90(1) 0.75 0.52 1.59
Return on average equity 9.51 8.64(1) 7.04 5.00 7.74
Return on average tangible equity (2) 16.08 14.62(1) 12.42 8.95 8.08
Net interest margin 3.61 3.45 3.16 2.96 4.53
Net interest spread during period 3.34 3.20 2.87 2.68 3.59
Operating expense to average assets (3) 1.58 1.56 1.53 1.64 1.77
Efficiency ratio (4) 43.6 43.7(5) 47.3 53.4 36.5
Average interest-earning assets to average interest-
bearing liabilities 1.07 x 1.06 x 1.07 x 1.07 x 1.24 x
Capital Ratios:
Company:
Period-end stockholders' equity to ending total assets 10.58% 10.36% 10.58% 10.57% 10.48%
Period-end stockholders' equity less intangible assets
To tangible Assets 6.13 6.07 6.31 6.29 6.21
Bank Regulatory Capital Ratios:
Leverage capital (6) 6.26 6.31 6.33 6.11 12.30
Risk-based capital ratios (6):
Tier 1 15.42 16.35 16.73 16.05 15.40
Total capital 16.67 17.60 17.98 17.30 16.65
Per Share Data:
Core cash earnings* $1.13 $1.09(1) $0.95 $0.77 $0.75
Book value** $33.89 $33.65 $33.35 $34.25 $33.28
Tangible book value** $18.72 $18.80 $18.99 $19.44 $18.82
*Average shares used in calculation 43,138,000 44,664,000 45,653,000 46,171,000 47,428,000
**Period-end shares used in calculation 41,849,000 43,573,000 45,898,000 45,298,000 47,445,000
Total shares issued and outstanding 47,656,000 49,924,000 52,457,000 52,217,000 54,337,000
Asset Quality Ratios:
Non-performing loans to total loans 5.21% 5.77% 6.25% 6.49% 6.50%
Non-performing assets to total assets 2.91 2.86 2.94 2.94 2.84
Allowance for possible loans losses to:
Non-performing loans 29.05 28.07 26.49 26.24 26.62
Loans held for investment 1.51 1.63 1.73 1.75 1.78
<CAPTION>
Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
1996 1995
--------- ---------
<S> <C> <C>
Performance Ratios (Annualized):
Core cash earnings return on average assets 1.32%(1) 1.88%
Core cash earnings return on average equity 12.54(1) 8.73
Return on average assets 0.88(1) 1.64
Return on average equity 8.36(1) 7.61
Return on average tangible equity (2) 14.35(1) 7.72
Net interest margin 3.41 4.79
Net interest spread during period 3.14 3.82
Operating expense to average assets (3) 1.56 1.85
Efficiency ratio (4) 44.8(5) 36.4
Average interest-earning assets to average interest-
bearing liabilities 1.07 x 1.26 x
</TABLE>
(1) Excludes $5.1 million after tax gain on branch sale.
(2) Average tangible equity has been calculated in accordance with regulatory
guidelines.
(3) Excludes goodwill expense and OREO (income) or expense.
(4) The efficiency ratio is calculated by dividing the Company's operating
expense excluding goodwill expense and OREO (income) or expense by the sum
of net interest income and non-interest income.
(5) Excludes $8.9 million pre-tax gain on branch sale.
(6) These ratios are calculated using regulatory guidelines which exclude the
impact on stockholders' equity resulting from the adoption of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115").
11
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
1. General
The Bank has historically operated as a traditional consumer-oriented
institution serving the markets in which its branches are located. Management's
objective has been to become a major niche loan originator in the national
residential mortgage market and to become a major consumer banking force within
the attractive, rapidly consolidating New York metropolitan consumer banking
market.
GreenPoint regularly explores opportunities for acquisitions of and holds
discussions with financial institutions and related businesses, and also
regularly explores opportunities for acquisitions of liabilities and assets of
financial institutions, and other financial service providers. The Company
routinely analyzes its lines of business and from time to time may increase,
decrease or terminate one or more of its activities.
2. Operating Results
Third quarter's results include the following:
o GreenPoint Mortgage Corp. (GPMC) opened regional mortgage production
offices in Washington, D.C., Boston and Miami.
o The Company's loan originations continued on their upward track, rising to
$707 million for the quarter. The rise in loan originations resulted in a
$478 million net increase in the loan portfolio.
o Asset quality improved as non-performing loans and non-performing assets
continued to decline. The ratio of non-performing loans to total loans fell
to the lowest level in more than seven years during the quarter.
o Net interest margin increased to 3.61%, primarily from a decrease in cost
of deposits, and reinvestment of funds from the investment portfolio into
higher yielding mortgage loans.
Net income for the quarter ended September 30, 1996 was $34.0 million, or $0.79
per share, a 12.7% increase over the $30.2 million, or $0.64 per share, for the
comparable 1995 period. Net income in the first nine months of 1996 was $98.6
million, or $2.22 per share, compared to $88.1 million, or $1.86 per share, for
the 1995 period. The nine months results include an after-tax gain of $5.1
million on the sale of the Company's two banking offices in Rockland County, New
York. Excluding the branch sale gain, the nine months ended results were $93.5
million, or $2.10 per share, a 6.1% increase over the comparable 1995 period.
12
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Net Interest Income
Net interest income increased by $29.1 million, or 35.1%, in the third quarter
of 1996, and $82.6 million, or 33.1%, in the first nine months of 1996, versus
the comparable periods in 1995. The improvements in both 1996 periods from the
prior year were primarily due to an increase in average interest earning assets,
partially offset by the increase in average interest bearing liabilities.
Interest income increased by $83.2 million, or 53.5%, to $239.0 million in the
third quarter of 1996, and $292.5 million, or 65.9%, to $736.6 million in the
first nine months of 1996, from $155.8 million and $444.1 million, respectively
for the 1995 periods. The primary reason for the increases was the deployment of
funds received in the HSA branch acquisition into money market investments and
securities.
Interest income on money market investments increased by $6.8 million to $15.7
million in the third quarter of 1996, and $39.4 million to $60.4 million in the
first nine months of 1996, from $8.9 million and $21.0 million, respectively,
for the comparable 1995 periods. The increase was partially offset by lower
short-term interest rates during 1996 that caused a 57 basis point decrease in
the average yield in the first nine months of 1996, compared to 1995.
Interest income on securities rose by $62.1 million to $74.9 million for the
quarter ended September 30, 1996, and $211.7 million to $240.5 million in the
first nine months of 1996, from $12.8 million and $28.8 million, respectively,
for the comparable periods of 1995. The increases are primarily the result of
investing the majority of the funds received in the HSA branch acquisition into
various types of securities which increased the average balance by $3.91 billion
in the third quarter of 1996, and $4.58 billion in the first nine months of
1996, versus the same periods in 1995. A greater investment in higher yielding
securities resulted in a 64 basis point increase in the average yield for the
current quarter, and a 55 basis point increase in the first nine months of 1996,
compared to 1995.
Interest income on mortgages increased by $14.2 million to $147.8 million in the
third quarter of 1996, and $40.6 million to $433.7 million in the first nine
months of 1996, from $133.6 million and $393.1 million, respectively, for the
comparable 1995 periods. The increase reflects higher average balances of $766.1
million, or 13.1%, in the third quarter of 1996, and $584.5 million, or 10.2%,
in the first nine months of 1996, principally as a result of retained no-doc
loan origination volume generated by GPMC. The higher volume in loan
originations during the first nine months of 1996 out paced scheduled
amortizations and prepayments.
Interest expense increased by $54.1 million to $126.9 million in the third
quarter of 1996, and $209.9 million to $404.7 million in the first nine months
of 1996, from $72.8 million and $194.8 million, respectively, for the comparable
1995 periods. The higher interest expense is primarily the result of the
inclusion of the deposits assumed in the HSA branch acquisition in the quarterly
and nine month ended average balances.
13
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Interest expense on time deposits increased by $34.3 million to $89.9 million in
the third quarter of 1996, and $145.4 million to $291.0 million in the first
nine months of 1996, from $55.6 million and $145.6 million, respectively, for
the comparable 1995 periods. The rise in interest expense reflects an increase
in the average balances of $3.20 billion in the third quarter of 1996, and $3.93
billion in the first nine months of 1996, resulting from the HSA branch
acquisition.
Interest expense on savings accounts increased by $8.6 million to $13.8 million
in the third quarter of 1996, and $27.7 million to $41.7 million in the first
nine months of 1996, from $5.2 million and $14.0 million, respectively, for the
comparable 1995 periods. The rise in interest expense reflects an increase in
the average balances of $1.28 billion in the third quarter of 1996, and $1.39
billion in the first nine months of 1996, versus the same periods in 1995.
14
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Average Balance Sheets and Interest Yield/Cost
The following table sets forth certain information relating to the Company's
average statements of financial condition (unaudited) and statements of income
(unaudited) for the quarters ended September 30, 1996 and 1995, and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such annualized yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from average daily balances. Average
balances and yields include non-accrual loans. The yields and costs include fees
which are considered adjustments to yields.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------
September 30, 1996 September 30, 1995
------------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ----------- --------- ----------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans (1) $ 6,604,355 $ 147,763 8.95 $ 5,838,270 $ 133,605 9.15%
Other loans (1) 29,710 617 8.31 22,363 386 6.90
Money market investments (2) 1,163,117 15,685 5.39 603,773 8,937 5.87
Securities 4,809,348 76,296 6.32 896,704 12,841 5.68
----------- ----------- ----------- -----------
Total interest-earning assets 12,606,530 240,361 7.62 7,361,110 155,769 8.46
----------- -----------
Non-interest earning assets (3) 1,040,635 259,099
----------- -----------
Total assets $13,647,165 $ 7,620,209
=========== ===========
Liabilities & Stockholders' Equity:
Interest-bearing liabilities:
Savings $ 1,967,639 13,840 2.80 $ 683,754 5,212 3.02%
NOW 330,572 1,523 1.83 128,807 680 2.09
Money market and variable rate savings 2,520,898 21,256 3.35 1,340,498 10,960 3.24
Term certificates of deposit 6,903,661 89,916 5.18 3,702,188 55,605 5.96
Mortgagors' escrow 75,869 244 1.28 74,145 331 1.77
Repurchase agreements 9,292 127 5.44 -- -- --
----------- ----------- ----------- -----------
Total interest-bearing liabilities 11,807,931 126,906 4.28 5,929,392 72,788 4.87
----------- -----------
Other liabilities (4) 405,841 129,676
----------- -----------
Total liabilities 12,213,772 6,059,068
Preferred shares of subsidiary 685 --
Stockholders' equity 1,432,708 1,561,141
----------- -----------
Total liabilities & stockholders' equity $13,647,165 $ 7,620,209
=========== ===========
Net interest income/interest rate spread (5) $ 113,455 3.34% $ 82,981 3.59%
=========== ===== =========== =====
Net interest-earning assets/net interest margin (6) $ 798,599 3.61% $ 1,431,718 4.53%
=========== ===== =========== =====
Ratio of interest-earning assets to
interest-bearing liabilities 1.07x 1.24x
===== =====
</TABLE>
- ----------
(1) In computing the average balances and average yield on loans, non-accruing
loans and loans held for sale have been included.
(2) Includes overnight federal funds sold and securities purchased under resale
agreements.
(3) Includes banking premises and equipment - net, net deferred tax assets,
accrued interest receivable, and other miscellaneous non-interest earning
assets.
(4) Includes accrued interest payable, accounts payable, official checks drawn
against the bank, accrued expenses, and other miscellaneous
non-interest-bearing obligations of the Company.
(5) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income on a tax equivalent
basis before the provision for possible loan losses divided by average
interest-earning assets.
15
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Average Balance Sheets and Interest Yield/Cost
The following table sets forth certain information relating to the Company's
average statements of financial condition (unaudited) and statements of income
(unaudited) for the nine months ended September 30, 1996 and 1995, and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such annualized yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from average daily balances. Average
balances and yields include non-accrual loans. The yields and costs include fees
which are considered adjustments to yields.
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------------------------------
September 30, 1996 September 30, 1995
------------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ----------- --------- ----------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans (1) $ 6,335,371 $ 433,678 9.13% $ 5,750,873 $ 393,086 9.11%
Other loans (1) 32,521 1,958 8.03 21,900 1,183 7.20
Money market investments (2) 1,496,022 60,431 5.40 471,376 21,040 5.97
Securities 5,256,504 244,336 6.22 679,284 28,824 5.67
------------- --------- ----------- ----------
Total interest-earning assets 13,120,418 740,403 7.53 6,923,433 444,133 8.56
--------- ----------
Non-interest earning assets (3) 1,047,857 234,844
------------- -----------
Total assets $ 14,168,275 $ 7,158,277
============= ===========
Liabilities & Stockholders' Equity:
Interest-bearing liabilities:
Savings $ 1,994,870 41,692 2.79% $ 604,331 13,981 3.09%
NOW 334,295 4,593 1.84 114,979 1,809 2.10
Money market and variable rate savings 2,574,198 64,947 3.37 1,351,292 32,442 3.21
Term certificates of deposit 7,275,109 290,974 5.34 3,347,033 145,611 5.82
Mortgagors' escrow 77,938 748 1.28 77,303 974 1.68
Repurchase agreements 61,087 1,731 3.79 --- --- ---
------------- --------- ----------- ----------
Total interest-bearing liabilities 12,317,497 404,685 4.39 5,494,938 194,817 4.74
--------- ----------
Other liabilities (4) 360,376 120,994
------------- -----------
Total liabilities 12,677,873 5,615,932
Preferred shares of subsidiary 344 ---
Stockholders' equity 1,490,058 1,542,345
------------- -----------
Total liabilities & stockholders' equity $ 14,168,275 $ 7,158,277
============= ===========
Net interest income/interest rate spread (5) $ 335,718 3.14% $ 249,316 3.82%
========= ===== ========== =====
Net interest-earning assets/net interest margin (6) $ 802,921 3.41% $ 1,428,495 4.79%
============= ===== =========== =====
Ratio of interest-earning assets to
interest-bearing liabilities 1.07x 1.26x
===== =====
</TABLE>
- ----------
(1) In computing the average balances and average yield on loans, non-accruing
loans and loans held for sale have been included.
(2) Includes overnight federal funds sold and securities purchased under resale
agreements.
(3) Includes banking premises and equipment - net, net deferred tax assets,
accrued interest receivable, and other miscellaneous non-interest earning
assets.
(4) Includes accrued interest payable, accounts payable, official checks drawn
against the bank, accrued expenses, and other miscellaneous
non-interest-bearing obligations of the Company.
(5) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income on a tax equivalent
basis before the provision for possible loan losses divided by average
interest-earning assets.
16
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Rate/Volume Analysis
The following table presents the effects of changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities on
the Company's interest income on a tax equivalent basis and interest expense
during the periods indicated. Information is provided in each category on
changes (i) attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
volume and rate.
<TABLE>
<CAPTION>
Quarter Ended September 30, 1996 Nine Months Ended September 30, 1996
Compared to Compared to
Quarter Ended September 30, 1995 Nine Months Ended September 30, 1995
Increase/(Decrease) Increase/(Decrease)
-------------------------------------- ---------------------------------------
Due to Due to
------------------------- -------------------------
Average Average Net Average Average Net
Volume Rate Change Volume Rate Change
----------- ---------- --------- ---------- ---------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $ 17,197 $ (3,039) $ 14,158 $ 40,010 $ 582 $ 40,592
Other loans (1) 142 89 231 625 150 775
Money market investments (2) 7,607 (859) 6,748 41,573 (2,182) 39,391
Securities 63,194 261 63,455 215,208 304 215,512
----------- ---------- --------- ---------- ---------- ---------
Total interest-earning assets 88,140 (3,548) 84,592 297,416 (1,146) 296,270
----------- ---------- --------- ---------- ---------- ---------
Interest-bearing liabilities:
Savings 9,060 (432) 8,628 29,187 (1,476) 27,711
NOW 940 (97) 843 3,040 (256) 2,784
Money market and variable rate savings 9,943 353 10,296 30,774 1,731 32,505
Term certificates of deposit 42,548 (8,237) 34,311 157,993 (12,630) 145,363
Mortgagors' escrow 8 (95) (87) 8 (234) (226)
Repurchase agreements 127 --- 127 1,731 --- 1,731
----------- ---------- --------- ---------- ---------- ---------
Total interest-bearing liabilities 62,626 (8,508) 54,118 222,733 (12,865) 209,868
----------- ---------- --------- ---------- ---------- ---------
Net change in net interest income $ 25,514 $ 4,960 $ 30,474 $ 74,683 $ 11,719 $ 86,402
=========== ========== ========= ========== ========== =========
</TABLE>
- ----------
(1) In computing the volume and rate components of net interest income for
loans, non-accrual loans and loans held for sale have been included.
(2) Includes overnight federal funds and securities purchased under resale
agreements.
17
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Provision for Possible Loan Losses
The provision for possible loan losses decreased by $0.4 million, or 9.3%, to
$3.4 million in the third quarter of 1996, from $3.8 million, in the same period
in 1995. For the first nine months of 1996, the provision for possible loan
losses decreased by $1.2 million, or 9.9%, to $10.8 million as compared to $12.0
million during the same period in 1995. The provision is the result of
management's assessment of the loan portfolio in view of the state of the
regional and national economies, trends in the real estate market of the
Company's primary lending areas and trends in the level of the Company's
non-performing loans and assets.
Non-Interest Income
Non-interest income increased by $1.8 million in the third quarter of 1996 and
$23.1 million in the first nine months of 1996, as compared to the same periods
in 1995. Banking services fees and commissions increased by $3.3 million in the
third quarter of 1996, and $9.9 million in the first nine months of 1996, versus
comparable periods in 1995. This increase is primarily due to additional fee
income generated from the operations of the 60 former HSA branches. Net gain on
the sale of securities rose $0.4 million in the third quarter of 1996, and $1.4
million in the first nine months of 1996, versus comparable periods in 1995.
Mortgage loan operations fee income increased by $1.7 million in the first nine
months of 1996, as compared to the same period in 1995. The increase in mortgage
loan operations fee income reflects a rise in loan originations which was
partially offset by an increase of $4.3 million, for loan origination fee and
expense deferrals required under FAS 91. The nine months ended results include a
pre-tax gain of $8.9 million on the sale of the Company's two banking offices in
Rockland County, New York.
Non-Interest Expense
Non-interest expense increased by $31.2 million to $64.9 million in the third
quarter of 1996, and $102.2 million to $199.9 million, in the first nine months
of 1996, as compared to the same periods in 1995. The 1995 BAM and HSA
acquisitions resulted in increases to operating expenses for the first nine
months of 1996. Amortization of goodwill increased by $10.0 million in the third
quarter of 1996, and $33.1 million in the first nine months of 1996, as compared
to the same periods in 1995. Salaries and benefits increased by $5.1 million in
the third quarter of 1996, and $20.2 million, in the first nine months of 1996,
as compared to the same periods in 1995, which was partially offset by a $4.2
million reduction due to expense deferrals required by FAS 91. For the 1996
period net expense of premises and equipment increased by $6.4 million and $22.7
million, respectively. Other administrative expenses increased by $5.8 million
to $12.5 million in the third quarter of 1996, and $18.5 million to $38.6
million, in the first nine months of 1996 as compared to the same periods in
1995.
18
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Income Tax Expense
Income tax expense decreased by $3.8 million, or 15.3%, to $20.9 million in the
third quarter of 1996, from $24.7 million for the same period of 1995. For the
nine months ended September 30, 1996, income tax expense decreased by $5.8
million, or 7.8%, to $68.8 million from $74.6 million for the comparable 1995
period. The decline in income tax expense includes a cumulative reduction in the
overall income tax rate from 45.9% in the 1995 period to 41.1% for the 1996
period, reflecting a revision of management's estimate of the Company's ongoing
effective tax rate. This revision reflects a series of business initiatives
implemented during 1996.
3. Financial Condition
Total assets decreased by $1.26 billion to $13.41 billion at September 30, 1996
from $14.67 billion at December 31, 1995. Total loans held for investment, net,
rose $918.9 million to $6.78 billion at September 30, 1996 from $5.86 billion at
December 31, 1995. The Company's loans held for sale portfolio decreased $168.3
million during the nine months ended September 30, 1996, as a result of the
Company retaining its GPMC loans in portfolio rather than holding them for sale
to third parties. Securities available for sale decreased $1.41 billion to $4.49
billion at September 30, 1996 from $5.90 billion at December 31, 1995, primarily
as a result of the usage of proceeds from the maturities and sales of securities
to fund deposit outflows and loan originations.
Core Cash Earnings
GreenPoint's operating results include significant amortization of goodwill and
employee stock compensation plans expense. These non-cash expenditures, unlike
all other expenses reported by the Company, result in net increases in
GreenPoint's tangible capital and related core cash earnings. Additional core
cash earnings enable the Company to pursue increases in shareholder value
through growth of earning assets, increases of cash dividends, and additional
repurchases of the Company's stock.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------------------------- -----------------------------
September 30, June 30, September 30, September 30, September 30,
1996 1996 1995 1996 1995
------------- -------- ------------- ------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Income $ 34,047 $ 37,155 $ 30,204 $ 98,554 $ 88,059
Less: Gain on sale of branches,
net of tax -- 5,095 -- 5,095 --
-------- -------- -------- -------- --------
Core net income 34,047 32,060 30,204 93,459 88,059
Add back:
Goodwill expense 11,623 11,630 1,660 34,881 1,753
Employee stock plans expense 2,872 4,699 3,916 11,814 11,205
-------- -------- -------- -------- --------
Core cash earnings $ 48,542 $ 48,389 $ 35,780 $140,154 $101,017
======== ======== ======== ======== ========
Core cash earnings per share (*) $ 1.13 $ 1.09 $ 0.75 $ 3.15 $ 2.14
======== ======== ======== ======== ========
</TABLE>
* Based on the average shares used to calculate earnings per share.
19
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Interest Rate Sensitivity Gap Analysis
The table below depicts the Company's interest rate sensitivity as of September
30, 1996. Allocations of assets and liabilities, including non interest-bearing
sources of funds, to specific periods are based upon management's assessment of
contractual or anticipated repricing characteristics, adjusted periodically to
reflect actual experience. Those gaps are then adjusted for the net effect of
off-balance sheet financial instruments such as interest rate swaps.
<TABLE>
<CAPTION>
Repricing Periods
-----------------------------------------------------------------------------------
More than More than More than
Three months three months six months one year More than
or less to six months to one year to three years three years Total
------------ ------------- ---------------- -------------- ----------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Total loans, net $ 981 $ 689 $ 1,050 $ 1,112 $ 2,953 $ 6,785
Money market investments (1) 1,032 -- -- -- -- 1,032
Securities - held for maturity -- -- -- -- 4 4
Securities - available for sale 815 166 565 1,004 1,936 4,486
------- ------- ------- ------- ------- -------
Total interest - earning assets 2,828 855 1,615 2,116 4,893 12,307
------- ------- ------- ------- ------- -------
Cash and due from banks 67 -- -- -- -- 67
Excess of cost over fair value of net
assets acquired, net -- -- -- -- 635 635
Other non-interest earning assets 401 -- -- -- -- 401
------- ------- ------- ------- ------- -------
Total assets $ 3,296 $ 855 $ 1,615 $ 2,116 $ 5,528 $13,410
======= ======= ======= ======= ======= =======
Term certificates $ 1,605 $ 1,498 $ 1,949 $ 1,455 $ 267 $ 6,774
Core deposits 259 259 518 1,866 2,017 4,919
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 1,864 1,757 2,467 3,321 2,284 11,693
------- ------- ------- ------- ------- -------
Other liabilities 295 -- -- -- -- 295
Preferred shares of subsidiary -- -- -- -- 4 4
Stockholders' equity -- -- -- -- 1,418 1,418
------- ------- ------- ------- ------- -------
Total liabilities and stockholders' equity $ 2,159 $ 1,757 $ 2,467 $ 3,321 $ 3,706 $13,410
======= ======= ======= ======= ======= =======
Off balance sheet financial instrument $ 300 $--- $--- $--- $ (300) $---
======= ======= ======= ======= ======= =======
Interest rate sensitivity gap $ 1,437 $ (902) $ (852) $(1,205) $ 1,522
Cumulative gap $ 1,437 $ 535 $ (317) $(1,522) $--
Interest rate sensitivity gap as a percentage of
total assets 10.71% -6.73% -6.35% -8.99% --
Cumulative gap as a percentage of
total assets 10.71% 3.99% -2.36% -11.35% --
</TABLE>
(1) Consists of overnight federal funds sold and securities purchased under
agreements to resell.
20
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Interest Rate Risk Management
Interest rate risk is defined as the sensitivity of the Company's current and
future earnings to changes in the level of market interest rates. It arises in
the ordinary course of the Company's business, as the repricing characteristics
of its mortgage loans do not match those of its deposit liabilities. The
resulting interest rate risk is managed by adjustments to the Company's
investment portfolio and through the use of off balance sheet instruments such
as interest rate swaps and options.
Management responsibility for interest rate risk resides with the Asset and
Liability Management Committee ("ALCO"). The committee is comprised of the
Chairman and Chief Executive Officer, the Vice Chairman and the Company's senior
business-unit and financial executives. Interest rate risk management strategies
are formulated and monitored by ALCO within policies and limits approved by the
Board of Directors. These policies and limits set forth the maximum risk which
the Board of Directors deems prudent, govern permissible investment securities
and off balance sheet instruments and identify acceptable counter parties to
securities and off balance sheet transactions.
ALCO risk management strategies allow for the assumption of interest rate risk
within the Board approved limits. The strategies are formulated based upon
ALCO's assessments of likely market developments and trends in the Company's
mortgage and consumer banking businesses. Strategies are developed with the aim
of enhancing the Company's net income and capital, while ensuring the risks to
income and capital from adverse movements in interest rates are acceptable.
In assessing various interest rate risk strategies, ALCO makes use of a variety
of risk measures. One such measure is the consolidated gap analysis reported
above as of September 30, 1996. Assets and liabilities are allocated to the
various maturities in accordance with the earlier of their contractual maturity
or repricing dates. For mortgage loans and mortgage-backed securities, estimates
of scheduled amortization plus prepayments are used, rather than contractual
maturity. For assets and liabilities with indefinite repricing schedules,
notably core deposits, the gap analysis reflects ALCO's judgements of likely
repricing behavior.
As indicated in the gap analysis, the twelve-month cumulative gap, representing
the total net assets and liabilities that are projected to reprice over the next
twelve months, was liability sensitive $317.0 million at September 30, 1996. A
liability sensitive interest rate gap would tend to decrease earnings over a
period of rising interest rates, where declining rates would increase earnings.
The cumulative one-year sensitivity gap was negative 2.4% of total assets at
September 30, 1996, compared to positive 6.4% at December 31, 1995.
The use of interest rate instruments such as interest rate swaps are integrated
into the Company's interest rate risk management. The notional amounts of these
instruments are not reflected in the Company's balance sheet. However, these
instruments are included in the interest rate sensitivity table for purposes of
analyzing interest rate risk.
21
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
During the quarter ended September 30, 1996, the Company entered into interest
rate swaps, with a total notional amount of $300 million, to reduce the
Company's overall interest rate risk arising from its origination of fixed rate
mortgages. These instruments are considered derivative financial instruments
held for purposes other than trading and the effects of these instruments are
reported as an adjustment to mortgage loan income. The unrealized gains or
losses on these instruments are not recorded on the balance sheet, since they
are used as a hedge against held-to-maturity loans. For the quarter ended
September 30, 1996, the interest rate swaps had negative $0.2 million impact on
mortgage loan income. The interest rate swaps require the Company to pay a
weighted average fixed rate of 6.33% and receive three month LIBOR. As of
September 30, 1996, the weighted average LIBOR rate that the Company will
receive is 5.55%. The agreements will expire in the third quarter of 1999. As of
the quarter ended September 30, 1996 the interest rate swaps had a gross
positive market value of $0.5 million, and a gross negative market value of $0.1
million. The Company has a policy to enter into mutual collateral agreements
with each counter party, which requires either party to submit U.S. Government
or U.S. Government Agency collateral when the market value of the instrument
reaches a predetermined threshold.
Non-Performing Assets
The Company improved its asset quality during the nine months ended September
30, 1996, as non-performing loans decreased by $40.7 million, or 10.1%, while
non-performing assets decreased by $41.2 million, or 9.5%. The ratio of
non-performing loans to total loans fell to 5.21% at September 30, 1996 from
6.49% at December 31, 1995. The ratio of non-performing assets to total assets
fell to 2.91% at September 30, 1996 from 2.94% at December 31, 1995.
Non-performing assets, net of related specific reserves, were as follows:
September 30, December 31,
1996 1995
------------- ------------
(In thousands)
Mortgage loans secured by:
Residential one-to-four family mortgages $269,048 $291,589
Residential multi-family mortgages 52,717 61,594
Commercial property mortgages 39,659 48,911
Other loans 10 4
-------- --------
Total non-performing loans (1) 361,434 402,098
-------- --------
Total other real estate owned, net 28,753 29,245
-------- --------
Total non-performing assets $390,187 $431,343
======== ========
(1) Includes $35.4 million and $42.3 million of non-accrual mortgage loans
under 90 days past due at September 30, 1996 and December 31, 1995,
respectively.
22
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Allowance for Possible Loan Losses
The following is a summary of the provision and allowance for possible loan
losses:
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(In thousands)
Balance beginning of period $ 105,000 $ 105,500 $ 105,500 $ 103,000
Provision charged to income 3,435 3,789 10,782 11,964
Charge-offs (3,759) (4,179) (12,391) (11,517)
Recoveries 324 390 1,109 2,053
--------- --------- --------- ---------
Balance end of period $ 105,000 $ 105,500 $ 105,000 $ 105,500
========= ========= ========= =========
Loans Sold with Recourse
GreenPoint is subject to an agreement with the Federal National Mortgage
Association ("FNMA") whereby the Company will repurchase, through 1996,
mortgages sold to FNMA during the period January 1, 1990 through March 31, 1991,
which become 90 days delinquent during 1995 and 1996. In addition, the Company
will be obligated to repurchase, until the later of December 1997 or five years
from the date of delivery, certain mortgages sold to FNMA which become 90 days
delinquent during that period. Serviced loans repurchased from FNMA by
GreenPoint are included within the Company's loan portfolio.
At September 30, 1996, the aggregate amount of loans sold to FNMA which were
still subject to the repurchase agreement was $124.4 million. During the quarter
ended September 30, 1996 a total of $0.6 million of loans was repurchased by the
Bank from FNMA pursuant to the repurchase agreement. At September 30, 1996, $0.3
million of the FNMA servicing portfolio of loans sold with recourse were
delinquent 90 days or more.
Capital Ratios
The Company's ratio of period-end stockholders' equity to ending total assets at
September 30, 1996 was 10.58% compared to 10.57% at December 31, 1995.
In accordance with the requirements of the Federal Deposit Insurance Corporation
("FDIC") and the New York State Banking Department ("Banking Department"), the
Bank must meet certain measures of capital adequacy with respect to leverage and
risk-based capital. An insured institution is required to maintain core capital
of not less than 3.0% of total assets and a ratio of total capital to risk-based
assets of 8.0%. As of both September 30, 1996 and December 31, 1995, the Bank
exceeded those requirements. The Bank's leverage capital ratios were 6.26% and
6.11% at September 30, 1996 and December 31, 1995, respectively. The Bank's
Tier-1 risk-based capital ratios were 15.42% and 16.05% at September 30, 1996
and December 31, 1995, respectively. The Bank's total risk-based capital ratios
were 16.67% and 17.30% at September 30, 1996 and December 31, 1995,
respectively.
23
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
With the exception of the matters set forth below, the Company is not involved
in any pending legal proceedings other than routine legal proceedings occurring
in the ordinary course of business which, in the aggregate, involve amounts
which are believed by management to be immaterial to the consolidated financial
statements of the Company. The Bank or one of its subsidiaries has been named as
a defendant in thirteen unrelated legal complaints which assert that infant
plaintiffs sustained personal injuries from the ingestion of lead based paint,
chips or dust. Additionally there are ten other instances of threatened
litigation. The injuries are alleged to have occurred in residential properties
for which the Bank was a first mortgagee and for which the Bank may be or may
have been an owner, through foreclosure proceedings. The complaints are in
various early stages of discovery. The defense of three of the claims has been
assumed by an insurer. Defense of four claims was (or is anticipated to be)
rejected by an insurer on the basis of pollution coverage exclusions. The
remaining claims are awaiting a determination by the insurance carriers. The
Bank referred the rejected claims to a special environmental counsel. Counsel
has advised the Bank that because discovery on these claims has only recently
begun, counsel is not yet in a position to express an opinion as to the Bank's
liability or to quantify the Bank's potential exposure, if any, in dollar terms
at this time. Because of the absence of both a determination of liability and a
reasonable estimate of an associated liability exposure in dollar terms, if any,
the Bank has not established a contingency reserve for these complaints.
Accordingly, in the event that one or more of these actions are subsequently
determined to represent an accruable liability for the Bank, such accruals will
be funded through charges to be made against the Bank's operating income for the
period or periods in which such determinations may occur. The Company currently
believes that such liability exposure, if any, would not be material to the
Bank's financial condition.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
11.1 Statement Regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule
24
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company with the
Securities and Exchange Commission during the quarter ended September 30,
1996.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be 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, President
and Chief Executive Officer
By: /s/ Charles P. Richardson
--------------------------------
Charles P. Richardson
Executive Vice President and
Chief Financial Officer
Dated November 11, 1996
26
Exhibit 11.1
Statement Regarding Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------- -------------------
1996 1995 1996 1995
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Net income $34,047 $30,204 $98,554 $88,059
Core net income (excluding branch sale) N/A N/A 93,459 N/A
Weighted average number of common stock and common
stock equivalents outstanding during each period - primary 43,138 47,428 44,454 47,241
Weighted average number of common stock and common
stock equivalents outstanding during each period - fully
diluted 43,397 47,614 45,006 47,628
Net earnings per share - primary $ 0.79 $ 0.64 $ 2.22 $ 1.86
======= ======= ======= =======
Net earnings per share (excluding branch sale) - primary N/A N/A $ 2.10 N/A
======= ======= ======= =======
Net earnings per share - fully diluted $ 0.78 $ 0.63 $ 2.19 $ 1.85
======= ======= ======= =======
Net earnings per share (excluding branch sale) - fully diluted N/A N/A $ 2.08 N/A
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 65,926
<INT-BEARING-DEPOSITS> 1,482
<FED-FUNDS-SOLD> 1,032,366
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,486,671
<INVESTMENTS-CARRYING> 4,160
<INVESTMENTS-MARKET> 4,158
<LOANS> 6,889,323
<ALLOWANCE> (105,000)
<TOTAL-ASSETS> 13,410,291
<DEPOSITS> 11,693,152
<SHORT-TERM> 0
<LIABILITIES-OTHER> 295,179
<LONG-TERM> 0
0
0
<COMMON> 551
<OTHER-SE> 1,417,909
<TOTAL-LIABILITIES-AND-EQUITY> 13,410,291
<INTEREST-LOAN> 435,636
<INTEREST-INVEST> 300,980
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 736,616
<INTEREST-DEPOSIT> 402,954
<INTEREST-EXPENSE> 404,685
<INTEREST-INCOME-NET> 331,931
<LOAN-LOSSES> (10,782)
<SECURITIES-GAINS> 751
<EXPENSE-OTHER> 199,972
<INCOME-PRETAX> 167,325
<INCOME-PRE-EXTRAORDINARY> 98,554
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,554
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.19
<YIELD-ACTUAL> 3.41
<LOANS-NON> 361,434
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (105,500)
<CHARGE-OFFS> (12,391)
<RECOVERIES> 1,109
<ALLOWANCE-CLOSE> (105,000)
<ALLOWANCE-DOMESTIC> (105,000)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
