<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file Number 0-22516
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)
Registrant's telephone number, including area code: (212) 834-1711
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock $0.01 par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 23, 1998: Common stock par value $0.01 per share,
$2,530,860,133.
This figure is based on the closing price by the New York Stock Exchange
("NYSE") for a share of the registrant's common stock on March 23, 1998,
which was $36.9375 as reported in the Wall Street Journal on March 24, 1998.
The number of shares of the registrant's Common Stock issued and outstanding
as of March 23, 1998 was 85,245,482 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 1, 1998 and the Annual Report to Shareholders for
fiscal 1997 are incorporated herein by reference - Parts II and III.
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TABLE OF CONTENTS
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No.
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PART I
ITEM 1. BUSINESS....................................................... 1
Description of the Business.......................................... 1
Mortgage Banking Services ........................................... 1
Consumer Branch Network ............................................. 1
Competition.......................................................... 2
Lending Activities................................................... 2
Delinquent Loans and Foreclosed Assets............................... 8
Allowance for Possible Loan Losses................................... 11
Environmental Issues................................................. 14
Market Risk Management............................................... 14
Securities Investment Activities..................................... 14
Sources of Funds..................................................... 17
Subsidiary Activities................................................ 19
Savings Bank Life Insurance.......................................... 20
Personnel............................................................ 20
Federal Taxation..................................................... 21
State and Local Taxation............................................. 22
Bank Regulation and Supervision...................................... 22
Holding Company Regulation and Supervision........................... 27
ITEM 2. PROPERTIES..................................................... 29
ITEM 3. LEGAL PROCEEDINGS.............................................. 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 30
ITEM 4A. EXECUTIVE OFFICERS............................................. 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................. 32
ITEM 6. SELECTED FINANCIAL DATA......................................... 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 33
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No.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 33
ITEM 11. EXECUTIVE COMPENSATION........................................ 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...................................................... 34
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PART I
ITEM 1. BUSINESS
Description of Business
GreenPoint Financial Corp. (the "Company") is a bank holding company
organized in August 1993 under the laws of the state of Delaware and
registered under the Bank Holding Company Act of 1956.
The Company provides a variety of financial services primarily through
its bank subsidiary, GreenPoint Bank (the "Bank") including GreenPoint
Mortgage Corp. ("GPMC"), its mortgage banking subsidiary, and to a lesser
extent through its community development subsidiary, GreenPoint Community
Development Corp. ("GPCDC"). As part of the Company's long term business
plans, the Company intends to continue to explore a variety of alternative
strategic investment options to complement its existing business strengths,
including possible acquisitions of other thrift institutions, acquisitions of
other financial institutions or financial services companies or their assets,
or expanding into other banking, mortgage, real estate or consumer finance
related businesses.
The Bank was organized in 1868 as a New York State chartered savings
bank. The Bank and its wholly owned subsidiary GPMC, a national home mortgage
banking company, are primarily engaged in the business of mortgage lending
throughout the United States, with loans receivable of $8.8 billion,
representing approximately 67% of total assets at December 31, 1997. The Bank
continues to attract retail deposits from the general public and invests
those deposits, together with funds generated from operations, in mortgage
loans and marketable securities. The Bank's revenues are derived principally
from interest on its loan portfolio and investment securities. The Bank's
primary sources of funds are deposits, principal and interest payments from
loans, and wholesale funds.
GPCDC is a for-profit community development subsidiary organized in
1993. Complementing the Bank's leadership in lending in low- and
moderate-income areas and to minorities, GPCDC's focus is primarily on
special lending programs, development opportunities and assistance,
consulting and other activities that promote the objective of greater access
to affordable housing for low and moderate-income persons residing in the
areas served by the Company.
Mortgage Banking Services
The Company specializes in a limited documentation mortgage loan
product ("No Doc" loans) which serves a particular niche of borrowers willing
to pay a premium, in the form of higher interest rates and loan fees, and
provide larger down payments in exchange for more expedient loan processing
by virtue of providing less income and asset information as compared to loans
underwritten in conformance with Federal National Mortgage Association
("FNMA") standards. As a result of this strategy combined with strict
appraisal requirements, the Company has achieved higher interest margins and
levels of net interest income compared to typical FNMA conforming loans
which, in turn, has resulted in a high level of profitability despite
traditionally higher levels of loan delinquencies. Prior to February 1997 the
Bank offered a Low Doc product, which provided a reduced rate with the
provision of certain income documentation. In February 1997, the Low Doc
product was discontinued.
During 1997, the Company continued the expansion of its mortgage
lending programs into new markets throughout the United States. These new
markets included Atlanta, Charlotte, Denver, Phoenix, Seattle and San
Francisco. The Company increased its mortgage loan originations from $2.4
billion in 1996 to $2.9 billion in 1997.
Consumer Branch Network
The Consumer Branch Network ("Branch Network") consists of 74
full-service banking offices, with 90 ATMs, located in the New York City
metropolitan area and offers a variety of financial services to meet the
needs of the communities it serves. Among the services offered by the Branch
Network are traditional time, savings and checking accounts, annuity
products, mutual funds, mortgages, home equity loans, credit cards, Savings
Bank Life Insurance, safe deposit services and student loans.
1
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Competition
The Company faces significant competition both in making loans and in
attracting deposits. The New York City metropolitan area has a high density
of financial institutions, many of which are branches of significantly larger
institutions which have greater financial resources than the Company, and all
of which are competitors of the Company to varying degrees. The Company's
competition for loans comes principally from savings banks, commercial banks,
savings and loan associations, mortgage banking companies and credit unions.
Its most direct competition for deposits has historically come from savings
and loan associations, savings banks, commercial banks and credit unions. The
Company faces additional competition for deposits from non-depository
competitors such as the mutual fund industry, securities and brokerage firms
and insurance companies. Competition may also increase as a result of the
lifting of restrictions on the interstate operations of financial
institutions.
The Company's focus on one-to four-family residential lending and No
Doc loans has allowed it to develop a significant market presence in the
one-to four-family residential loan market. Due to the Company's current
presence in these markets and its limited lending focus, no assurance can be
given that the Company will be able to sustain the growth it has achieved in
the past in the event loan demand in these markets declines which, in turn,
may negatively impact its interest rate margin, interest rate spread and net
income. Further, in the event other financial institutions establish lending
programs which target the one-to four-family lending similar to the Company's
No Doc programs, such intensified competition may result in the Company's
inability to sustain its previous growth in such lending or result in a
decline in the Company's market share. The Company's narrow lending focus on
these specialized markets may also place the Company in a less favorable
position to increase its market share in other types of lending as compared
to an institution with a broader based lending focus and expertise in other
types of lending.
Lending Activities
Lending Programs. The Company's lending activities have historically
emphasized and continue to emphasize the origination of real estate loans
which are underwritten with primary reliance placed upon a borrower's level
of equity in the property securing the loan or level of down payment, as
compared to other lending institutions which may rely more heavily upon a
borrower's demonstrated ability to repay the loan and independently verified
income levels. These equity-based loans are offered in two programs: "With
Asset Verification" and "Without Asset Verification". Asset verification
refers to verification of liquid assets held in a depository institution. The
Company also requires borrowers to have satisfactory credit histories for No
Doc loans. As compared to the loans originated in accordance with FNMA
underwriting guidelines and procedures ("FNMA conforming loans"), No Doc
loans involve a higher degree of risk as there is limited verified knowledge
of the borrower's level of income or ability to service the indebtedness
which, in turn, may result in a higher rate of default. In recognition of the
increased risks associated with No Doc loans, the Company requires borrowers
to have a higher equity position in the property securing the loan. The
Company generally does not originate such loans with loan to value ratios in
excess of 75%. The Company's No Doc lending program accounted for 96.0% of
total originations.
As compared to other lending institutions which rely more heavily upon
a borrower's income and demonstrated ability to repay the loan, the Company
may be more susceptible to increases in loan delinquencies in periods of
economic recession and to loan losses in periods of declining real estate
market values. In recognition of the risks associated with this lending
strategy, the Company has established strict appraisal standards, whereby all
appraisals are required to conform to either FNMA, FHLMC, federal or state
approval standards and are either: 1) conducted or reviewed by in-house
appraisers who are state licensed real estate appraisers and are subject to
two additional levels of review by senior management; or are 2) conducted by
one or more appraisers, or appraisal services, which are to be ordered
directly by the Company from the Company's approved list of independent
appraisers.
Loan Originations. The Company originates both adjustable rate mortgage
("ARM") loans and fixed rate loans, the amounts of which are dependent upon
customer demand and market rates of interest. Loan originations are primarily
obtained from the Company's network of registered mortgage brokers, licensed
mortgage bankers, attorneys and other real estate professionals participating
in its three wholesale programs. For the year ended December 31, 1997, the
Company originated $2.9 billion of mortgage loans.
2
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The Company's Advantage Program is a structured program in which
registered mortgage brokers, licensed mortgage bankers, attorneys and other
real estate professionals, are eligible to participate upon approval by the
Company. As of December 31, 1997, there were 1,109 Advantage Program members.
The Company's Lender Associate Program consists of 3,219 approved
mortgage brokers operating in 47 states. These brokers are generally small to
mid-sized mortgage originators which rely on the Company to fund loans at
closing. Each broker is screened by the Company and is approved only if the
Lender Associate Program requirements are satisfied.
The Company's Correspondent Program is a closed loan purchase program
consisting of 417 approved correspondents operating in 47 states. These
correspondents include mid-sized to large mortgage bankers and other
financial institutions.
For the year ended December 31, 1997, the Company originated $2.7
billion of loans through these programs, or 93.1% of total loan originations.
The types of loans that the Company may originate are subject to
federal and state laws and regulations. Interest rates charged by the Company
on loans are affected principally by the demand for such loans and the supply
of money available for lending purposes and the rates offered by its
competitors. These factors are, in turn, affected by general and economic
conditions, monetary policies of the federal government, including the
Federal Reserve Board ("FRB"), legislative tax policies and governmental
budgetary matters.
Loan Servicing. In 1997, the Company purchased the Columbus, Georgia,
mortgage servicing operations of Citizens Financial Group, and transferred
the servicing responsibilities for certain loans serviced in New York, and
other loans serviced under contract by a sub-servicer in North Carolina, to
that location.
At December 31, 1997, the Company serviced approximately 95,000
residential mortgage loans with outstanding principal balances of $9.6
billion, including $8.9 billion of loans in its own portfolio, and $0.7
billion of loans owned by others. Loans serviced for others are serviced for
a fee, which, on an annual basis, generally ranges from 25 to 50 basis points
of the outstanding principal balances of the loans.
Loan servicing activities generally consist of collecting principal
and interest payments from borrowers, remitting principal and interest
payments to investors, accounting for principal and interest payments,
holding and disbursing funds remitted for taxes, insurance, and other loan
related expenses, contacting delinquent borrowers and conducting foreclosures
and property dispositions in the event of unremedied defaults. Because of the
greater likelihood of delinquencies associated with No Doc lending, the
Company has implemented programs which allow it to focus its collection
efforts on those loans and borrowers possessing characteristics at the time
of origination which have historically experienced a higher propensity for
delinquency and default. The Company believes these efforts have enabled it
to minimize losses associated with these types of loans.
Loans and Credit Parameters. Loan amount limits, maximum loan-to-value
("LTV") ratios and loan pricing are guided by an evaluation of a borrower's
credit history and the loan purpose. This evaluation results in a borrower
being classified in a particular loan level category ranging from one to
five, to which lending parameters have been ascribed by the Company. In
making this determination, the Company obtains credit verification from
independent credit bureaus prior to entering into loan commitments. Factors
considered in making the commitment include the number and length of time
credit lines have been outstanding, prior mortgage loan payment histories,
performance on installment and revolving lines of credit, collection and
charge-off experience, and prior bankruptcies and foreclosures. The Company
also considers a credit score ascribed to the borrower under a credit
evaluation methodology developed by Fair, Isaac and Company ("FICO"). This
score indicates, based on their statistical analysis, the percentage of
borrowers that would be expected to become 90 days delinquent on an
additional loan.
Loans held for Investment Portfolio Composition. The majority of the
Company's loan portfolio consists of fixed and ARM loans secured by one-to
four-family residences and to a lesser extent, multi-family residential
loans, commercial real estate loans and other loans held for investment.
3
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The following tables set forth the composition of the loans receivable
held for investment, in dollar amounts and in percentages of the respective
portfolios at the dates indicated.
<TABLE>
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December 31,
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1997 1996 1995
------------------------- ------------------------ -------------------------
Percent Percent Percent
Amounts of Total Amounts of Total Amounts of Total
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(Dollars in millions)
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Loans receivable held for investment:
Mortgage loans:
One-to four-family .......................... $ 7,681.3 86.0% $ 6,394.4 85.9% $ 5,135.4 85.2%
Multi-family ................................ 621.0 7.0 545.5 7.3 475.9 7.9
Commercial .................................. 537.1 6.0 467.9 6.3 376.8 6.3
Home equity loans ........................... 66.3 0.7 16.2 0.2 4.7 0.1
------------- --------- ------------ --------- -------------- ----------
Total mortgage loans held for investment ....... 8,905.7 99.7 7,424.0 99.7 5,992.8 99.5
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Other loans:
Loans secured by depositors' funds .......... 30.1 0.3 23.5 0.3 29.5 0.5
Home improvement loans ...................... -- -- -- -- 0.1 --
------------- --------- ------------ --------- -------------- ----------
Total other loans .............................. 30.1 0.3 23.5 0.3 29.6 0.5
------------- --------- ------------ --------- -------------- ----------
Total loans receivable held for investment ..... 8,935.8 100.0% 7,447.5 100.0% 6,022.4 100.0%
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Less:
Net deferred loan origination fees and unearned
discount .................................... 31.2 48.2 58.3
Allowance for possible loan losses ............. 109.0 105.0 105.5
------------- ------------ --------------
Loans receivable held for investment, net ... $ 8,795.6 $ 7,294.3 $ 5,858.6
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December 31,
-------------------------------------------------------
1994 1993
--------------------------- --------------------------
Percent Percent
Amounts of Total Amounts of Total
-------------------------------------------------------
(Dollars in millions)
Loans receivable held for investment:
Mortgage loans:
<S> <C> <C> <C> <C>
One-to four-family........................... $ 4,933.9 85.7% $ 4,770.8 85.4%
Multi-family................................. 456.9 7.9 456.8 8.2
Commercial................................... 349.7 6.1 328.1 5.9
Home equity loans............................ 10.1 0.2 19.9 0.4
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Total mortgage loans held for investment........ 5,750.6 99.9 5,575.6 99.9
------------- ------------ ------------ ------------
Other loans:
Loans secured by depositors' funds........... 7.7 0.1 7.2 0.1
Home improvement loans....................... 0.1 -- 0.2 --
------------- ------------ ------------ ------------
Total other loans............................... 7.8 0.1 7.4 0.1
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Total loans receivable held for investment...... 5,758.4 100.0% 5,583.0 100.0%
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Less:
Net deferred loan origination fees and unearned
discount..................................... 61.3 59.4
Allowance for possible loan losses.............. 103.0 147.0
------------- ------------
Loans receivable held for investment, net.... $ 5,594.1 $ 5,376.6
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</TABLE>
As of December 31, 1997, 69% of the Company's mortgage loan portfolio
was secured by properties located in New York State. The properties securing the
remaining portfolio are dispersed throughout the country, with no state
representing more than 10%.
4
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The following table sets forth the composition of the Company's loans
receivable held for sale, at the dates indicated.
<TABLE>
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December 31,
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1997 1996 1995 1994 1993
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(In millions)
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Loans receivable held for sale:
Performing residential
mortgage loans .............................. $ 1.3 $ 0.3 $ 168.2 $ 0.5 $ --
Guaranteed student loans ........................ 4.2 4.5 6.9 10.6 13.7
Non-performing residential
mortgage loans ................................. -- -- -- -- 72.1
Valuation allowance ............................. -- -- -- -- (20.0)
------ ------ -------- ------- -------
Loans receivable held for sale, net ......... $ 5.5 $ 4.8 $ 175.1 $ 11.1 $ 65.8
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Loan Sales. Prior to 1991, the Company was actively engaged in the sale of
its No Doc and Low Doc loans in the secondary market (primarily to FNMA).
Currently, the majority of the Company's loans held for sale are guaranteed
student loans. All newly originated mortgage loans are held in the Company's own
portfolio.
Loan Maturity and Repricing. The following table shows the contractual
maturities of the Company's loan portfolio, including loans receivable held
for sale, at December 31, 1997. The table does not include prepayments or
scheduled principal amortization. Prepayments and scheduled principal
amortization on mortgage loans totaled $1.3 billion for the year ended
December 31, 1997.
<TABLE>
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December 31, 1997
----------------------------------------------------------------------------
Mortgage Loans
-------------------------------------------
One-to Four- Other Total Loans
Family Multi-Family Commercial Loans Receivable
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(In millions)
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Amounts due (1):
Within one year .............. $ 4.2 $ 1.3 $ 1.6 $ 18.3 $ 25.4
One to five years ............ 152.1 99.4 105.6 11.5 368.6
Over five years .............. 7,320.3 474.3 391.9 0.2 8,186.7
---------- -------- -------- ------- ----------
Total amounts due ......... $ 7,476.6 $ 575.0 $ 499.1 $ 30.0 $ 8,580.7
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</TABLE>
(1) Does not include non-accrual loans.
The following table sets forth, at December 31, 1997, the dollar
amount of all fixed rate loans contractually due and adjustable rate loans
repricing after December 31, 1998.
<TABLE>
<CAPTION>
Due or Repricing After December 31, 1998
-------------------------------------------
Fixed Adjustable Total
-------------------------------------------
(In millions)
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Mortgage loans (1):
One-to four-family ............. $ 4,975.3 $ 613.9 $ 5,589.2
Multi-family ................... 448.7 107.5 556.2
Commercial ..................... 352.6 125.7 478.3
Other loans (1) .................. 11.7 -- 11.7
---------- -------- ----------
Total loans receivable ......... $ 5,788.3 $ 847.1 $ 6,635.4
---------- -------- ----------
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</TABLE>
(1) Does not include non-accrual loans.
5
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One-to Four-Family Mortgage Loans. The Company offers first mortgage loans
secured by one-to four-family residences, including condominiums and planned
unit developments. The Company does not offer loans secured by cooperative units
or interests therein.
The Company currently offers fixed rate one-to four-family
mortgage loans and one-to four-family ARM loans through two loan programs:
(1) No Doc loans and (2) loans underwritten and made in amounts in accordance
with FNMA guidelines ("FNMA conforming" or "Full Doc" loans). No Doc loans,
with the exception of loans secured by condominiums, are offered in amounts
up to 75% of the lower of the appraised value or purchase price of the
property. No Doc loans secured by condominiums are made in amounts up to 70%
of the lower of the appraised value or purchase price of the property for
loans involving the purchase of the property, and up to 70% of the appraised
value of the property for loans to refinance existing mortgage loans. The
maximum loan amount of a No Doc loan is $1.0 million. Although the Company
reserves the right to verify such asset information, the Company generally
does not verify such information through other sources. The Company
additionally obtains credit reports on all borrowers to ascertain the credit
history of the borrower.
The Company offers fixed rate mortgage loans with terms of 10 to 30
years secured by one-to four-family residences. Interest rates charged on
fixed rate loans are competitively priced on a regular basis and are
periodically determined based on market conditions. For the year ended
December 31, 1997, the Company originated $1.9 billion of fixed rate loans,
which primarily consisted of one-to four-family residential mortgage loans.
The Company currently offers ARM loans secured by one-to
four-family residential properties with interest rates that adjust
periodically with terms of up to 30 years. The interest rates on ARM loans
fluctuate based upon a spread above the applicable index rate used by the
Company and are generally subject to limitations on interest rate increases
of 2% per year and a limitation on the aggregate adjustment of 6% above the
index at the time of commitment over the term of the loan. The Company's ARM
loans also have interest rate floors which limit the minimum amount to which
the interest rate payable on its ARM loans may decline. The Company offers
ARM loans at fully indexed rates and with initial interest rates below the
current fully indexed rate. The initial discounted rate on these loans was up
to 375 basis points below the Company's fully indexed rate, which varies by
ARM adjustment period. For the year ended December 31, 1997, the Company
originated $1.0 billion of ARM loans, which primarily consisted of one-to
four-family residential loans. At December 31, 1997, 25.1% of the Company's
one-to four-family residential mortgage loans consisted of ARM loans.
The volume and types of ARM loans originated by the Company have been
affected by such market factors as the level of interest rates, competition,
consumer preferences and the availability of funds. The Company will continue
to offer ARM loans, however, there can be no assurance that in the future the
Company will be able to originate a sufficient volume of ARM loans to
increase or maintain the proportion that these loans bear to total loans. The
retention of ARM loans, as opposed to fixed rate residential mortgage loans,
in the Company's loan portfolio serves to reduce the Company's exposure to
increases in interest rates. However, ARM loans generally pose credit risks
different from the risks inherent in fixed rate loans, primarily because as
interest rates rise, the underlying payments of the borrower rise, thereby
increasing the potential for default. In particular, the Company's loans
which bear initial discounted interest rates involve greater risks of default
due to the greater potential increase in the borrower's payment after the
first year of the loan.
The Company also originates ARM loans secured by first mortgages on
non-owner-occupied one-to four-family properties pursuant to the same
underwriting guidelines applicable to similarly situated owner-occupied
one-to four-family properties but in amounts which are limited to 75% of the
lower of the appraised value or purchase price for loans involving the
purchase or refinance of the property subject to a lower limit of up to 65%
of the appraised value of the property for loans involving the refinancing of
an existing mortgage where the refinanced loan amount exceeds the unpaid
principal balance. Additionally, the Company requires the submission of
rental information and considers such information in arriving at its
underwriting determination. The Company charges higher rates of interest with
respect to these loans as compared to its other one-to four-family ARM loans
secured by owner-occupied properties and may impose penalties for early
repayment.
6
<PAGE>
The Company also offers home equity lines of credit which are secured
by mortgages on one-to four-family properties. The underwriting standards
applicable to these loans are the same as other one-to four-family loans
except such loans are offered with terms up to 15 years in amounts, including
any balance of the first mortgage, up to 75% of the appraised value of the
property with a maximum loan amount of $750,000. As of December 31, 1997,
loans drawn against home equity lines of credit totaled $66.3 million, or
0.7%, of total loans held for investment.
The Company's mortgage loans generally include due-on-sale clauses
which provide the Company with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers
ownership of the property without the Company's consent. It is the Company's
policy to enforce due-on-sale provisions within the applicable regulations
and guidelines imposed by federal and state laws and secondary market
purchasers.
Multi-Family Lending. The Company offers fixed rate and ARM loans
secured by residential properties with five or more units and other mixed use
properties (primarily residential properties with business or retail space)
located in the New York metropolitan area. As of December 31, 1997, the
Company had 5,216 of such loans with an average loan balance of $119,000.
Multi-family loans are generally made with terms of 5 to 25 years in amounts
up to a maximum of $3.0 million. These loans are made in amounts up to 70% of
the appraised value or purchase price of the property for loans to purchase
the property and up to 65% of the appraised value of the property for loans
to refinance an existing mortgage. The Company's multi-family loans are
underwritten pursuant to the same standards and procedures applicable to its
one-to four-family No Doc loans; however, the Company additionally requires
the submission of documentation regarding rental and vacancy levels, rental
income, property expense statements and tax return information. The Company
verifies rental income of the property but does not verify the borrower's
personal income levels. The Company imposes penalties for early repayment on
all non-owner-occupied multi-family properties and owner-occupied
multi-family properties with seven units or more.
Commercial Real Estate Lending. The Company also originates commercial
real estate loans located in the New York metropolitan area. The
Company's commercial real estate loans are offered in the same amounts and
under the same terms and underwriting guidelines applicable to its
multi-family loans. The Company imposes penalties for early repayments on its
commercial real estate loans. As of December 31, 1997, the Company had 3,625
of such loans with an average loan balance of $148,000. The largest
commercial real estate loan in the Company's portfolio at December 31, 1997
had an outstanding balance of $6.4 million, secured by a non-residential
building located in New York.
Student Loans and Other Lending. The Company also originates student
loans guaranteed by federal and New York State agencies and personal savings
loans collateralized by a borrower's existing savings account balance at the
Bank. With the exception of student loans, which the Company generally sells
in the secondary market upon the borrower's commencement of repayment of the
loan, these other loans are originated for retention. The Company does not
currently originate or purchase any other types of business or consumer loans
such as loans secured by automobiles, unsecured business loans or credit card
loans.
Loan Approval, Authority and Underwriting. Due to the Company's
emphasis on an equity-based lending strategy and reliance upon the value of
the property securing a loan to reduce the potential risk of principal loss
to the Company, particularly with respect to its No Doc loan programs, the
Company has established a comprehensive in house appraisal system made up of
99 staff appraisers, all of whom are state licensed. From time to time, the
Company also utilizes third party independent appraisers. The Company's
appraisal system involves a three-tier review for every mortgage loan
originated by the Company, consisting of an appraisal conducted or reviewed
by a licensed appraiser, which is then reviewed by an appraisal manager and,
finally, by a loan underwriter familiar with the market. All loans are
subject to various approval requirements depending on the size of the loan
and assigned credit level.
Additionally, all one-to four-family mortgage loans exceeding $1.0
million and commercial loans exceeding $3.0 million, require the approval of
executive management. The Bank also limits the maximum loan amount to any
one individual or business entity to $15.0 million. The Board of Directors is
provided a listing of approved loans on a monthly basis. In recent years, the
Company has made no loans in excess of $6.5 million.
7
<PAGE>
Delinquent Loans and Foreclosed Assets
The Company's collection procedures include maintaining continuous
contact with the borrower through telephone calls, collection letters and
property inspections. The collection staff attempts to make personal contact,
Monday through Saturday, by using both the business and home telephone
numbers. Telephone calls continue until the loan is current or payment
arrangements are made. The Company recently initiated property inspections on
selected delinquent loans as both a collateral assessment and collection
technique. Such property inspections involve a review of the condition of the
property and, if available, contact with the borrower. On or about the 55th
day of delinquency, a default letter is sent to the customer which demands
payment in full of all arrears within 30 days. On the 91st day of delinquency
a certified letter is sent informing the borrower that foreclosure action has
commenced. On the 101st day of delinquency the loan is referred to an
attorney for foreclosure proceedings. With respect to delinquent mortgage
loans with principal balances in excess of $400,000, the same procedures
generally apply except that the notices are sent at earlier dates of
delinquency, and such loans are referred to the Company's attorney for
foreclosure upon the loan becoming 60 days past due.
The Company discontinues accruing interest and charges-off the accrued
interest on all delinquent mortgage loans upon the loan becoming 90 days past
due. The Company generally does not restructure the original terms of
delinquent loans by modifying the interest rate paid or capitalizing past due
interest.
The Company attempts to accommodate the needs of its borrowers who find
themselves in difficult circumstances and minimize its potential losses upon
foreclosure by emphasizing the use of forbearance agreements. These
forbearance agreements generally provide that the Company will agree to delay
foreclosure proceedings if the borrower agrees to repay any accrued interest
and principal arrears over a period of up to 36 months in addition to paying
the principal and interest due in accordance with the original terms of the
loan. The forbearance agreements typically provide that in the event the
borrower is not current with payments under the forbearance agreement or any
payments due under the original mortgage note, the Company may resume its
foreclosure action. As of December 31, 1997, the Company had $61.1 million of
loans, or 17.2%, of total non-performing loans subject to such forbearance
agreements, the substantial majority of which were one-to four-family
mortgage loans.
Historically, the Company has relied solely on its collection and
foreclosure process to reduce its level of non-performing loans. This
process, combined with the Company's low loan to value ratios, has in the
past protected the Company from high loan losses. Due to increases in the
cost of holding other real estate owned, the Company continues to investigate
alternative methods for reducing non-performing loans that may result in a
higher present value received by the Company.
Based upon the Company's loan-to-value policies, the Company does not
believe that the overall risk of loss associated with its current loan
portfolio and non-performing assets is excessive. However, the Company's
underwriting determinations rely heavily upon the market value of the
properties securing the loans and, consequently, no assurances can be given
that declines in real estate values in the Company's primary lending area
will not result in unanticipated principal losses to the Company or that
declines in the regional economies will not result in increased delinquencies
or increases in foreclosure-related expenses and expenses related to its
other real estate.
8
<PAGE>
At December 31, 1997, 1996, 1995, 1994 and 1993, loans delinquent 90
days or more were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996
--------------------------------------------------------
90 days or more
--------------------------------------------------------
Principal Principal
Number of Balance of Number of Balance of
Loans Loans Loans Loans
--------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Mortgage loans:
One-to four-family ........... 2,596 $ 254.6 2,559 $ 242.7
Multi-family ................. 372 41.0 430 46.0
Commercial real estate ....... 258 34.0 271 35.2
Home equity loans ............ 48 1.1 7 0.5
------ -------- ----- --------
Total mortgage loans ...... 3,274 330.7 3,267 324.4
Other loans ...................... 84 0.1 168 0.1
------ -------- ----- --------
Total loans ............... 3,358 $ 330.8 3,435 $ 324.5
------ -------- ----- --------
------ -------- ----- --------
Delinquent loans to total loans 3.71% 4.36%
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1995 1994 1993 (1)
------------------------- ------------------------- ----------------------------
90 Days or More
---------------------------------------------------------------------------------------
Principal Principal Principal
Number of Balance of Number of Balance of Number of Balance of
Loans Loans Loans Loans Loans Loans
---------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One -to four-family ............. 2,737 $ 254.3 2,438 $ 220.9 4,664 $ 467.8
Multi-family .................... 533 57.9 619 68.6 871 93.1
Commercial real estate .......... 358 46.8 413 56.8 473 65.0
Home equity loans ............... 16 0.8 14 0.7 26 1.2
----- -------- ----- -------- ----- --------
Total mortgage loans ......... 3,644 359.8 3,484 347.0 6,034 627.1
Other loans ........................ -- -- 46 0.3 64 0.5
----- -------- ----- -------- ----- --------
Total loans .................. 3,644 $ 359.8 3,530 $ 347.3 6,098 $ 627.6
----- -------- ----- -------- ----- --------
----- -------- ----- -------- ----- --------
Delinquent loans to total loans 5.81% 6.02% 11.11%
</TABLE>
(1) Includes non-performing mortgage loans held for sale, net of charge-offs and
valuation reserves.
9
<PAGE>
The following table sets forth information regarding all non-accrual
loans, including loans in forbearance, loans which are 90 days or more
delinquent but on which the Company is accruing interest and other real estate
owned at the dates indicated. If all non-accrual loans had been performing in
accordance with their original terms, the Company would have recorded interest
income of $45.3 million, as opposed to $29.5 million, which was included in
interest income for the year ended December 31, 1997.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans ....................... $ 355.0 $ 356.0 $ 402.1 $ 391.9 $ 678.3(1)
Non-accrual other loans (2) ...................... 0.1 0.1 -- -- --
Other loans 90 days or more delinquent
and still accruing ........................... -- -- -- 0.3 0.5
---------- --------- --------- --------- ---------
Total non-performing loans (3) ......... 355.1 356.1 402.1 392.2 678.8
---------- --------- --------- --------- ---------
Other real estate owned, net (4) ................. 24.0 28.6 29.2 54.0 74.8
---------- --------- --------- --------- ---------
Total non-performing assets ............ $ 379.1 $ 384.7 $ 431.3 $ 446.2 $ 753.6
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Non-performing loans to total loans .............. 3.97% 4.78% 6.49% 6.80% 12.02% (1) (5)
Non-performing assets to total assets ............ 2.90% 2.89% 2.94% 6.42% 10.21% (1) (5)
</TABLE>
- -------------
(1) Includes net non-performing mortgage loans held for sale.
(2) Excluding certain other loans delinquent 90 days or more, such as
guaranteed student loans, on which principal and interest are guaranteed
by the U.S. government and certain other loans on which delinquent
principal and interest may be deducted from the borrower's deposit account
balances.
(3) As of December 31, 1997, non-accrual loans included 2,824 one-to
four-family loans, with an aggregate balance of $269.4 million, 423
multi-family loans with an aggregate balance of $46.0 million, 296
commercial real estate loans with an aggregate balance of $38.0 million,
92 other loans with an aggregate balance of $0.1 million and 54 home
equity loans with an aggregate balance of $1.6 million.
(4) Net of related valuation allowance of $0.9 million, $1.3 million, $2.2
million, $5.1 million, and $14.4 million for foreclosed real estate at
December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(5) Excluding the effect of charge-offs and the $20 million valuation
allowance relating to the portfolio of non-performing mortgage loans held
for sale, the Company's ratio of non-performing loans to total loans and
non-performing assets to total assets would have been 12.61% and 10.70% at
December 31, 1993, respectively.
10
<PAGE>
At December 31, 1997, the Company's net other real estate owned totaled
$24.0 million and was held directly by the Company and by subsidiaries of the
Company which were formed for the purpose of holding and maintaining certain
other real estate. See --"Subsidiary Activities." At such date, the aggregate
gross value of other real estate owned was comprised of 214 one-to
four-family properties with an aggregate carrying value of $18.4 million, 39
multi-family properties with an aggregate carrying value of $2.6 million and
24 commercial real estate properties with an aggregate carrying value of $3.9
million. The Company or an independent inspector generally conducts monthly
external inspections on all properties securing loans in foreclosure and
generally conducts external appraisals on all properties prior to taking
ownership of the property. Based upon such inspections and appraisals, the
Company will charge off any loan principal it deems necessary. The Company or
an independent inspector conducts periodic inspections of its foreclosed real
estate and periodically adjusts its valuation allowance for possible declines
in the value of other real estate owned. The Company's valuation allowance
for other real estate owned at December 31, 1997 totaled $0.9 million, or
3.6% of the aggregate gross value of other real estate owned. The Company is
currently offering for sale substantially all real estate owned as a result
of foreclosure, through brokers and through its own personnel.
The Company's policies permit the financing of the sale of its
foreclosed real estate on substantially the same terms applicable to its
other real estate mortgage loans with the exception that the Company may loan
up to 85% of the lesser of the appraised value or sales price of the
foreclosed property.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained through provisions
for possible loan losses based on management's on-going comprehensive
evaluation of the risk inherent in its loan portfolio in consideration of the
trends in its loan portfolio, the national and regional economies and the
real estate markets covering the Company's portfolio. The Company's loan loss
allowance determinations also incorporate factors and analyses which consider
the potential principal loss associated with the loan, costs of acquiring the
property securing the loan through foreclosure or deed in lieu thereof, the
periods of time involved with the acquisition and sale of such property,
costs and expenses associated with maintaining and holding the property until
sale, and the costs associated with the Company's inability to utilize funds
for other income producing activities during the estimated holding period of
the property. In this regard, on at least a quarterly basis, the Company
conducts: a review of the amount and frequency of delinquent loans which
become non-performing and the average period of time for such loans to become
non-performing; a review of the amount and frequency of non-accrual loans
that are transferred to other real estate owned and the costs and average
periods of time associated with such transfer; a review of the historical
holding periods of foreclosed properties; a review of historical principal
loss experience of sales of its foreclosed properties; and, based on recent
sales activity, an analysis of the average estimated principal loss on loans
in its portfolio. Through these analyses the Company attempts to maintain an
allowance for possible loan losses sufficient to fund, in the aggregate,
future net cash flow shortfalls related to the resolution of problem loans
(both known and unknown but reasonably estimable) in its loan portfolio. The
Company believes that, based on its loan underwriting criteria, including its
lower loan-to-value ratio requirements, and historical charge-off activity,
which has historically been below other savings institutions, the Company's
current level of allowance for possible loan losses is adequate.
11
<PAGE>
The following table sets forth the Company's allowance for possible
loan losses at the dates and for the periods indicated. The balances below
represent general loan loss reserves and are not allocable to specific loans
in the Company's portfolio.
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
Year Ended December 31, December 31, June 30,
---------------------------------------------------- ------------ ----------
1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ------------ ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period............. $105.0 $105.5 $103.0 $147.0 $136.5 $130.5
Provisions charged to income............... 18.9 15.7 9.5 32.3 25.3 63.6
Transfer from (to) allowance for loans
held for sale.............................. -- -- -- 11.6 -- (20.0)
Loans charged-off:
Mortgage loans held for investment....... (4.4) (4.7) (5.3) (15.3) (9.4) (5.6)
Other loans.............................. (0.3) (0.2) -- -- -- --
Mortgage loans held for sale............. -- -- -- (4.9) -- (20.0)
Bulk sale charge-off of
non-performing loans................... -- -- -- (56.1)(3) -- --
Net loan foreclosure costs............... (11.3) (12.6) (10.2) (16.8) (6.1) (12.0)
---------- ---------- ---------- ---------- ------------ ----------
Total charge-offs.......................... (16.0) (17.5) (15.5) (93.1) (15.5) (37.6)
Recoveries................................. 1.1 1.3 8.5 (2) 5.2 0.7 --
---------- ---------- ---------- ---------- ------------ ----------
Balance at end of period................... $109.0 $105.0 $105.5 $103.0 $147.0 $136.5
---------- ---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ---------- ------------ ----------
Ratio of net charge-offs during the
period to average loans outstanding
during the period........................ 0.18% 0.25% 0.12%(2) 1.54%(3) 0.27% 0.71%
Ratio of allowance for possible loan
losses to total loans receivable at the
end of the period........................ 1.22% 1.41% 1.75% 1.79% 2.63% (1) 2.52% (1)
Ratio of allowance for possible loan
losses to total non-performing loans at
the end of the period..................... 30.70% 29.48% 26.24% 26.26% 23.45% 23.70%
</TABLE>
(1) Excludes $52.1 million and $60.0 million, net, of non-performing mortgage
loans held for sale at December 31, 1993 and June 30, 1993, respectively.
(2) Includes a $6.1 million recovery of 1994's bulk sale charge-off.
Excluding the effect of this recovery, the ratio of net charge-offs
during the period to average loans during the period was 0.22%.
(3) Excluding the bulk sale charge-off of non-performing loans, the ratio
of net charge-offs during the period to average loans during the period
was 0.56%.
12
<PAGE>
The following table sets forth the Company's allocation of the allowance
for possible loan losses by loan category and the percent of loans in each
category to total loans held for investment at December 31, 1997, 1996, 1995,
1994, and 1993. The entire allowance for possible loan losses is a general
valuation allowance applicable to the entire loan portfolio, and the portion of
the allowance for possible loan losses allocated to each loan category has been
estimated for presentation purposes and does not represent a limitation on the
total allowance available to each loan category.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- --------------------------- ---------------------------
Percentage Percentage Percentage
of Loans in of Loans in of Loans in
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------------ --------------- ----------- --------------- ----------- ---------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Loan Category:
Mortgage loans:
One-to-four family $81.9 86.0% $75.5 85.9% $72.5 85.2%
Multi-family residential 12.8 7.0 16.0 7.3 18.2 7.9
Commercial 13.2 6.0 13.2 6.3 14.6 6.3
Home equity loans from lines of credit 1.1 0.7 0.3 0.2 0.2 0.1
Other loans --- 0.3 --- 0.3 --- 0.5
------------ --------------- ----------- --------------- ----------- ---------------
Total allowance for possible loan losses $ 109.0 100.0% $ 105.0 100.0% $105.5 100.0%
============ =============== =========== =============== =========== ===============
December 31,
----------------------------------------------------------
1994 1993
---------------------------- ----------------------------
Percentage Percentage
of Loans in of Loans in
Category to Category to
Amount Total Loans Amount Total Loans
----------- --------------- ------------ --------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Loan Category:
Mortgage loans:
One-to-four family $66.5 85.7% $ 99.1 85.4%
Multi-family residential 19.8 7.9 26.2 8.2
Commercial 16.4 6.1 21.1 5.9
Home equity loans from lines of credit 0.3 0.2 0.6 0.4
Other loans --- 0.1 --- 0.1
----------- --------------- ------------ ---------------
Total allowance for possible loan losses $ 103.0 100.0% $ 147.0 100.0%
=========== =============== ============ ===============
</TABLE>
13
<PAGE>
Environmental Issues
The Company encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on property securing
its loans. In addition, the existence of hazardous materials may make it
unattractive for a lender to foreclose on such properties. Although
environmental risks are usually associated with loans secured by commercial real
estate, risks also may be substantial for loans secured by residential real
estate if environmental contamination makes security property unsuitable for
use. This could also have a negative effect on nearby property values. The
Company attempts to control its risk by training its appraisers, underwriters
and members of its Executive Mortgage Loan Committee to be cognizant of signs
indicative of environmental hazards. Prior to foreclosure, the Company
additionally conducts environmental risk assessments on one-to four-family
properties, where the Company has an indication of an environmental problem, and
on multi-family and commercial properties, which are used for activities which
have a greater degree of environmental risk, such as dry cleaning establishments
and other industrial uses. The Company additionally conducts housing and
building code violation searches on all multi-family properties prior to
foreclosure to assess any potential environmental problems. The Company
currently does not make loans secured by gasoline stations, automobile repair
facilities or properties on which it is known that gasoline tanks are located.
As of December 31, 1997, the Company had 23 loans with an aggregate balance of
$2.4 million secured by gas stations, 82 loans aggregating $8.3 million secured
primarily by automobile repair facilities or parking facilities, and 128 loans
aggregating $18.8 million secured by factories, warehouses and other industrial
buildings. At that date, the Company's other real estate owned included two
warehouse or industrial properties and two auto repair facilities, with an
aggregate carrying value of $0.4 million, all of which were held by a subsidiary
of the Company. No gas stations or parking facilities were owned by the Company
as of December 31, 1997. The Company has been named as a defendant in several
legal complaints involving alleged ingesting of lead based paint, chips or dust
by infant plaintiffs. See Item 3-- "Legal Proceedings."
The Company believes its procedures regarding the assessment of
environmental risk are adequate and, as of December 31, 1997, the Company was
unaware of any environmental issues which would subject it to any material
liability at this time. However, no assurance can be given that the values of
properties securing loans in the Company's portfolio will not be adversely
affected by unforeseen environmental risks.
Market Risk Management
Interest rate risk arises in the ordinary course of the Company's
business, as the repricing characteristics of its mortgage loans do not
necessarily match those of its deposit liabilities. The resulting interest rate
risk is managed by careful attention to the mix of asset maturities and deposit
offerings and by adjustments to the Company's investment portfolio and the use
of off balance sheet instruments such as interest rate swaps. The investment
strategies are designed and implemented (within policies and limits approved by
the Board of Directors) by the Asset and Liability Management Committee,
("ALCO") comprised of the Chief Executive Officer, the Chief Operating Officer
and other Senior Management Officers. Refer to Company's Annual Report to
Stockholders for Fiscal Year ended December 31, 1997, pages 15-18.
The Company entered into interest rate swap contracts to manage interest
rate risk. The notional amounts of these contracts approximate $475 million and
$300 million at December 31, 1997 and 1996, respectively. The contracts
outstanding at December 31, 1997 have an average term of approximately 2 years.
Under the terms of the contracts outstanding at December 31, 1997, the Bank pays
an average fixed rate of 6.37% and receives an average variable rate of 5.84% on
the swaps hedging the fixed rate loan portfolio and pays an average variable
rate of 6.01% and receives an average variable rate of 5.88% on the swaps
hedging the variable rate securities portfolio.
Securities Investment Activities
The Board of Directors sets the securities investment policies of the
Company and the Bank. These policies contain guidelines and limits regarding the
credit quality, liquidity and market risk of the securities portfolios.
The Company's investment policy permits investments in various types of
marketable investments including U.S. Treasury obligations, securities of
various federal agencies, mortgage-backed securities, corporate debt securities,
money market instruments, banker's acceptances, commercial paper and municipal
obligations.
14
<PAGE>
The Company's money market investments consist of interest-bearing
deposits in other banks, federal funds sold and securities purchased under
agreements to resell ("reverse repurchase agreements"). These reverse repurchase
agreements generally bear a higher rate of interest than federal funds sold and
are collateralized by securities having market values of at least 102% of the
amount of the funds advanced which are held by a third party custodian.
The Company designates securities as held to maturity, available for sale,
or held for trading purposes. Securities held for indefinite periods of time for
use in asset/liability management are classified as available for sale and are
carried at fair value with unrealized gains or losses excluded from earnings and
reported as a separate component of stockholders' equity, net of tax. Securities
held for trading purposes are carried at fair value with market revaluations
recognized as realized gains and losses, included in non-interest income.
The Company has, through a third party agent bank/custodian, a securities
lending program whereby the Company receives a fee for lending its U.S.
government securities to securities dealers. The securities are collateralized
by other U.S. government and federal agency securities having a market value of
at least 102% of the loaned securities which are held by the third party
bank/custodian. Pursuant to this program, the third party agent bank indemnifies
the Company for losses related to borrower default, market risk and delivery
failures.
The table below sets forth certain information regarding the carrying and
market values of the Company's money market investments, securities available
for sale, securities held to maturity, and securities held for trading purposes.
<TABLE>
<CAPTION>
December 31,
----------------------------- ----------------------------- -----------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------------------------- ----------------------------- -----------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Money market investments (1) $ 1,060.0 $ 1,060.0 $ 494.1 $ 494.1 $ 1,550.7 $ 1,550.7
============= =============== ============= =============== =============== =============
Securities:
Securities available for sale:
U.S. Government and Federal agency
obligations:
U.S. Treasury notes/bills $ 700.6 $ 695.8 $ 1,944.3 $ 1,928.4 $ 1,352.3 $ 1,356.3
Agency notes/Asset-backed
securities 125.9 125.8 66.4 66.4 2,417.0 2,417.0
Mortgage-backed securities 780.6 779.6 1,881.0 1,857.9 1,668.8 1,693.8
Collateralized mortgage obligations 113.9 114.4 32.4 32.4 --- ---
Trust certificates collateralized by
GNMA securities 124.5 123.6 409.8 406.5 430.3 428.8
Corporate asset-backed securities 25.0 25.0 --- --- --- ---
Commercial paper 113.5 113.5 --- --- --- ---
Other 30.0 30.0 63.9 63.8 0.6 0.6
------------- --------------- ------------- --------------- --------------- -------------
Total securities available for sale $ 2,014.0 $ 2,007.7 $ 4,397.8 $ 4,355.4 $ 5,869.0 $ 5,896.5
============= =============== ============= =============== =============== =============
Securities held to maturity:
Tax-exempt municipals $ 0.6 $ 0.6 $ 0.6 $ 0.6 $ 0.7 $ 0.7
Financial 3.4 3.4 3.4 3.4 3.6 3.7
------------- --------------- ------------- --------------- --------------- -------------
Total securities held to maturity $ 4.0 $ 4.0 $ 4.0 $ 4.0 $ 4.3 $ 4.4
============= =============== ============= =============== =============== =============
Trading assets $ 25.0 $ 25.0 $ --- $ --- $ --- $ ---
============= =============== ============= =============== =============== =============
</TABLE>
(1) Consists of interest-bearing deposits in other banks, federal funds sold
and securities purchased under agreements to resell
15
<PAGE>
The table below sets forth certain information regarding the amortized costs,
weighted average yields and maturities of the Company's money market
investments, securities available for sale and held to maturity, and trading
assets at December 31, 1997. There were no securities (exclusive of obligations
of the U.S. government and federal agencies) issued by any one entity with a
total carrying value in excess of 10% of stockholders' equity at December 31,
1997.
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years
--------------------- ------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- --------- --------- --------- --------- --------- --------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market investments (1) $ 1,060.0 6.44% $ --- ---% $ --- ---% $ --- ---%
Securities available for sale:
U.S. Treasury notes/bills $ 350.4 5.36% $350.2 5.27% $ --- ---% $ --- ---%
Agency notes/Asset-
backed securities --- --- 90.0 6.37 35.9 5.97 --- ---
Mortgage-backed securities --- --- 116.6 5.99 17.3 6.50 646.7 6.46
Collateralized mortgage
obligations --- --- 13.0 5.81 56.8 6.76 44.1 6.45
Trust certificates
collateralized by
GNMA securities --- --- --- --- 124.5 6.18 --- ---
Corporate asset-backed securities --- --- --- --- 25.0 6.09 --- ---
Commercial paper 113.5 6.52 --- --- --- --- --- ---
Other (2) --- --- --- --- --- --- 30.0 5.04
--------- --------- --------- ---------
Total securities available for sale $ 463.9 5.64% $ 569.8 5.60% $259.5 6.29% $ 720.8 6.40%
========= ========= ========= =========
Securities held to maturity:
Tax exempt municipals $ --- ---% $ --- ---% $ --- ---% $ 0.6 7.50%
Financial --- --- 2.1 8.25 --- --- 1.3 8.00
--------- --------- --------- ---------
Total securities held to maturity $ --- ---% $ 2.1 8.25% $ --- ---% $ 1.9 7.85%
========= ========= ========= =========
Trading assets $ 25.0 5.71% $ --- ---% $ --- ---% $ --- ---%
========= ========= ========= =========
----------------------------------------
Total Securities
----------------------------------------
Average
Remaining Weighted
Years to Amortized Fair Average
Maturity Cost Value Yield
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Money market investments (1) --- $1,060.0 $1,060.0 6.44%
Securities available for sale:
U.S. Treasury notes/bills 1.97 $ 700.6 $ 695.8 5.31%
Agency notes/Asset-
backed securities 3.29 125.9 125.8 6.25
Mortgage-backed securities 11.13 780.6 779.6 6.39
Collateralized mortgage
obligations 9.05 113.9 114.4 6.53
Trust certificates
collateralized by
GNMA securities 7.80 124.5 123.6 6.18
Corporate asset-backed securities 5.40 25.0 25.0 6.09
Commercial paper 0.02 113.5 113.5 6.52
Other (2) --- 30.0 30.0 5.04
--------- --------
Total securities available for sale $2,014.0 $2,007.7 5.98%
========= ========
Securities held to maturity:
Tax exempt municipals 10.33 $ 0.6 $ 0.6 7.50%
Financial 12.47 3.4 3.4 8.15
--------- --------
Total securities held to maturity $ 4.0 $ 4.0 8.05%
========= ========
Trading assets 1.83 $ 25.0 $ 25.0 5.71%
========= ========
</TABLE>
(1) Consists of interest-bearing deposits in other banks, federal funds sold
and securities purchased under agreements to resell.
(2) Consists primarily of U.S. Agency preferred stock with no stated maturity.
16
<PAGE>
During the year ended December 31, 1997, the Company sold available for sale
securities aggregating $2.1 billion, resulting in gross realized gains of $3.9
million and gross realized losses of $1.9 million.
During the year ended December 31, 1996, the Company sold available for sale
securities aggregating $3.2 billion, resulting in gross realized gains of $2.7
million and gross realized losses of $2.1 million. There were no sales of
securities during the year ended December 31, 1995.
Sources of Funds
General. Deposits, payments on loans and mortgage-backed securities and
maturities and redemptions of investment securities are the primary sources of
the Company's funds for lending, investing and other general purposes.
Additionally, during 1997, the Company supplemented its funding sources by
obtaining investment grade credit ratings from four credit rating agencies. This
has allowed the Company to access the wholesale funding markets, as the Company
may issue debt instruments.
Deposits. The Company offers a variety of deposit accounts having a range
of interest rates and terms. The Company's deposits consist of various types of
savings, NOW, non-interest bearing checking, money market and certificates of
deposit. The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates and competition. The Company's
deposits are obtained primarily from the areas served by its consumer branch
network. Management determines the Company's deposit rates based upon market
conditions and local competition. The Company relies primarily on competitive
rates of interest, offering promotional rates, marketing and long-standing
relationships with customers to attract and retain deposits. Certificates of
deposit accounts in excess of $100,000 are not actively solicited by the
Company.
Long Term Debt. In July 1997, the Company published an Offering Circular
under Regulation D authorizing it to issue up to $3 billion of Senior and
Subordinated Bank Notes ("Notes"). Of this allowable capacity, the Company has,
thus far, issued $200 million of 6.70% Senior Notes maturing July 15, 2002.
Interest expense attributed to these Notes for the year ended December 31, 1997
was $6.4 million.
Guaranteed Preferred Beneficial Interest in Company's Junior Subordinated
Debentures. In June 1997, GreenPoint Capital Trust I, a Delaware statutory
business trust owned by the Company, issued $200 million of 9.10% Guaranteed
Preferred Beneficial Interest in the Company's Subordinated Debentures ("Capital
Securities"). The Junior Subordinated Debentures mature on June 1, 2027.
Interest expense attributable to these Capital Securities was $10.7 million for
the year ended December 31, 1997.
At December 31, 1997, the Company had outstanding $723.7 million in
certificates of deposit in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION> Weighted
Amount Average Rate
------------ ------------
(Dollars in millions)
<S> <C> <S>
Maturity Period:
Three months or less........................................................ $ 135.6 5.27%
Over three through six months............................................. 155.2 5.34
Over six through twelve months.............................................. 250.8 5.47
Over twelve months.......................................................... 182.1 5.88
---------
Total................................................................. $ 723.7 5.51%
=========
</TABLE>
17
<PAGE>
The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. Management does not believe that the use
of period end balances instead of average balances results in any material
differences to the information presented.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------------- -------------------------------------------------
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
----------------- ------------- ------------ ----------------- ------------ --------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Account type:
Savings and club $1,739.4 15.85% 2.43% $1,901.7 16.60% 2.77%
N.O.W. and checking 533.9 4.87 1.24 524.2 4.58 1.86
Variable rate savings 1,702.1 15.51 3.37 1,853.7 16.19 3.36
Money market 478.4 4.36 3.25 561.3 4.90 3.25
-------- ----- -------- -----
Total 4,453.8 40.59 2.68 4,840.9 42.27 2.88
-------- ----- -------- -----
Term certificates of deposit:
Certificates of deposit
over $100,000 723.7 6.59 5.51 687.8 6.01 5.29
Certificates of deposit
less than $100,000 with
original maturities of:
Six months or less 222.5 2.03 4.44 227.1 1.98 3.83
Six to 12 months 1,243.9 11.33 4.84 1,811.2 15.82 4.63
12 to 30 months 2,054.9 18.73 5.64 1,702.1 14.86 5.44
30 to 48 months 334.3 3.05 6.25 258.9 2.26 6.26
48 to 72 months 683.9 6.23 5.51 695.6 6.07 5.88
72 to 84 months 75.3 0.69 6.40 72.0 0.63 6.56
IRA and Keoghs less than 3 years 1,180.7 10.76 5.21 1,156.7 10.10 5.08
Total term certificates -------- ----- -------- -----
of deposit 6,519.2 59.41 5.38 6,611.4 57.73 5.17
-------- ----- -------- -----
Total deposits $10,973.0 100.00% 4.28% $11,452.3 100.00% 4.21%
--------- ------ --------- ------
--------- ------ --------- ------
December 31,
---------------------------------------------
1995
---------------------------------------------
Weighted
Percent Average
of Total Nominal
Amount Deposits Rate
----------------- ------------- ------------
(Dollars in millions)
Account type:
Savings and club $ 2,034.7 15.77% 2.79%
N.O.W. and checking 501.8 3.89 1.89
Variable rate savings 1,995.3 15.47 3.52
Money market 635.7 4.93 3.31
-------- -----
Total 5,167.5 40.06 2.99
-------- -----
Term certificates of deposit:
Certificates of deposit over
$100,000 771.0 5.98 5.72
Certificates of deposit less
than $100,000 with original
maturities of:
Six months or less 589.7 4.57 4.87
Six to 12 months 2,111.9 16.37 5.20
12 to 30 months 1,659.7 12.87 5.88
30 to 48 months 272.3 2.11 5.93
48 to 72 months 944.3 7.32 6.42
72 to 84 months 80.6 0.63 6.80
IRA and Keoghs less than 3 years 1,301.3 10.09 5.42
Total term certificates -------- -----
of deposit 7,730.8 59.94 5.62
-------- -----
Total deposits $12,898.3 100.00% 4.57%
--------- ------
--------- ------
</TABLE>
18
<PAGE>
The following table presents, by various rate categories, the amount of
certificates of deposit outstanding at the dates indicated.
<TABLE>
<CAPTION>
December 31, Maturities at December 31, 1997
------------------------------------- --------------------------------------------------------
Within One to
1997 1996 1995 One Year Three Years Thereafter Total
------------ ------------ ----------- ------------ -------------- ------------- -------------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit
accounts:
3.99% or less $ 1,064.4 $ 1,237.3 $ 127.8 $ 1,001.6 $ 62.7 $ 0.1 $ 1,064.4
4.00% to 4.99% 343.6 1,149.5 1,215.0 143.2 180.6 19.8 343.6
5.00% to 5.99% 4,300.9 3,166.9 3,869.6 3,335.9 890.9 74.1 4,300.9
6.00% to 6.99% 664.3 751.5 1,893.2 154.0 379.8 130.5 664.3
7.00% to 7.99% 141.2 297.2 606.2 113.3 13.6 14.3 141.2
8.00% to 8.99% 3.8 8.1 11.1 1.4 1.9 0.5 3.8
9.00% or greater 1.0 0.9 7.9 0.4 0.6 --- 1.0
------------ ------------ ----------- ------------ -------------- ------------- -------------
Total $ 6,519.2 $ 6,611.4 $ 7,730.8 $ 4,749.8 $ 1,530.1 $ 239.3 $ 6,519.2
============ ============ =========== ============ ============== ============= =============
</TABLE>
Subsidiary Activities
The Company has formed three subsidiaries:
GreenPoint Community Development Corp. This for-profit community
development subsidiary was incorporated in 1993. The subsidiary offers lending
programs, development opportunities and assistance, consulting and other
activities which promote the objective of greater access to affordable housing
for low-and moderate-income persons residing in the New York metropolitan area.
GreenPoint Community Development Corp. is a subsidiary of the holding company.
GreenPoint Bank. The Bank was organized in 1868 as a New York State
chartered mutual savings bank. On January 28, 1994, the Bank converted from the
mutual to the stock form of ownership, and 100% of its outstanding shares were
acquired by the Company. The Bank is the principal subsidiary of the Company.
GreenPoint Capital Trust I. This subsidiary was incorporated on June 3,
1997. The subsidiary issued $200 million of Capital Securities, the proceeds of
which were used for general corporate purposes, including the repurchase of
stock and financing growth.
As of December 31, 1997 the Bank has formed ten subsidiaries:
GreenPoint Mortgage Corp. This subsidiary was incorporated on October 12,
1994 and began operations in the first quarter of 1995. On July 7, 1995, GPMC
acquired the wholesale residential mortgage lending business of
BarclaysAmerican/Mortgage Corp. ("BAM"). On April 30, 1997, the Company
purchased the Columbus, Georgia mortgage servicing operations of Citizens
Financial Group. GPMC's activities consist of the origination, sale and
servicing of mortgage loans.
GreenPoint Purchasing Corp. This subsidiary was incorporated on July 19,
1996, with an agreement between the Company and the Nassau County Industrial
Development Agency. This agreement enables the Company, on a sales tax exempt
basis, to (1) purchase and/or lease machinery and equipment for the Lake Success
facility and (2) renovate and improve the facility.
3090 Ocean Avenue Realty Corp. This subsidiary was incorporated on June 6,
1996, as a real estate investment subsidiary.
75 Route 25A Realty Corp. This subsidiary was incorporated on June 7,
1996, as a real estate investment subsidiary.
GreenPoint Corporate Officer Life Insurance. This subsidiary was
incorporated on July 25, 1996, as an insurance trust established for the purpose
of purchasing corporate life insurance policies for the officers of the Company.
19
<PAGE>
Other Real Estate Subsidiaries. The Bank has formed five wholly-owned
subsidiary corporations, all of which are incorporated under the laws of the
State of New York, for the purpose of holding and maintaining certain properties
acquired by the Bank as a result of foreclosure proceedings or deeds in lieu
thereof. As of December 31, 1997, four of these subsidiaries were active. The
Bank attempts to limit the carrying value of property held by any one subsidiary
to approximately $5 million. Accordingly, in the event the Bank acquires
additional properties through foreclosure or deeds in lieu thereof, the Bank may
form additional subsidiaries for the purpose of holding and maintaining such
properties. The properties selected by the Bank to be held in its subsidiaries
generally consist of multi-family properties with five units or more, commercial
properties and one-to four-family properties which have been identified by the
Bank as having attributes which may subject the Bank to liabilities beyond those
normally associated with its other real estate such as properties which are not
in compliance with building codes or properties with potential environmental
problems. A description of the Bank's subsidiaries are set forth below:
Neerg Corp. This subsidiary was formed in January 1990 and currently holds
11 properties having an aggregate carrying value of $1.1 million and an
aggregate appraised value of $1.3 million, as of December 31, 1997, based on the
Company's most recent appraisals.
298 15th Street Realty Corp. This subsidiary was formed in January 1993
and currently holds 13 properties having an aggregate carrying value of $1.2
million and an aggregate appraised value of $1.4 million as of December 31,
1997, based on the Company's most recent appraisals.
Neerg Second Corp. This subsidiary was formed in June 1993 and currently
holds 26 properties having an aggregate carrying value of $2.8 million and an
aggregate appraised value of $3.8 million, as of December 31, 1997, based on the
Company's most recent appraisals.
Alpha REO Corporation. This subsidiary was formed in March 1994 and
currently holds 6 properties having an aggregate carrying value of $0.5 million
and an aggregate appraised value of $0.7 million, as of December 31, 1997, based
on the Company's most recent appraisals.
Beta REO Corp. This subsidiary was formed in June 1994 and currently holds
no properties.
Liquidation of Subsidiary:
GreenPoint Mortgage Trust. This subsidiary was incorporated on February
16, 1996, as a real estate investment trust established for the purpose of
acquiring, holding and managing real estate mortgage assets. On December 15,
1997, the voluntary liquidation of GreenPoint Mortgage Trust was completed.
Savings Bank Life Insurance
As an issuing Company, the Company offers Savings Bank Life Insurance
("SBLI") to its customers up to the legal maximum of $50,000 per insured
individual and, as a trustee Company, offers an additional $500,000 in group
coverage per insured under SBLI's Financial Institution Group Life Insurance
policy. The Company also offers insurance coverage for qualifying full-time
employees in amounts up to $1,000,000 and group mortgage life insurance in
amounts up to $220,000. The SBLI Department's activities are segregated from the
Company and, while they do not materially affect the Company's earnings,
management believes that offering SBLI is beneficial to the Company's
relationship with its depositors and the general public. The SBLI Department
pays its own expenses and reimburses the Company for expenses incurred on its
behalf.
Personnel
As of December 31, 1997, the Company had 1,739 full-time employees and 212
part-time employees. The employees are not represented by a collective
bargaining unit and the Company considers its relationship with its employees to
be good.
20
<PAGE>
Federal Taxation
Generally, the Company and its subsidiaries report income on a
consolidated calendar year basis using the accrual method of accounting and are
subject to federal income taxation in the same manner as other corporations with
certain exceptions, including particularly, the Bank's addition to its tax
reserve for bad debts as discussed below. The following discussion of tax
matters is intended as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Company and its subsidiaries.
Bad Debt Reserves. For tax years prior to 1996, under the Internal
Revenue Code a special bad debt deduction for additions to the tax bad debt
reserve was allowed. Recently enacted federal legislation eliminated this
reserve method. For tax years beginning after December 31, 1995, the Bank is
only permitted to take federal deductions for bad debts on the basis of actual
loan charge off activity (specific charge-offs). This legislation also requires
that the Bank recapture into taxable income the portion of existing tax bad debt
reserve created in tax years beginning after December 31, 1987 over a six year
period. The amount of such reserve subject to recapture at December 31, 1997 is
approximately $2 million.
Provided the Bank continues to satisfy certain definitional tests and
other conditions, for New York State and City income tax purposes, the Bank is
permitted to continue to take special reserve method bad debt deductions. The
deductible annual addition to the state reserve may be computed using a specific
formula based on the Bank's loss history ("Experience Method") or a statutory
percentage equal to 32% of the Bank's New York State or City taxable income
("Percentage Method"). The Bank used the percentage method for 1996 and expects
to use the percentage method for 1997.
Taxable Distributions and Recapture. Under prior federal law, tax bad
debt reserves created prior to January 1, 1988 were subject to recapture into
taxable income should the Bank fail to meet certain thrift asset and
definitional tests. New federal legislation eliminated these thrift related
recapture rules. However, under current law, pre-1988 reserves remain subject to
recapture should the Bank make certain non dividend distributions or cease to
maintain a bank charter. Management has no intention of taking such actions.
At December 31, 1997, the Bank's total federal pre-1988 reserve was
approximately $140 million. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no Federal income tax provision has
been made.
The Bank also maintains a state and local tax reserve for qualifying
loans in excess of the federal reserve for which no state and local tax has been
provided. The amount of the Bank's state and city tax reserve for qualifying
loans in excess of the Federal Reserve balance as of December 31, 1997 was
approximately $295 million and $296 million, respectively. In the event the Bank
were to allow "qualifying assets" to fall below 60% of total assets or otherwise
fail definitional tests, the Bank would no longer be subject to the New York
State and City reserve method of computing bad debt deductions as described
above. As a result, the Bank would record a charge relating to this balance of
the then existing state and city tax reserves. Future bad debt deductions would
be based on a "5 year experience" method which is closely reflective of
financial statement loan charge-off activity. Management is not contemplating
any actions that would cause recapture of the qualifying reserves into taxable
income.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended, imposes a tax on alternative minimum taxable income ("AMTI") at a rate
of 20%. AMTI is calculated as federal taxable income adjusted for certain items
of "tax preference". For tax years beginning before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modifications)
over $2 million, was imposed on corporations, including the Company, whether or
not an alternative minimum tax ("AMT") was paid. The Company does not expect to
be subject to the AMT. The Company was subject to an environmental tax liability
for the tax year ended December 31, 1995, which was not material.
Dividends Received Exclusion and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received exclusion is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company will not file a consolidated tax return, except that if
the Company owns more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be excluded.
21
<PAGE>
State and Local Taxation
New York State and New York City Taxation. The Company and the Bank
report income on a combined calendar year basis to both New York State and New
York City. New York State Franchise Tax on corporations is imposed in an amount
equal to the greater of (a) 9% of "entire net income" allocable to New York
State (b) 3% of "alternative entire net income" allocable to New York State (c)
0.01% of the average value of assets allocable to New York State or (d) nominal
minimum tax. Entire net income is based on federal taxable income, subject to
certain modifications. Alternative entire net income is equal to entire net
income without certain modifications. The New York City Corporation Tax is
imposed using similar alternative taxable income methods and rates.
A temporary Metropolitan Transportation Business Tax Surcharge on Banking
corporations doing business in the Metropolitan District has been applied since
1982. The Company transacts a significant portion of its business within this
District and is subject to this surcharge. For the tax year ended December 31,
1997, the surcharge rate is 17% of the State franchise tax liability. New York
City does not impose surcharges applicable to the Company.
The Company is being audited by the New York City Department of Finance
for the tax years 1992 and 1993. Management of the Company believes that any
actions taken by the taxing authorities will not materially affect the financial
condition and results of operations of the Company.
Multi State Taxation. Generally, GPMC is subject to tax in a state on the
basis of income generating activities occurring within that state. Generally,
state taxes are imposed on allocated income, average assets or a nominal minimum
tax. For the tax year ended December 31, 1997, GPMC is expected to file returns
in most states using the allocated income alternative.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The tax is imposed as a percentage of the capital base of the
Company with an annual maximum of $150,000.
Bank Regulation and Supervision
The Bank is a New York State chartered savings bank and its deposit
accounts are insured up to applicable limits by the FDIC. The Bank is subject to
extensive regulation by the New York State Banking Department (the "Banking
Department"), as its chartering agency, and by the FDIC, as the deposit insurer.
The Bank must file reports with the Banking Department and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as establishing
branches, mergers with, or acquisitions of, other depository institutions and
the acquisition of assets and the assumption of liabilities of other financial
services companies. There are periodic examinations by the Banking Department
and the FDIC to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Banking Department, the FDIC or
through legislation, could have a material adverse impact on the Company and the
Bank and their operations and stockholders. The Company is also required to file
certain reports with, and otherwise comply with the rules and regulations of the
Board of Governors of the FRB and of the United States Securities and Exchange
Commission ("SEC") under the federal securities laws. Certain of the regulatory
requirements applicable to the Company and to the Bank are referred to below or
elsewhere herein.
New York State Law. The exercise by an FDIC-insured savings bank of the
lending and investment powers of a savings bank under the New York State Banking
Law is limited by FDIC regulations and other federal law and regulations. In
particular, the applicable provisions of New York State Banking law and
regulations governing the investment authority and activities of an FDIC insured
state-chartered savings bank have been effectively limited by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the FDIC
regulations issued pursuant thereto. See "Federal Deposit Insurance Corporation
Improvement Act of 1991--Restrictions on State-Chartered Banks."
22
<PAGE>
The Bank derives its lending, investment and other authority primarily
from the applicable provisions of New York State Banking Law and the regulations
of the Banking Department, as limited by FDIC regulations. See "Federal Deposit
Insurance Corporation Improvement Act of 1991--Restrictions on State-Chartered
Banks." Under these laws and regulations, savings banks, including the Bank, may
invest in real estate mortgages, consumer and commercial loans, certain types of
debt securities, including certain corporate debt securities and obligations of
federal, state and local governments and agencies, certain types of corporate
equity securities and certain other assets subject to specified limits.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment power. A savings bank may use this
power to invest in corporations that engage in various activities authorized for
savings banks, plus any additional activities which may be authorized by the
Banking Department. Investment by a savings bank in the stock, capital notes and
debentures of its service corporations is limited to 3% of the bank's assets,
and such investments, together with the bank's loans to its service
corporations, may not exceed 10% of the savings bank's assets.
Under the New York State Banking Law, the Superintendent may issue an
order to a New York State chartered Banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Banking Department
that any director, employee or officer of any banking organization has violated
any law, or has continued unauthorized or unsafe practices in conducting the
business of the banking organization after having been notified by the
Superintendent to discontinue such practices, such director, employee or officer
may be removed from office after notice and an opportunity to be heard. The Bank
does not know of any past or current practice, condition or violation that might
lead to any proceeding by the Superintendent or the Banking Department against
the Bank or any of its directors, officers or employees.
Federal Deposit Insurance Corporation Improvement Act of 1991. On December
19, 1991, FDICIA became law. While FDICIA primarily addresses required capital
levels of insured institutions, and prompt corrective action for such
institutions as capital levels decline, it also imposes a number of new
mandatory supervisory measures on commercial banks, savings banks and savings
associations.
FDICIA requires financial institutions to take certain actions relating to
their internal operations, including: providing annual reports on financial
condition and management to the appropriate federal banking regulators, having
an annual audit of financial statements performed by an independent public
accountant and establishing an independent audit committee comprised solely of
outside directors. FDICIA and its implementing regulations also mandates certain
operational and managerial standards on financial institutions relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits.
Restrictions Upon State-Chartered Banks. FDICIA added new Section 24 to
the Federal Deposit Insurance Act (the "FDI Act") which generally limits the
activities and equity investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for national banks and their
subsidiaries, unless such activities and investments are specifically exempted
by Section 24 thereof ("Section 24") or consented to by the FDIC.
In October 1992, the FDIC adopted final regulations governing the equity
investments of such banks, effective on December 9, 1992, which generally
prohibit equity investments in securities and real estate by such banks and
require the divestiture of such investments by December 19, 1996. Section 24
provides an exception for investments in common and preferred stocks listed on a
national securities exchange or the shares of registered investment companies by
a bank if (1) the bank held such types of investments during the 14 month period
from September 30, 1990 through November 26, 1991, (2) the state in which the
bank is chartered permitted such investments as of September 30, 1991, and (3)
the bank notifies the FDIC and obtains approval from the FDIC to make or retain
such investments. Upon receiving such FDIC approval, an institution's investment
in such equity securities will be subject to an aggregate limit up to its core
capital. Section 24 also contains an exception for certain majority owned
subsidiaries. Any bank holding impermissible equity investments that do not
receive FDIC approval must submit to the FDIC a plan for divesting such
investments as quickly and prudently as possible.
In December 1993 the FDIC adopted final regulations pertaining to the
activity restrictions imposed upon insured savings banks and their subsidiaries
by Section 24. Savings banks not engaging in such activities but that desire to
engage in otherwise impermissible activities may apply for approval from the
FDIC to do so if such bank meets its minimum capital requirements. The FDIC will
not approve an activity that it determines to present a significant risk to the
FDIC insurance funds.
23
<PAGE>
Prompt Corrective Action. FDICIA also establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC, FRB, the Office of the Comptroller of the Currency ("OCC") and the Office
of Thrift Supervision ("OTS") have adopted final rules, effective December 19,
1992, which require such regulators to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Regulatory action taken will depend on
the level of capitalization of the institution and may range from restrictions
on capital distributions and dividends to seizure of the institution. Generally,
subject to a narrow exception, FDICIA requires the Banking regulator to appoint
a receiver or conservator for an institution that is critically undercapitalized
within 90 days after becoming critically undercapitalized.
The final rule adopted by the FDIC on September 15, 1992, to implement the
prompt corrective action section of FDICIA, generally provides that an insured
institution that has a total capital to risk-based assets ratio of less than
8.0%, core capital to risk-based assets of less than 4.0% or core capital to
total assets ("leverage capital ratio") of less than 4.0% would be considered to
be "undercapitalized." An insured institution that has total capital to
risk-based assets of less than 6.0%, core capital to risk-based assets of less
than 3.0% or a leverage capital ratio that is less than 3.0% would be considered
to be "significantly undercapitalized" and an insured institution that has a
tangible capital to assets ratio equal to or less than 2.0% would be deemed to
be "critically undercapitalized." See "--Capital Maintenance." Generally, under
the rule, an insured institution that is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized" becomes immediately subject
to certain regulatory restrictions, including, but not limited to, restrictions
on growth, investment activities, capital distributions and affiliate
transactions. The filing of a capital restoration plan, which must be guaranteed
by any parent holding company, is also required. In addition, "critically
undercapitalized" institutions must receive prior written approval from the FDIC
to engage in any material transaction other than in the normal course of
business.
Insurance of Deposit Accounts. The Bank is a member of the Bank Insurance
Fund ("BIF") of the FDIC. Approximately 76% of the Bank's deposits (or
approximately $8.42 billion), are insured by the BIF, while the remainder, (or
approximately $2.65 billion), are insured by the Savings Association Insurance
Fund ("SAIF") of the FDIC. Deposit insurance premium rates on the Bank's
BIF-insured deposits are currently 1.256 and 6.28 basis points on the Bank's
SAIF deposits.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance. At December 31, 1997, the
Bank's capital exceeded the capital requirements imposed by the FDIC.
Capital Maintenance. FDIC regulations require insured banks, such as the
Bank, to maintain minimum levels of capital. The regulations establish a minimum
leverage capital ratio requirement of not less than 3% for banks that receive
the highest examination rating awarded by the FDIC. For all other banks, the
minimum leverage capital requirement is 3% plus an additional cushion of at
least 100 to 200 basis points. Tier 1 capital (also referred to as "Core
capital") is comprised of the sum of common stockholders' equity, non-cumulative
perpetual preferred stock (including any related surplus) and minority interests
in consolidated subsidiaries, minus all intangible assets (other than qualifying
servicing rights). At December 31, 1997, the Bank's ratio of Tier 1 capital to
total assets equaled 7.08%, which exceeded the minimum leverage requirement.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as core capital and supplementary capital) to
risk-weighted assets of at least 8% and Tier 1 capital to risk-weighted assets
of at least 4%. In determining the amount of risk-weighted assets, all assets,
plus certain off-balance sheet items, are multiplied by a risk-weight of 0% to
100%, based on the risks the FDIC believes are inherent in the type of asset or
off-balance sheet item. The components of core capital are equivalent to those
discussed above under the leverage capital ratio requirement. The components of
supplementary capital currently include cumulative perpetual preferred stock,
perpetual preferred stock, mandatory convertible securities, subordinated debt,
intermediate preferred stock and allowance for possible loan and lease losses.
Allowance for possible loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of Tier 1
capital.
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At December 31, 1997, the Bank's total capital to risk-weighted assets
("risk-based capital ratio") was 15.34% and its Tier 1 capital to risk-weighted
assets ("Tier 1 risk-based capital ratio") was 14.09%, which exceeded the FDIC
risk-based capital requirements.
Loans-to-One-Borrower Limitations. With certain limited exceptions, a New
York State chartered savings bank may not make loans or extend credit for
commercial, corporate or business purposes (including lease financing) to a
single borrower, the aggregate amount of which would be in excess of 15% of the
bank's net worth. The Bank currently complies with all applicable
loans-to-one-borrower limitations.
Standards for Safety and Soundness. The FDI Act, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994
("Community Development Act"), requires the FDIC, together with the other
federal bank regulatory agencies, to prescribe standards, by regulations or
guidelines, relating to internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, assets quality, earnings, stock valuation, and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The FDIC and the federal bank
regulatory agencies have adopted, effective August 9, 1995, a set of guidelines
prescribing safety and soundness standards pursuant to FDICIA as amended. The
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. In addition, the FDIC adopted regulations that authorize, but
do not require, the FDIC to order an institution that has been given notice by
the FDIC that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If, after being so notified, an institution fails to
submit an acceptable compliance plan or fails in any material respect to
implement an accepted compliance plan, the FDIC must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized association is subject under the
"prompt corrective action" provisions of FDICIA. If an institution fails to
comply with such an order, the FDIC may seek to enforce such order in judicial
proceedings and to impose civil money penalties.
Annual Independent Audit and Reporting Requirements. On June 2, 1993, the
FDIC adopted a final rule and related guidelines implementing the external
audit, audit committee and management reporting requirements of Section 36 of
the FDI Act. Under the FDIC rule, each insured depository institution with $500
million or more in total assets as of the beginning of each fiscal year after
December 31, 1992 must have an annual audit of its financial statements by an
independent accountant in accordance with GAAP and file an annual report with
the FDIC, its primary federal regulator and any appropriate state Banking
agency. For an insured depository institution that is a subsidiary of a holding
company, the independent audit requirement of the rule may be satisfied by
audited financial statements of the consolidated holding company. The annual
report required by the rule must contain: financial statements audited by an
independent public accountant; a statement of management's responsibilities for
preparing the annual financial statements, establishing and maintaining adequate
internal control over financial reporting, and complying with laws, regulations,
or guidelines relating to safety and soundness designated by the FDIC and the
appropriate Federal Banking agency; a separate assessment by management on the
effectiveness of internal control and the institution's compliance with the
designated safety and soundness laws, regulations and guidelines; and the
independent public accountant's report on management's assertions concerning the
internal control over financial reporting.
In addition, insured depository institutions with total assets of $500
million or more are required to establish an audit committee comprised entirely
of independent outside directors to review the annual audit findings and reports
with management and the independent public accountant. There are more stringent
criteria for audit committees of institutions with $3 billion or more in total
assets, such as the Bank, including the requirements that at least two committee
members have banking or related financial management experience and that the
committee have access to its own outside counsel. The Bank has an audit
committee in place which complies with this requirement.
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Extensions of Credit. Under FDICIA, the federal banking agencies are
required to adopt uniform regulations prescribing standards for extensions of
credit that are secured by liens on interests in real estate or made for the
purpose of financing the construction of a building or other improvements to
real estate. Under joint regulations adopted by the banking agencies, which
became effective March 19, 1993, all financial institutions must adopt and
maintain written policies that establish appropriate limits and standards for
extensions of credit that are secured by liens or interests in real estate or
are made for the purpose of financing permanent improvements to real estate.
These policies must establish loan portfolio diversification standards, prudent
underwriting standards (including loan-to-value limits) that are clear and
measurable, loan administration procedures, and documentation, approval and
reporting requirements. The real estate lending policies must reflect
consideration of the interagency Guidelines for Real Estate Lending Policies
that have been adopted by the federal bank regulators.
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
as implemented by FDIC regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA requires the FDIC, in
connection with its examination of a savings institution, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution. The CRA requires public disclosure of an institution's CRA rating
and requires the FDIC to provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating received during 1996 from the FDIC, was "outstanding", the highest
rating available.
New York State Regulation. New York State also requires banking
institutions organized in New York State to serve the credit needs of its local
community ("NYCRA"), which are substantially similar to those imposed by the
CRA. Pursuant to the NYCRA, a bank is subject to periodic reviews by the Banking
Department in regards to a bank's CRA performance. The NYCRA requires the
Banking Department to make a written assessment of a bank's compliance with the
NYCRA, utilizing a four-tiered rating system, and make such assessment available
to the public. The NYCRA also requires the Superintendent to consider a bank's
NYCRA rating when reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases and the establishment of branch
offices or automated teller machines, and provides that such assessment may
serve as a basis for the denial of any such application. The Bank's NYCRA
rating, received at its last review from the Banking Department in 1996, was
"outstanding", the highest rating available.
Federal Reserve System. Under FRB regulations, the Bank is required to
maintain non-interest-earning reserves against its transaction accounts
(primarily NOW and regular checking accounts). The FRB regulations generally
require that an institution maintain reserves of 3% against aggregate
transaction accounts of $52.0 million or less (subject to adjustment by the FRB)
plus 10% (subject to adjustment by the FRB between 8% and 14%) against that
portion of total transaction accounts in excess of $52.0 million. The first $4.3
million of otherwise reservable balances (subject to adjustments by the FRB) are
exempted from the reserve requirements. The Bank is in compliance with the
foregoing requirements. Because required reserves must be maintained in the form
of either vault cash, a non-interest-bearing account at a Federal Reserve Bank
or a pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets.
Interstate Banking and Branching. In the past, interstate banking has
been limited under the Bank Holding Company Act (the "BHCA") to those states
that permitted interstate banking by statute. New York was one of a number of
states that, subject to the reciprocity conditions of the New York Banking Law
(the "Banking Law"), permitted out-of-state bank holding companies to acquire
New York banks. By 1994, most states had adopted statutes permitting multistate
bank holding companies. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Interstate Banking Act") was enacted on September 29,
1994. The Interstate Banking Act now permits approval under the BHCA of the
acquisition by a bank holding company that is well capitalized and managed of a
bank outside the holding company's home state regardless of whether the
acquisition is permitted under the law of the state of the acquired bank. The
Federal Reserve Board may not approve an acquisition under the BHCA that would
result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
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In the past, branching across state lines was not generally available to
a state bank, such as the Bank. Out-of-state branches are authorized under the
Banking Law, but similar authority does not exist generally under the laws of
most other states. The Interstate Banking Act, beginning June 1, 1997, permits
the responsible banking agencies to approve merger transactions between banks
located in different states, regardless of whether the merger would be
prohibited under state law. Accordingly, the Interstate Banking Act will permit
a bank to have branches in more than one state. A state may "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and a state may
"opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation before that date.
The Interstate Banking Act will facilitate the consolidation of the
banking industry that has taken place over recent years and will allow the
creation of larger, presumably more efficient, banking networks, which may
affect the competition the Bank faces in the future. The effect of the
Interstate Banking Act on the Bank, if any, is likely to occur as banking
institutions, state legislators and bank regulators respond to the new federal
regulatory structure. The states will have to establish appropriate corporate
law, tax and regulatory structures to adjust to the growth of new interstate
banks.
Dividend Restrictions. New York law imposes certain restrictions on the
payment of dividends, including a provision that, without regulatory approval,
the Bank cannot declare and pay dividends in any calendar year in excess of its
"net profits" for such year combined with its "retained net profits" of the two
preceding years, less any required transfer to surplus.
Holding Company Regulation and Supervision
Federal Regulation. The Company is a registered bank holding company
pursuant to the Bank Holding Company Act of 1956, as amended ("BHCA").
The Company is subject to examination, regulation and periodic reporting
under the BHCA, as administered by the FRB. The FRB has adopted capital adequacy
guidelines for bank holding companies (on a consolidated basis) substantially
similar to those of the FDIC for the Bank.
The Company is required, under certain circumstances, to obtain the prior
approval of the FRB to acquire all, or substantially all, of the assets of any
bank or bank holding company. Prior FRB approval is required for the Company to
acquire direct or indirect ownership or control of any voting securities of any
bank or bank holding company if, after giving effect to such acquisition, it
would, directly or indirectly, own or control more than 5% of any class of
voting shares of such bank or bank holding company. The BHCA also prohibits the
acquisition by the Company of more than 5% of the voting shares, or
substantially all the assets of a bank located outside the State of New York
unless such an acquisition is specifically authorized by the laws of the state
in which such bank is located. New York State banking law permits the interstate
acquisition of banking institutions by bank holding companies on a nationwide
and reciprocal basis. In addition to the approval of the FRB, before any bank
acquisition can be completed, prior approval thereof may also be required to be
obtained from other agencies having supervisory jurisdiction over the bank to be
acquired, including the Banking Department.
The Company is required to give the FRB prior written notice of any
purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Company's consolidated net worth. The FRB
may disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe and unsound practice, or would violate any law,
regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB.
The status of the Company as a registered bank holding company under the
BHCA does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
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In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the FRB to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. Some of the activities
that the FRB has determined by regulation to be closely related to banking are:
(i) making or servicing loans; (ii) performing certain data processing services;
(iii) providing discount brokerage services; (iv) acting as a fiduciary,
investment or financial advisor; (v) leasing personal or real property; (vi)
making investments in corporations or projects designed primarily to promote
community welfare; and (vii) acquiring a savings and loan association.
Under the FDI Act, depository institutions are liable to the FDIC for
losses suffered or anticipated by the FDIC in connection with the default of a
commonly controlled depository institution or any assistance provided by the
FDIC to such an institution in danger of default. This law would have potential
applicability if the Company ever acquired as a separate subsidiary a depository
institution in addition to the Bank.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit
issued on behalf of, the bank holding company or its subsidiaries, and on the
investment in or acceptance of stocks or securities of such holding company or
its subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and federal regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, Directors and principal shareholders of the Bank, the
Company, any subsidiary of the Company and related interests of such persons.
Moreover, subsidiaries of bank holding companies are prohibited from engaging in
certain tie-in arrangements (with the Company or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or furnishing
of services.
The Company and its subsidiary, the Bank, will be affected by the monetary
and fiscal policies of various agencies of the United States Government,
including the Federal Reserve System. In view of changing conditions in the
national economy and in the money markets, it is impossible for management of
the Company to accurately predict future changes in monetary policy or the
effect of such changes on the business or financial condition of the Company.
New York State Bank Holding Company Regulation. In addition to federal
bank holding company regulations, a bank holding company organized or doing
business in New York State may be also subject to regulation under the New York
State Banking Law. The term "bank holding company," for the purposes of the New
York State Banking Law, is defined generally to include any person, company or
trust that directly or indirectly either controls the election of a majority of
the directors or owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions. In general, a bank holding company
controlling, directly or indirectly, only one banking institution is not deemed
to be a bank holding company for the purposes of the New York State Banking Law.
Under New York State Banking Law, the prior approval of the Banking Department
is required before: (1) any action is taken that causes any company to become a
bank holding company; (2) any action is taken that causes any banking
institution to become or to be merged or consolidated with a subsidiary of a
bank holding company; (3) any bank holding company acquires direct or indirect
ownership or control of more than 5% of the voting stock of a banking
institution; (4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (5) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Additionally, certain restrictions apply to New York State
bank holding companies regarding the acquisition of banking institutions which
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York State bank holding companies are
subject to limitations regarding their affiliation with securities underwriting
or brokerage firms and other bank holding companies and limitations regarding
loans obtained from its subsidiaries. Although the Company is not currently a
bank holding company for purposes of New York State law, any future acquisition
of ownership, control, or the power to vote 10% or more of the voting stock of
another bank or bank holding company would cause it to become such.
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Acquisition of the Company--Federal Restrictions. Under the Federal Change
in Bank Control Act ("CIBCA"), a notice must be submitted to the FRB if any
person (including a company), or group acting in concert, seeks to acquire 10%
or more of the Company's shares of Common Stock outstanding, unless the FRB has
found that the acquisition will not result in a change in control of the
Company. Under the CIBCA, the FRB has 60 days within which to act on such
notice, taking into consideration certain factors, including the financial and
managerial resources of the acquirer, the convenience and needs of the
communities served by the Company and the Bank, and the anti-trust effects of
the acquisition. Under the BHCA, any company would be required to obtain prior
approval from the FRB before it may obtain "control" of the Company within the
meaning of the BHCA. Control generally is defined to mean the ownership or power
to vote 25 percent or more of any class of voting securities of the Company or
the ability to control in any manner the election of a majority of the Company's
directors. See "Holding Company Regulation."
New York State Change-in-Control Restrictions. In addition to the CIBCA,
the New York State Banking Law generally requires prior approval of the New York
State Banking Board before any action is taken that causes any company to
acquire direct or indirect control of a banking institution which is organized
in New York State. See "Restrictions on Acquisition of the Company and the
Bank--Regulatory Restrictions--New York State Change-in-Control Regulation."
Federal Securities Law. The Company's Common Stock is registered with the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
ITEM 2. PROPERTIES
The Company's executive office is located at 90 Park Avenue, New York, New
York. This location contains approximately 41.1 thousand square feet of
commercial office space, located on the 4th floor, which the Company leases. The
Company also has an operating center at 1981 Marcus Avenue, Lake Success, New
York. This location contains approximately 105.3 thousand square feet of
commercial office space, which the Company leases. In addition to Lake Success,
New York, the Company's operating center in Charlotte, North Carolina at 5032
Parkway Plaza Boulevard, contains 40.6 thousand square feet, which the Company
leases. The Company's servicing operations center is located in Columbus,
Georgia. In Columbus, the Company owns the property at 2300 Brookstone
Boulevard, which contains 34.7 thousand square feet of office space. Also, in
Columbus, is another property which the Company leases, located at 2920 Fourth
Avenue. This property contains 15.4 thousand square feet, and is used for office
and storage space.
The Company operates its consumer banking activities out of 74 branches
located throughout the New York Metropolitan area.
The Company operates its mortgage lending activities from its Lake Success
operating center, as well as Charlotte, North Carolina and Englewood Cliffs, New
Jersey. Hub offices are located in California, Connecticut, Florida, Illinois,
Massachusetts, Pennsylvania, Texas and Virginia.
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ITEM 3. LEGAL PROCEEDINGS
Pending Litigation
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 has been named as a defendant in
fifteen 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
complaints are in various early stages of discovery. Outside 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.
The Company currently believes that such liability exposure, if any, would not
be material to the Bank's financial condition and results of operations.
The Bank is a defendant in a purported class action lawsuit titled Joseph
Sabbatino and Jean Sabbatino, and all others similarly situated, v. GreenPoint
Savings Bank, CV-97-1838, United States District Court, Eastern District of New
York, in which plaintiffs allege that the Bank collected monthly mortgage escrow
reserves in excess of the amounts it is entitled to collect under applicable law
and the mortgage contract. Plaintiffs seek, among other things, treble damages
and injunctive relief under breach of contract theories and alleged violation of
the Federal Racketeer Influenced and Corrupt Organization Act ("RICO"), and a
judgment based upon alleged breach of contract, breach of fiduciary duty and
intentional and/or negligent misrepresentation. The Bank has filed an answer
denying all of the Plaintiff's claims, believes its mortgage loan servicing
practices with respect to escrow deposits comply in all material respects with
applicable requirements, and intends to defend vigorously this action. While the
ultimate outcome of this lawsuit, whether by judgment or a satisfactory
settlement, cannot be predicted, management does not believe that the outcome of
this litigation is likely to have a material adverse effect on the consolidated
financial condition and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the Company's shareholders during the quarter
ended December 31, 1997.
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ITEM 4A. EXECUTIVE OFFICERS
The following sets forth certain information regarding the individuals who
are deemed to be executive officers of the Company.
Thomas S. Johnson, 57, was Chairman, President and Chief Executive Officer of
the Company and of the Bank from August 1993 to October 1997. Since that time,
he has been Chairman and Chief Executive Officer. Mr. Johnson previously served
as President of both Chemical Bank and Manufacturers Hanover Trust Company. He
is a Director of R.R. Donnelley & Sons Company, a printing company, Online
Resources & Communications Corporation and Alleghany Corporation, and a trustee
of not-for-profit organizations including The Institute of International
Education, The Asia Society, The United States Japan Foundation, WNET Channel
13, New York, and Trinity College. A graduate of Trinity, Mr. Johnson received a
masters degree in business administration from Harvard University.
Bharat B. Bhatt, 54, joined the Company in July 1995 and serves as President
and Chief Operating Officer. Prior to that he served as Vice Chairman of the
Company and the Bank. Prior to joining the Company, Mr. Bhatt was the Chief
Financial Officer of Shawmut National Corporation (1992 -1994), Senior Vice
President at Mellon Bank (1989-1992) and Vice President at Chemical Bank
(1971-1989). Mr. Bhatt holds a Bachelor of Laws and a Bachelor of Commerce
degree from the University of Bombay. Mr. Bhatt attended the Management Program
at Harvard Business School. Mr. Bhatt is also a member of the Institute of
Chartered Accountants.
Ralph Hall, 48, is Executive Vice President, Mortgage Banking, of the
Company and the Bank. Mr. Hall had been General Manager, Chief Operating
Officer and Director of General Motors Acceptance Corporation (GMAC) Mortgage
from 1992 to 1994; and President, Chief Executive Officer and a Director of
GMAC Capital Corp. from 1988 to 1992. Mr. Hall began his mortgage career at
Citicorp Mortgage, Inc. from 1986 to 1988; his last position at the Company
being Vice President of Operations and Product Development. Previously, he
was a Senior Consulting Manager with Arthur Andersen & Co. from 1978 to 1986.
Ralph Hall served in the United States Marine Corps from 1967 to 1971. Mr.
Hall holds a MBA at the University of Houston (1977) and a BS/BA in
Accounting and Economics at Southwest Missouri State University (1974).
S.A. Ibrahim, 46, joined GreenPoint Bank in March 1997 as Executive Vice
President, Risk Management. Prior to joining the Bank, Mr. Ibrahim was in charge
of International Reengineering at American Express' Travel Related Services
Company. Previously, he held various positions at Chemical Banking Corporation,
including Chief Executive Officer of the Mortgage Business, Chief of Staff to
the Vice Chairman in charge of Consumer Banking and Chief Credit Officer for
Consumer Banking. He has also been head of the Credit Card Operations at Crocker
Bank and Chief Financial Officer of the Business Services Division at Bank of
America. Mr. Ibrahim holds a B.E. in Engineering from Osmania University in
Hyderabad, India, and an MBA in Finance from the Wharton School at the
University of Pennsylvania.
Jeffrey R. Leeds, 52, joined the Bank in September 1995 and serves as
Executive Vice President of Finance. Prior to that, he served as Senior Vice
President and Treasurer. Prior to joining the Bank, Mr. Leeds held a variety of
positions at Chemical Bank. His final assignment was as Head of the Asset and
Liability Management staff. Prior to that he served for seven years as Chief
Money Market Economist. Mr. Leeds began his career as an economist at the First
National Bank of Chicago. He also spent two years as Director of New Product
Development at the Chicago Board Options Exchange. Mr. Leeds earned a Bachelor's
Degree in economics from the University of Michigan and holds a Masters in
Business Administration and Master of Philosophy from the Columbia University
Graduate School of Business.
Charles P. Richardson, 51, joined the Company in April, 1993 and serves as
the Company's and Bank's Executive Vice President, Corporate Development. Prior
to that, he served as Executive Vice President and Chief Financial Officer.
Prior to his joining the Company, Mr. Richardson was Executive Vice President
and Chief Financial Officer for Dollar Dry Dock Bank (1985-1992) and was a
banking and thrift industry consultant (1992-1993). Mr. Richardson holds a
business degree in Accounting from Temple University.
Ramesh Shah, 49, joined the Bank in June 1996 as Executive Vice President,
Marketing and Product Development. Prior to joining the Bank, Mr. Shah was
Senior Vice President of NatWest Bancorp. (1994 - 1996); Senior Vice President
of Shearson Lehman Brothers (1991 - 1994) and Senior Vice President of American
Express Company (1988 - 1991). Mr. Shah holds a Masters in Business
Administration from Columbia University and a Bachelor of Arts degree from Bates
College.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently listed on the New York Stock
Exchange (NYSE) under the symbol "GPT." Trading in the Company's stock commenced
on January 28, 1994. As of March 23, 1998, 85,245,482 shares of common stock
were issued and outstanding, and held by approximately 4,412 holders of record.
The Company paid a cash dividend of $0.125 per share in March, June, September
and December 1997. In 1996 the Company paid a cash dividend of $0.10 per share
in February, May, August and November.
Information relating to the high, low and quarter-end closing sales prices
of the Common Stock appears on page 44 in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
On March 4, 1998, the Company completed a 2-for-1 split of its common
stock. Accordingly, the financial statements for all years presented have been
restated to reflect the impact of the stock split.
ITEM 6. SELECTED FINANCIAL DATA
The above-captioned information appears under "Five Year Selected
Consolidated Data" on pages 11 and 12 in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
In addition, the Company's ratios of average equity to average assets is
10.19%, 10.58%, and 17.00% for the years ended December 31, 1997, 1996 and 1995,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The above captioned information appears under "Management's Discussion and
Analysis" on pages 13 through 21 in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Impact of the Year 2000
The Year 2000 issue is the result of many computer programs that were
written using two digits rather than four to define an applicable year. Any of
the computer programs used by the Company, its suppliers or outside service
providers that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities.
The Company has determined that it will be required to modify or replace
portions of its software so that its computer system will properly utilize dates
beyond December 31, 1999. The Company presently believes that with modifications
to existing software and conversions to new software, the Year 2000 issue will
be mitigated. However, if such modifications and conversions are not made, or
are not completed on a timely basis, the Year 2000 issue could have a material
impact on the operations of the Company.
The Company has also initiated formal communications with all of its
suppliers and service providers (including hardware, software, processing, voice
and data communication, facility components and services) to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their respective Year 2000 issue. The Company will work with each of
these third parties, to the extent it can to facilitate remediation of the Year
2000 issue and will actively participate in testing of each system to ensure
Year 2000 compliance. However, there can be no guarantee that the systems of
third parties upon which the Company relies will be timely remediated, or that a
failure to remediate by a third party would not have a material adverse effect
on the Company. The Company will utilize both internal and external resources
for the Year 2000 project.
32
<PAGE>
The Company's total Year 2000 project cost includes estimated costs and
time associated with the impact of a third party's Year 2000 issue, together
with the costs of outside consultants and the purchase of replacement
programs. The total cost of the Year 2000 project is estimated to be
immaterial to the Company's financial statements. Such costs will be funded
through operating cash flows and expensed as incurred. The current status and
costs of the project are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, the failure of
outside third parties to remediate their Year 2000 issue on a timely basis,
and similar uncertainties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The above captioned information appears on pages 22 through 44 in the
Company's 1997 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information contained in the Company's Current Report on Form 8-K, which
was filed with the SEC on March 12, 1996, is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information presented under the heading "Information with Respect to
Nominees and Continuing Directors" on pages 3 through 5 in the Company's
definitive Proxy Statement for its Annual Meeting of Shareholders to be held on
May 1, 1998, which was filed with the SEC on March 19, 1998, is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation included under the heading
"Executive Compensation" on pages 10 through 12 (excluding the Stock Performance
Graph on page 12) in the Company's Definitive Proxy Statement for its Annual
meeting of Shareholders to be held on May 1, 1998, which was filed with the SEC
on March 19, 1998, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners
and management included under the heading "Securities Owned by Directors and
Executive Officers" on page 6 in the Company's Definitive Proxy Statement for
its Annual Meeting of Shareholders to be held on May 1, 1998, which was filed
with the SEC on March 19, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included under the heading "Transactions with Certain Related Persons" on page
17 in the Company's Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 1, 1998, which was filed with the SEC on March
19, 1998, is incorporated herein by reference.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
GreenPoint Financial Corp.
List of Exhibits (filed herewith unless otherwise noted)
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1997 Annual Report
to Shareholders:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Consolidated Statements of Financial Condition as of December 31, 1997
and 1996 ............................................................... 22
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995 .................................................... 23
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 ................................. 24
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 .................................................... 25
Notes to the Consolidated Financial Statements ......................... 27
</TABLE>
34
<PAGE>
Exhibit
Number
- -------
2.1 Purchase of Assets and Liability Assumption Agreement by and between
Home Savings of America, FSB, and GreenPoint Bank (1)
3.1 Certificate of Incorporation of GreenPoint Financial Corp. (2)
3.2 Bylaws of GreenPoint Financial Corp.
3.3 Restated Organization Certificate of GreenPoint Bank (3)
3.4 Bylaws of GreenPoint Bank
10.1 Employment Agreement and Change of Control Agreement between
GreenPoint Financial Corp., GreenPoint Bank and Bharat B. Bhatt (4)
10.2 Amended Employment Agreement between GreenPoint Financial Corp.,
GreenPoint Bank and Thomas S. Johnson (5)
10.3 Change of Control Agreement between GreenPoint Financial Corp.,
GreenPoint Bank and Charles P. Richardson
10.4 GreenPoint Financial Corp. Amended and Restated 1994 Stock Incentive
Plan (6)
10.5 GreenPoint Financial Corp. 1994 Non-Employee Directors Stock Option
Plan (7)
10.6 GreenPoint Financial Corp. 1994 Annual Incentive Plan (8)
10.7 GreenPoint Financial Corp. 1994 Long Term Incentive Plan (9)
10.8 GreenPoint Bank Recognition and Retention Plan for Employees (10)
10.9 GreenPoint Bank Retirement Plan for Independent Directors (11)
10.10 GreenPoint Bank 1993 Directors' Deferred Fee Stock Unit Plan (12)
10.11 GreenPoint Bank Employee Protection Plan for Officers (13)
10.12 GreenPoint Bank Employee Protection Plan for Staff Members (14)
11.1 Statement Regarding Computation of Per Share Earnings
12.1 Statement Regarding Computation of Ratios
13.1 Annual Report to Shareholders for Fiscal Year ended December 31, 1997
21.1 Subsidiaries of the Company
23.1 Consents of Independent Accountants
23.2 Reports of Independent Accountants
27.1 Financial Data Schedule
- ---------------
(1) Incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report
on Form 10-Q, dated June 30, 1995
(2) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q, dated March 31, 1995
(3) Incorporated by reference to Exhibit 3.3 to the 1994 10-K
(4) Incorporated by reference to Exhibit 10.1 to the 1996 10-K
(5) Incorporated by reference to Exhibit 10.1 to the 1994 10-K
(6) Incorporated by reference to Exhibit 10.3 to the 1994 10-K
(7) Incorporated by reference to Exhibit 10.4 to the 1994 10-K
(8) Incorporated by reference to Exhibit 10.5 to the 1994 10-K
(9) Incorporated by reference to Exhibit 10.6 to the 1994 10-K
(10) Incorporated by reference to Exhibit 10.7 to the 1994 10-K
(11) Incorporated by reference to Exhibit 10.8 to the 1994 10-K
(12) Incorporated by reference to Exhibit 10.9 to the 1994 10-K
(13) Incorporated by reference to Exhibit 10.10 to the 1994 10-K
(14) Incorporated by reference to Exhibit 10.11 to the 1994 10-K
35
<PAGE>
Financial Statements Schedules
The Schedules have been omitted as the required information is either not
applicable or has been included in the Notes to the Consolidated Financial
Statements in the Company's Annual Report to Shareholders.
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 December 31, 1997.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
------------------------------
Thomas S. Johnson
Chairman of the Board
and Chief Executive Officer
Dated: March 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Thomas S. Johnson
- ---------------------------- Chairman of the Board 3/11/98
Thomas S. Johnson and Chief Executive Officer
/s/ Bharat B. Bhatt
- ---------------------------- Member of the Board,
Bharat B. Bhatt President and Chief 3/11/98
Operating Officer
/s/ Edward C. Bessey
- ---------------------------- Director 3/11/98
Edward C. Bessey
/s/ Dan F. Huebner
- ---------------------------- Director 3/11/98
Dan F. Huebner
- ---------------------------- Director 3/11/98
William M. Jackson
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Susan J. Kropf
- ---------------------------- Director 3/11/98
Susan J. Kropf
/s/ Robert M. McLane
- ---------------------------- Director 3/11/98
Robert M. McLane
/s/ Charles B. McQuade
- ---------------------------- Director 3/11/98
Charles B. McQuade
/s/ Alvin N. Puryear
- ---------------------------- Director 3/11/98
Alvin N. Puryear
/s/ Robert P. Quinn
- ---------------------------- Director 3/11/98
Robert P. Quinn
/s/ Edward C. Schmults
- ---------------------------- Director 3/11/98
Edward C. Schmults
/s/ Wilfred O. Uhl
- ---------------------------- Director 3/11/98
Wilfred O. Uhl
/s/ Robert F. Vizza
- ---------------------------- Director 3/11/98
Robert F. Vizza
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Jules Zimmerman
- ---------------------------- Director 3/11/98
Jules Zimmerman
/s/ Charles P. Richardson
- ---------------------------- Executive Vice President 3/11/98
Charles P. Richardson
/s/ Jeffrey R. Leeds
- ---------------------------- Executive Vice President, 3/11/98
Jeffrey R. Leeds Finance (Principal Financial
Officer)
/s/ Mary Beth Farrell
- ---------------------------- Senior Vice President 3/11/98
Mary Beth Farrell and Comptroller
</TABLE>
39
<PAGE>
EXHIBIT 3.2
GREENPOINT FINANCIAL CORP.
BYLAWS
As of January 1, 1998
<PAGE>
GREENPOINT FINANCIAL CORP.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the Whole Board. The term "Whole Board" shall mean the total
number of Directors which the Corporation would have if there were no vacancies
on the Board of Directors (hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law.
When a meeting is adjourned to another place, date or time, written notice
need not
<PAGE>
be given of the adjourned meeting if the place, date and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than thirty (30) days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date, and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
3
<PAGE>
Section 5. Organization.
The Chairman of the Board of the Corporation or, in his or her
absence, such person as the Board of Directors may have designated or, in the
absence of such a person, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary of
the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive
4
<PAGE>
office of the Corporation not less than ninety (90) days prior to the date of
the annual meeting; provided, however, that in the event that less than one
hundred (100) days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter such stockholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Chairman of the Board or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, he
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
5
<PAGE>
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of a majority of the Whole Board of Directors.
(c) Only persons who are nominated in accordance with the procedures set
forth in these Bylaws shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders at which directors are to be elected only (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 6(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive office of the Corporation not less
than ninety (90) days prior to the date of the meeting; provided, however, that
in the event that less than one hundred (100) days' notice or prior disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A
6
<PAGE>
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (ii) as to the stockholder giving the
notice (x) the name and address, as they appear on the Corporation's books, of
such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The Chairman of the Board or other person presiding at the
meeting shall, if the facts so warrant, determine that a nomination was not made
in accordance with such provisions and, if he or she shall so determine, he or
she shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
7
<PAGE>
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefore by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Board of Directors shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Board of Directors may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the Chairman of the Board, or in his absence such person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
All elections for Directors shall be determined by a plurality of the
votes cast, and except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders,
8
<PAGE>
arranged in alphabetical order for each class of stock and showing the address
of each such stockholder and the number of shares registered in his or her name,
shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be under the direction
of its Board of Directors. The number of Directors who shall constitute the
Whole Board shall be such number as the majority of the Whole Board shall from
time to time have designated except
9
<PAGE>
in the absence of such designation such number shall be 16. The Board of
Directors shall annually elect a Chairman of the Board from among its members
who shall when present, preside at meetings of the Board of Directors.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual
10
<PAGE>
meeting of stockholders at which the term of office of the class to which they
have been elected expires and until such Director's successor shall have been
duly elected and qualified. No decrease in the number of authorized directors
constituting the Board shall shorten the term of any incumbent Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by a majority of
the Directors then in office (rounded up to the nearest whole number), or by the
Chairman of the Board and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom is it not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority
11
<PAGE>
of those present may adjourn the meeting to another place, date, or time,
without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board or the Chairman of the Board may from time to
time determine, and all matters shall be determined by the vote of a majority of
the Directors present, except as otherwise provided herein or required by law.
Action may be taken by the Board of Directors without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
12
<PAGE>
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-negotiable,
secured or unsecured, and to do all things necessary in connection therewith;
(4) To remove any Officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any Officer upon any other
person for the time being;
(5) To confer upon any Officer of the Corporation the power to appoint,
remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
13
<PAGE>
Section 10. Retirement of Directors.
Except for the initial members of the Board of Directors, no person shall
be eligible for initial election as a Director who is 65 years of age or more.
No person may be elected, appointed, nominated or otherwise serve as a Director
of the Corporation after December 31 of the year in which such person attains
the age of 72, grandfathering the three Directors who currently (as at April
1994) have attained the age of 72 or more to the age of 75. Vacancies on the
Board of Directors created by operation of this provision may be filled in
accordance with these Bylaws.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Whole Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of a majority of the Whole Board and shall, for these committees and
any others provided for herein, elect a Director or Directors to serve as the
member or members, designating, if it desires, other Directors as alternate
members who may replace any absent or disqualified member at any meeting of the
committee. The Board of Directors, by a resolution adopted by a majority of the
Whole Board may terminate any committee previously established. Any committee so
designated by resolution adopted by a majority of the Whole Board may exercise
the power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock
14
<PAGE>
or to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware General Corporation Law if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee and
any alternate member in his or her place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law or the Board of Directors. Adequate
provision shall be made for notice to members of all meetings; a majority of the
members shall constitute a quorum unless the committee shall consist of one (1)
or two (2) members, in which event one (1) member shall constitute a quorum; and
all matters shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors, by resolution adopted by a majority of the Whole
Board, shall appoint a Nominating Committee of the Board, consisting of not less
than three (3) members
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of the Board of Directors. The Nominating Committee shall have authority (a) to
review any nominations for election to the Board of Directors made by a
stockholder of the Corporation pursuant to Section 6(c)(ii) of Article I of
these Bylaws in order to determine compliance with such Bylaw and (b) to
recommend to the Whole Board nominees for election to the Board of Directors (i)
to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing and (ii) to fill vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
or resulting from an increase in the authorized number of Directors.
ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors shall choose a Chairman of the Board, who shall
be the Chief Executive Officer, and a Secretary and from time to time may choose
such other officers as it may deem proper. The Chairman of the Board shall be a
member of the Board of Directors. Any number of offices may be held by the same
person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors, or by the Chairman of the Board.
(c) All Officers chosen by the Board of Directors or the Chairman of the
Board shall each have such powers and duties as generally pertain to their
respective Offices,
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subject to the specific provisions of this ARTICLE IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors.
Section 2. Chairman of the Board of Directors and Chief Executive Officer.
The Chairman of the Board and Chief Executive Officer, subject to the
provisions of these Bylaws and to the direction of the Board of Directors, shall
serve in a general executive capacity and, when present, shall preside at all
meetings of the stockholders of the Corporation. He shall perform all duties and
have all powers which are commonly incident to the office of Chairman of the
Board or which are delegated to him by the Board of Directors. He shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized.
He shall also have general responsibility for the management and control
of the business and affairs of the Corporation and shall perform all duties and
have all powers which are commonly incident to the office of Chief Executive
Officer or which are delegated to it by the Board of Directors. Subject to the
direction of the Board of Directors, he shall have general supervision of all of
the other Officers, employees and agents of the Corporation.
Section 3.President. The President shall be designated as Chief Operating
Officer and shall perform such administrative and executive duties as from time
to time may be assigned or delegated by the Chairman of the Board. In the
absence of or inability of the Chairman of the Board to act, the President shall
perform all the duties of the Chairman of the Board.
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Section 4. Vice President.
The Vice Presidents shall perform the duties and exercise the powers
usually incident to their respective offices and/or such other duties and powers
as may be properly assigned to them by the Board of Directors or the Chairman of
the Board. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors or the Chairman of the Board. Subject
to the direction of the Board of Directors, the Secretary shall have the power
to sign all stock certificates.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors or the Chairman of the Board may appoint one or
more Assistant Secretaries and such other Officers who shall have such powers
and shall perform such duties as are provided in these Bylaws or as may be
assigned to them by the Board of Directors or the Chairman of the Board.
Section 7. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the
Board or any Officer of the Corporation authorized by the Chairman of the Board
shall have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting
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of stockholders of or with respect to any action of stockholders of any other
corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, certifying the number of shares owned
by him or her. Any or all of the signatures on the certificate may be a
facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 Article V of these Bylaws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of
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Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) days nor less than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for such other action as hereinbefore described; provided, however, that if
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the next day preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment or rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
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Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, Director, Officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
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ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any Officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof designated by the Board.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a designated committee thereof,
duplicates of the seal may be kept and used by the Chief Financial Officer or by
an Assistant Secretary or an assistant to the Chief Financial Officer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by lawyers,
accountants, agents or any other person as to matters which such Director or
committee member or officer reasonably believes are within such other person's
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professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors by a resolution adopted by a majority of the Whole
Board, may amend, alter or repeal these Bylaws at any meeting of the Board,
provided notice of the proposed change was given not less than two days prior to
the meeting. The stockholders shall also have power to amend, alter or repeal
these Bylaws at any meeting of stockholders provided notice of the proposed
change was given in the notice of the meeting; provided, however, that,
notwithstanding any other provisions of the Bylaws or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the voting
stock required by law, the Certificate of Incorporation, any Preferred Stock
Designation or these Bylaws, the affirmative votes of the holders of at least
80% of the voting power (taking into account the
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provisions of Article FOURTH of the Certificate of Incorporation) of all the
then-outstanding shares of the Voting Stock voting together as a single class,
shall be required to alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of August 31, 1993, the date of incorporation
of GP FINANCIAL CORP.
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Exhibit 3.4
BYLAWS
OF
GREENPOINT BANK
As of January 1, 1998
<PAGE>
BYLAWS OF
GREENPOINT BANK
ARTICLE I. HOME OFFICE
The home office of the GreenPoint Bank ("SAVINGS BANK") is 807 Manhattan
Avenue, Brooklyn, New York.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the SAVINGS BANK or at such
other place in the State in which the principal place of business of the SAVINGS
BANK is located as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the SAVINGS
BANK for the election of Directors and for the transaction of any other business
of the SAVINGS BANK shall be held annually within 120 days after the end of each
calendar year.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the New
York State Banking Department ("NYB"), may be called at any time by the Chairman
of the Board of Directors (as set forth in Article V, Section 7, hereinafter
referred to as the "Chairman of the Board") or by a majority of the Whole Board
of Directors, whereas the term "Whole Board of Directors" shall mean the number
of authorized directorships, whether or not there exists any vacancies in any
previously authorized directorships.
Section 4. Conduct of Meetings. The Chairman of the Board shall preside at
all meetings and in his absence, a person designated by a majority of the Board
shall preside at all meetings. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such regulations of the manner of voting and the conduct of discussion as seem
to him in order.
Section 5. Notice of Meetings. Written notice stating the place, day and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the secretary, or the Board of Directors calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
<PAGE>
shareholder at the address as it appears on the stock transfer books or records
of the SAVINGS BANK as of the record date prescribed in Section 6 of this
Article II, with postage prepaid. When any shareholders' meeting, either annual
or special, is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. It shall not be necessary
to give any notice of the time and place of any meeting adjourned for less than
30 days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
50 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the SAVINGS BANK shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the SAVINGS BANK. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection by any shareholder during the entire time
of the meeting. The original stock transfer book shall constitute prima facie
evidence of the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the SAVINGS
BANK entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than a
quorum. If less than a majority of the outstanding shares is represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. The existence of a quorum
at any meeting, or the existence
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of a duly organized meeting at which enough shareholders have withdrawn from
such meeting to constitute less than a quorum, however, shall not serve to
amend, alter or modify any provisions in the SAVINGS BANK's restated
organization certificate or these Bylaws which require the vote of more than a
majority of the outstanding shares entitled to vote at a duly organized meeting.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Whole Board of Directors. No proxy shall be
valid more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the SAVINGS BANK to the contrary, at any meeting of the
shareholders of the SAVINGS BANK any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name, if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
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Neither treasury shares of its own stock held by the SAVINGS BANK, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the SAVINGS
BANK, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders shall not be entitled to
cumulate their votes for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board may, or on the request of a shareholder
present at the meeting shall, make such appointment at the meeting. If appointed
at the meeting, the Chairman of the Board shall determine whether there shall be
one or three inspectors of election. If appointed at the meeting and the
Chairman of the Board fails to determine whether there shall be one or three
inspectors of election, the majority of the votes present shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the Chairman of the Board.
Unless otherwise prescribed by regulations of the NYB, the duties of such
inspectors shall include: determining the number of shares outstanding and the
voting power of each share, the number of shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
Section 14. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the SAVINGS
BANK at least 45 days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting, but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
45 days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more
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thereafter. This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees; but in connection with such reports no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
Section 15. Informal Action by Shareholders. Any action required to be
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the SAVINGS BANK
shall be under the direction of its Board of Directors. No more than three
salaried officers of the SAVINGS BANK may simultaneously serve on the board. The
Board of Directors shall annually elect a Chairman from among its members who
shall preside at its regular and special meetings. In the absence or inability
of the foregoing officer to act, at any fully constituted meeting of the Board
members, a temporary chairperson shall be appointed by those present to act as
such during the interim term.
Section 2. Number and Term. The Board of Directors shall consist of
fourteen (14) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected annually.
Section 3. Regular Meetings. A regular monthly meeting of the Board of
Directors shall be held at least eleven times a year without other notice than
this bylaw. At least one meeting shall be held immediately after and at the same
place as, the annual meeting of shareholders, which shall be the annual meeting
of the Board. The Board of Directors may provide, by resolution, the time and
place, within the SAVINGS BANK's normal lending territory, for the holding of
additional regular meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the SAVINGS
BANK unless the SAVINGS BANK is a wholly owned subsidiary of a holding company.
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Section 5. Special Meetings. The Chairman of the Board, or in the absence
or disability of the Chairman of the Board, the President may call special
meetings of the Board, and the Secretary of the Board shall call a meeting upon
the written request of a majority of the Board of Directors. A special meeting
may be held at such time and place as shall be stated in the notice of meeting.
Section 6. Participation in Meetings by Directors. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of such Board
or Committee by means of conference telephone, or by means of similar
communications equipment by means of which all persons participating in the
meeting can speak and hear each other at the same time and such participation
shall constitute presence in person at such meeting.
Section 7. Notice. Written notice of any special meeting shall be given to
each director at least twenty-four (24) hours prior thereto when delivered
personally or by telephone or telegram, or at least five days prior thereto when
delivered by mail at the address at which the director is most likely to be
reached. Such notice shall be deemed to be delivered when deposited in the mail
so addressed, with postage prepaid if mailed, or when delivered to the telegraph
company if sent by telegram. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. The business to
be transacted at, and the purpose of, any special meeting of the Board of
Directors must be specified in the notice of such meeting and no other business
shall be transacted at that time.
Section 8. Quorum. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transacting of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in the
same manner as prescribed by Section 7 of this Article III.
Section 9. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulations of the NYB,
the Restated Organization Certificate or by these Bylaws.
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Section 10. Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 11. Eligibility, Resignation and Retirement. Any director may
resign at any time by sending a written notice of such resignation to the home
office of the SAVINGS BANK addressed to the Chairman of the Board. Unless
otherwise specified, such resignation shall take effect upon receipt by the
Chairman of the Board. The absence from regular meetings of the Board of
Directors and the meetings of any committee of the Board of which the director
is a member, for six consecutive months, unless excused by resolution of the
Board of Directors, shall automatically constitute a resignation, effective when
such resignation is accepted by the Board of Directors.
Except for the initial members of the Board of Directors as set forth in
the Restated Organization Certificate, no person shall be eligible for initial
election as a Director who is 65 years of age or more. No person may be elected,
appointed, nominated or otherwise serve as a director of the SAVINGS BANK after
December 31 of the year in which such person attains the age of 72,
grandfathering the three Directors who currently (as at April 1994) have
attained the age of 72 or more to the age of 75. Vacancies on the Board of
Directors created by operation of this provision may be filled in accordance
with the Bylaws.
Section 12. Vacancies. All vacancies in the office of Director, including
newly created Directorships resulting from an increase in the number of
Directors, shall be filled by election of stockholders, except that vacancies
not exceeding one-third of the entire Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, although less than a
quorum of the Board of Directors, provided that the nomination of a candidate
therefor shall have been made by the Nominating Committee, created as
hereinafter provided in these Bylaws. A director elected to fill a vacancy shall
be elected to serve for the balance of the unexpired term and a Director elected
to fill a vacancy to be filled by reason of an increase in the number of
directors shall be elected to serve for the balance of the unexpired term of the
class to which such director is elected.
Section 13. Compensation. Directors, as such, may receive compensation for
their services, including a stated retainer. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
the Board of Directors. Members of either standing, special or temporary
committees, as such, may receive compensation for their services, including a
stated retainer, as the Board of Directors may determine. By resolution of the
Board of Directors, a reasonable fixed sum, and reasonable expenses of
attendance,
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if any, may be allowed for actual attendance at each regular or special meeting
of committees.
Section 14. Presumption of Assent. A director of the SAVINGS BANK who is
present at a meeting of the Board of Directors at which action on any SAVINGS
BANK matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the SAVINGS BANK within five
days after the date a copy of the minutes of the meeting is received. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 15. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the Restated Organization Certificate
or supplemental sections thereto, the provisions of this section shall apply, in
respect to the removal of a director or directors so elected, to the vote of the
holders of the outstanding shares of that class and not to the vote of the
outstanding shares as a whole.
Section 16. Emergency Authority. In the event there shall occur an acute
emergency resulting from a hostile attack, as defined in Article 7 of the New
York State Defense Emergency Act, which shall be of such severity as to prevent
the conduct and management of the affairs and business of the SAVINGS BANK by
its Directors and officers as otherwise provided in these Bylaws, any three or
more available members of the then incumbent Executive Committee shall
constitute an emergency Board of Directors which shall have the power, subject
to limitations prescribed in Article 7 of the New York State Defense Emergency
Act, by a majority of such persons present, to take any and every action which
may be necessary to meet the exigencies of the acute emergency and to enable the
SAVINGS BANK to conduct its business during such period, including the
relocation elsewhere of any office of the SAVINGS BANK which shall be unable to
function because of the acute emergency. If during the period of acute emergency
there shall be no Executive Committee, or a minimum of three members of the then
incumbent Executive Committee shall not be available, then and in that event
such other available Directors as may be needed to obtain the minimum of three
members shall serve on the emergency Board of Directors.
During a period of acute emergency resulting from a hostile attack, the
emergency management of the SAVINGS BANK shall be in accordance with the powers
and limitations
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contained in the existing provisions of Article 7 of the New York State Defense
Emergency Act, and such provisions shall suspend or modify these Bylaws to the
extent of any conflict.
ARTICLE IV. COMMITTEES
Section 1. Enumeration of Committees. The standing committees of the Board
of Directors shall be an Executive Committee, an Audit Committee, and a
Nominating Committee. The Board of Directors, by vote of a majority of the whole
Board of Directors, may from time to time designate additional committees of the
Board, either temporary or permanent, with such lawfully delegable powers and
duties as it thereby confers not inconsistent with these Bylaws, to serve at the
pleasure of a majority of the Whole Board and shall, for these committees and
any others provided for herein, elect a Director or Directors to serve as the
member or members, designating, if it desires, other Directors as alternate
members ("Alternate Directors") who may replace any absent or disqualified
member at any meeting of the committee; provided however, that the Chairman
shall be a member of, and shall serve as the chairman of the Executive
Committee. The Board of Directors, by a resolution adopted by a majority of the
Whole Board may terminate any committee previously established.
Section 2. The Executive Committee. The Executive Committee shall consist
of the Chairman of the Board and five additional Directors elected annually by
the vote of the majority of the Whole Board.
If any member of the Executive Committee shall be absent from any meeting
of the committee, the Chairman shall designate some other Director, other than
one serving as a salaried officer, to act as a member of the committee at that
meeting. In the event there shall be a vacancy in the office of Chairman, then
and in that event such other additional Director or Directors as may be needed
to obtain the full complement of six members shall be elected by the Board to
serve until the vacancy is filled, or until the next annual meeting. Any member
of the executive committee may be removed at any time with or without cause by
resolution adopted by a majority of the Whole Board of Directors.
Regular meetings of the Executive Committee may be held without notice at
such times and places as the Executive Committee may fix from time to time by
resolution. Special meetings of the committee may be called by the Chairman or
at any time by any two members of the committee, upon twenty-four hours' notice
by mail, in person, or by telegraph or telephone. The notice of a special
meeting of the committee, however given, shall state the time when and the
place, which shall be within the State of New York, where
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the meeting is to be held and the business which is to be presented and no
business other than that stated in the notice shall be transacted at said
meeting. The Executive Committee may make rules for the regulation of its
meetings and proceedings not inconsistent with these Bylaws.
Four members of the committee, including designees designated to act for
an absent member or members of the committee, shall be necessary for a quorum at
any meeting of the committee. Attendance by Alternate Directors shall constitute
membership on the Committee for determining quorum requirements. Action of the
executive committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present. Any action
required or permitted to be taken by the executive committee at a meeting may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the members of the executive committee.
Except as otherwise provided herein, the Executive Committee, when the
Board of Directors is not in session, shall have and may exercise all of the
authority of the Board of Directors, except to the extent, if any, that such
authority may be limited by resolution adopted by a majority of the Whole Board
of Directors or by the laws of the State of New York. In addition, the Executive
Committee shall not have the authority of the Board of Directors with reference
to: the submission to stockholders of any action that requires stockholders'
authorization under New York law or regulations; the filling of vacancies in the
Board of Directors or in any committee of the Board of Directors; the fixing of
compensation of the Directors for serving on the Board or any committee thereof;
the amendment or repeal of any resolution of the Board of Directors which by its
terms shall not be so amendable or repealable; the taking of any action which is
expressly required by New York law or regulation to be taken at a meeting of the
Board of Directors or by a specified proportion of Directors; the amendment or
repeal of the Restated Organization Certificate or Bylaws of the SAVINGS BANK or
adoption of new Bylaws of the SAVINGS BANK, or recommending to the shareholders
a plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
SAVINGS BANK otherwise than in the usual and regular course of its business; a
voluntary dissolution of the SAVINGS BANK; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. The Nominating Committee. The Board of Directors, by resolution
adopted by a majority of the Whole Board, shall appoint a Nominating Committee
of the Board, consisting of not less than three (3) members of the Board of
Directors. The Nominating Committee shall have authority (a) to review any
nominations for election to the
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Board of Directors made by a stockholder of the SAVINGS BANK and (b) to
recommend to the Whole Board nominees for election to the Board of Directors (i)
to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing and (ii) to fill vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
or resulting from an increase in the authorized number of Directors.
Section 4. The Audit Committee. The Audit Committee shall consist of four
or more Directors, none of whom shall be a salaried officer of the SAVINGS BANK,
who shall be elected to said Committee at the annual meeting of the Board of
Directors, or in the case of the filling of a vacancy (such vacancy, in every
case to be filled by an existing non-salaried Director) at any regular or
special meeting of the Board. The Audit Committee shall assist the Board of
Directors in fulfilling its obligation to oversee the appropriateness of
accounting policies, and SAVINGS BANK procedures and controls and shall be
charged with the duty of carrying out the requirements of Section 254 of the
Banking Law as the same now is in force or as it may be amended or of any law
substituted therefor. In performing its functions, the Audit Committee shall
utilize the expertise of the SAVINGS BANK's internal Auditing Department under
the direction of the SAVINGS BANK's internal Auditor. The Audit Committee shall
hold formal meetings with the SAVINGS BANK's internal auditors on a quarterly
basis.
ARTICLE V. OFFICERS
Section 1. Positions. The Board shall elect a Chairman of the Board, who
shall be the Chief Executive Officer and who shall be a member of the Board of
Directors. The Board shall also elect a President, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, and a Secretary, who need not be
members of the Board. The offices of Secretary and, if appointed, Treasurer, may
be held by the same person and a Vice President may also be either a Secretary
or Treasurer. Any offices may be held concurrently by the same person, except
that the Chairman shall hold no additional office other than in this Section 1
provided. The Board of Directors shall also appoint the Auditor, who may not
hold another office.
The Chairman, the President and the Executive Vice Presidents shall be the
Executive Officers of the SAVINGS BANK.
Section 2. Election and Term of Office. The officers of the SAVINGS BANK
required to be elected by the Board of Directors pursuant to Section 1 hereof
shall be elected annually at the annual meeting of the Board of Directors or at
the first meeting of the Board of Directors held after each annual meeting of
the shareholders. If the election of officers
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is not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, retirement or removal
in the manner hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contractual rights. The Board of
Directors may authorize the SAVINGS BANK to enter into an employment contract
with any officer; but no such contract shall impair the right of the Board of
Directors to remove any officer at any time in accordance with Section 3 of this
Article V.
Section 3. Removal. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the SAVINGS BANK will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any executive officer position because
of death, resignation, removal, disqualification or otherwise, may be filled by
the Board of Directors for the unexpired portion of the term. Any vacancy in any
officer position other than an executive officer position may be filled by the
Chief Executive Officer for the unexpired portion of the term, provided such
action by the Chief Executive Officer is ratified by the Board of Directors.
Section 5. Delegation of Duties. In the absence or disability of an
officer of the SAVINGS BANK, or for any other reason which may seem sufficient
to the Board, the Board of Directors may delegate his powers and duties to any
other officer or to any Director.
Section 6. Remuneration. The remuneration of the officers shall be fixed
from time to time by the Board of Directors. The employees of the SAVINGS BANK
shall receive such compensation and allowances as the Board of Directors may
from time to time fix or approve or, within limits or schedules from time to
time fixed or established by the Board as may be determined by the Executive
Committee, the Chairman or a committee of the Board appointed for that purpose.
Section 7. Chairman of the Board of Directors and Chief Executive Officer.
The Chairman of the Board shall be the Chief Executive Officer of the SAVINGS
BANK and, subject to the provisions of these Bylaws and the resolutions of the
Board, shall have the active management, direction and supervision of the
SAVINGS BANK and its officers, its operations, securities and obligations, and
shall have all powers and perform all duties incidental of his office. He shall
preside at all meetings of the Board and the Executive
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Committee, and appoint all committees not otherwise provided for by law or by
these Bylaws or by action of the Board of Directors. He may perform, or cause to
be performed, at any time, any of the functions or duties of any other officer.
He may assign to all other officers, employees and agents of the SAVINGS BANK,
duties in addition to those specifically described in these Bylaws.
He shall have custody of the common seal and direct the use of it. He
shall have power to sign and execute any and all contracts, papers and legal
documents. He may delegate to Counsel or such other officers as are designated
by the Board of Directors, the authority, under the seal of the SAVINGS BANK, to
execute and acknowledge, in the name and on behalf of the SAVINGS BANK, all
contracts, papers and documents incident or related to the business of the
SAVINGS BANK, except where otherwise directed by law or by these Bylaws.
Unless otherwise provided by resolution of the Board of Directors or these
Bylaws, he may fill vacancies on committees and may appoint such other
committees as he may deem necessary or the Board may require. He shall perform
such other duties as the Board of Directors may direct.
The decisions of the Chairman of the Board on any matter, incident to the
business of the SAVINGS BANK, shall be conclusive unless modified by the Board
of Directors.
Section 8. President. The President shall be designated as Chief Operating
Officer and shall perform such administrative and executive duties as are
provided in these Bylaws, and as may be properly delegated by the Chairman of
the Board. In the absence of or inability of the Chairman of the Board to act,
the President shall perform all the duties of the Chairman of the Board.
Section 9. Executive Vice Presidents. The Executive Vice Presidents shall
perform such administrative and executive duties as are provided in these
Bylaws, and as may be properly required of them or delegated to them by the
Chairman, or as may from time to time be required by the Board of Directors, and
shall exercise such powers as may from time to time be conferred upon them by
the Board.
Section 10. Secretary. The Secretary shall give due notice as in these
Bylaws provided of all meetings of the Board of Directors and of the Executive
Committee. He shall attend all meetings of the Board and of said Committee and
shall keep the minutes thereof. If requested so to do he shall attend and keep
the minutes of the meetings of any and all other committees of the Board. He
shall have custody of the corporate records of the
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SAVINGS BANK and its common seal; and when properly affixed to any document
shall attest said seal. He shall perform all of the usual duties of the
Secretary of a corporation, together with such duties as may from time to time
be properly assigned to him by the Chairman or the Board of Directors.
Section 11. Senior Vice Presidents. The Senior Vice Presidents shall
severally perform such duties and shall exercise such powers as may from time to
time be assigned to or conferred upon them by the Board of Directors, and they
shall perform such other duties as may be assigned to them by the Chairman.
Section 12. Auditor. The Auditor shall, subject to the control and
direction of the Board of Directors, have supervision and control of such
program of internal audit as may be approved by the Board or be required by a
body having supervisory or examining authority over the SAVINGS BANK; said
program shall in any case, require periodic review and verification of the
assets of the SAVINGS BANK, the control of items of income and the review of
expenditures. He shall also examine, or cause to be examined, and verify, or
cause to be verified, entries in financial records and shall review, or cause to
be reviewed all reports made to examining, supervisory and taxing authorities
before they are forwarded or filed. The Auditor shall report in writing upon the
foregoing matters to the Chairman at least as often as once in each quarter. The
Auditor also shall transmit directly to the Audit Committee of the Board of
Directors such reports, quarterly or otherwise, as may be necessary for that
Committee to perform its functions. The Auditor shall also prepare or have
prepared and shall submit any and all additional reports required of him at any
time by the Board of Directors or the Chairman.
Section 13. Other Officers. The Chairman of the Board or the Board of
Directors, upon recommendation of the Chairman of the Board, may in their
discretion, from time to time, establish such other offices as it may deem wise
and may elect incumbents thereof and fix their duties and powers not
inconsistent with the provisions of these Bylaws. Such officers, unless the
Board shall by resolution duly adopted otherwise provide, shall hold office
during the pleasure of the Board and the Chairman.
ARTICLE VI. SECURITIES AND INVESTMENTS
Section 1. Loans and Investments. The Board of Directors shall from time
to time determine and direct to what extent the funds and property of the
SAVINGS BANK shall be invested, and, subject to all applicable provisions of
law, the kind and character of the investments which are to be made and how the
same shall be handled and dealt with. No
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loans shall be contracted on behalf of the SAVINGS BANK and no evidence of
indebtedness shall be issued in its name unless authorized by the Board of
Directors. Such authority may be general or confined to specific instances.
Section 2. Care and Custody of Securities. All stocks, bonds and other
securities, including bonds and mortgages, not directed by the Board of
Directors to be held in bearer form, or in the name of a nominee, shall be in
the name of the SAVINGS BANK and, to the extent that the form of the several
securities may permit or as may be permitted or required by law, shall be
registered or recorded in the name of the SAVINGS BANK. All securities including
bonds and mortgages held by the SAVINGS BANK shall be kept in such manner and at
such places as the Board of Directors, having due regard for the safety and
protection thereof, may direct, and all or any part thereof may be lodged or
deposited for safekeeping with such other institutions as the Board may from
time to time approve.
Section 3. Transfers of Securities, Etc. Transfers and assignments of
stocks, bonds and other securities standing, issued or registered in the name of
the SAVINGS BANK may be signed by any two of the following officers acting by
virtue of their several offices, to wit: the Chairman, the President, an
Executive Vice President, the Secretary, or may be signed by any one of said
officers together with such other officer or officers, or person or persons, as
the Board of Directors may from time to time authorize or designate.
The Chairman or the President, or in their absence an Executive Vice
President (other than one serving as Mortgage Loan Officer) or the Secretary,
shall execute any and all instruments for the proper transaction of the business
of the SAVINGS BANK relating to its mortgage investments, including extensions,
modifications, alterations, and amendments, assignments and satisfaction pieces.
The Board of Directors may, nevertheless, at any time authorize and empower
other additional officers or employees to do any one or more of these things.
ARTICLE VII. DEPOSITORIES, CHECKS AND DRAFTS
Section 1. Depositaries and Withdrawals. The Board of Directors may from
time to time designate banks, trust companies or similar institutions to be
depositaries of funds of the SAVINGS BANK and may by resolution designate the
officer or officers, or employee or employees, who shall be authorized to sign
the checks, drafts, vouchers or orders of the SAVINGS BANK upon which such
depositaries shall be authorized to pay out the moneys so deposited. Unless and
until the Board shall otherwise provide, such checks, drafts,
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vouchers or orders for the payment of deposited funds shall be signed by any two
of the following officers (other than one serving concurrently as Mortgage Loan
Officer or Auditor): the Chairman, the President, an Executive Vice President, a
Senior Vice President, a Vice President, the Secretary, the Comptroller, an
Assistant Vice President, an Assistant Secretary, an Assistant Comptroller and
the Assistant to the President, if the Board of Directors shall have established
the offices of Assistant Vice President, Assistant Secretary, Assistant
Comptroller or Assistant to the Chairman.
Section 2. Depositors' Withdrawals. The Chairman, the President, an
Executive Vice President or the Secretary shall designate those officers and
employees who shall be authorized to sign or countersign checks drawn upon the
general deposit accounts of the SAVINGS BANK issued in payment of depositor
withdrawals.
The Board of Directors may also adopt such other means of payment of
depositor withdrawals as to it may seem proper and expedient.
ARTICLE VIII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the SAVINGS BANK shall be in such form as shall be determined
by the Board of Directors and approved by the NYB. Such certificates shall be
signed by the Chairman of the Board or by any other officer of the SAVINGS BANK
authorized by the Board, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
SAVINGS BANK itself or one of its employees. Each certificate for shares of
capital stock shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
SAVINGS BANK. All certificates surrendered to the SAVINGS BANK for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and canceled,
except that in case of a lost or destroyed certificate, a new certificate may be
issued upon such terms and indemnity to the SAVINGS BANK as the Board of
Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
SAVINGS BANK shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of
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attorney and filed with the SAVINGS BANK. Such transfer shall be made only on
surrender for cancellation of the certificate for such shares. The person in
whose name shares of capital stock stand on the books of the SAVINGS BANK shall
be deemed by the SAVINGS BANK to be the owner for all purposes.
ARTICLE IX. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the SAVINGS BANK shall be as fixed by the Board of
Directors. The SAVINGS BANK shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board of Directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
ARTICLE X. DIVIDENDS
Subject to the terms of the SAVINGS BANK's Restated Organization
Certificate and the regulations and orders of the NYB, the Board of Directors
may, from time to time, declare, and the SAVINGS BANK may pay, dividends on its
outstanding shares of capital stock.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall provide a SAVINGS BANK seal, which shall be
two concentric circles between which shall be the name of the SAVINGS BANK. The
year of incorporation or an emblem may appear in the center.
ARTICLE XII. SURETY BONDS
Section 1. Surety Bonds and Premiums Thereon. The SAVINGS BANK shall
procure from a responsible surety company approved by the Board of Directors and
shall keep continuously in force and effect a banker's blanket bond of insurance
or a fidelity bond of similar type and character covering all of the officers
and employees of the SAVINGS BANK in such amount as the Board may fix. The Board
may also require that individual officers or employees shall furnish separate
bonds conditioned on the faithful performance of their several duties. It shall
be obligatory upon the officers and employees to furnish to the SAVINGS BANK and
to the surety company involved any and all information necessary
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or appropriate to the procurement of any bond or bonds herein provided for. The
SAVINGS BANK may dismiss any officer or employee who shall fail when asked or
who shall refuse to give any and all proper and relevant information required by
the designated surety company or as to whom such surety company shall decline to
give a bond or whom the surety company shall decline to include in a general
bond.
All expenses connected with such bond or bonds and all premiums thereon
shall be borne by the SAVINGS BANK.
ARTICLE XIII. INDEMNIFICATION
Section 1. Scope of Indemnification. Except to the extent expressly
prohibited by the New York Banking Law, the SAVINGS BANK shall indemnify each
person made, or threatened to be made, a party to any action or proceeding,
whether criminal or civil, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of the SAVINGS
BANK, or is or was serving, in any capacity, at the request of the SAVINGS BANK,
any other corporation, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses, including attorneys' fees and
expenses, reasonably incurred in enforcing such person's right to
indemnification, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such persons establishes that
such person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that such person personally gained in fact a financial profit or other
advantage to which such person was not legally entitled, and provided that no
such indemnification shall be required with respect to any settlement or other
nonadjudicated disposition of any threatened or pending action or proceeding
unless the SAVINGS BANK has given its prior consent to such settlement or other
disposition.
Section 2. Reimbursement of Expenses. The SAVINGS BANK shall advance or
promptly reimburse upon request any person entitled to indemnification hereunder
for all reasonable expenses, including attorneys' fees and expenses, reasonably
incurred in defending any action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
person to repay such amount if such person is ultimately found not to be
entitled to indemnification or, where indemnification is granted, to the extent
the expenses so advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in good faith with
any
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request by the SAVINGS BANK that common counsel be used by the parties to any
action or proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interest between or among
parties.
Section 3. Additional Rights. Nothing herein shall limit or affect any
right of any director, officer, or other corporate personnel otherwise than
hereunder to indemnification or expenses, including attorneys' fees and
expenses, under any statute, rule, regulation, certificate of incorporation,
Bylaws, insurance policy, contract, or otherwise; without affecting or limiting
the rights of any director, officer or other corporate personnel pursuant to
this Article XIII, the SAVINGS BANK is authorized to enter into agreements with
any of its directors, officers or other corporate personnel extending rights to
indemnification and advancement of expenses to the fullest extent permitted by
applicable law.
Section 4. Notice of Amendments or Elimination. Anything in these Bylaws
to the contrary notwithstanding, no elimination or amendment of this Article
adversely affecting the right of any person to indemnification or advancement of
expenses hereunder shall be effective until the 60th day following notice to
such person of such action, and no elimination of or amendment to this Article
XIII shall deprive any such person's rights hereunder arising out of alleged or
actual occurrences, act or failures to act prior to such 60th day. Any
amendments or eliminations made pursuant to this Section are only effective with
regard to acts occurring after such date.
Section 5. Amendment or Elimination. The SAVINGS BANK shall not, except by
elimination or amendment of this Article XIII in a manner consistent with the
preceding Section 4, take any corporate action or enter into any agreement which
prohibits, or otherwise limits the rights of any person to, indemnification in
accordance with the provisions of this Article XIII. The indemnification of any
person provided by this Article XIII shall continue after such person has ceased
to be a director or officer of the SAVINGS BANK and shall inure to the benefit
of such person's heirs, executors, administrators and legal representatives.
Section 6. Severability of Provision. In case any provision in this
Article XIII shall be determined at any time to be unenforceable in any respect,
the other provisions of this Article XIII shall not in any way be affected or
impaired thereby, and the affected provision shall be given the fullest possible
enforcement in the circumstances, it being the intention of the SAVINGS BANK to
afford indemnification and advancement of expenses to its directors or officers,
acting in such capacities or in the other capacities mentioned herein, to the
fullest extent permitted by law.
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ARTICLE XIV. RULES AND REGULATIONS
Management shall adopt rules and regulations not inconsistent with law for
the payment of deposits and interest and, generally, for the transaction and
management of the affairs of the SAVINGS BANK. Such rules and regulations shall
be posted in a conspicuous place in the offices of the SAVINGS BANK and shall be
available to depositors upon request. Such posting shall be taken and held as
actual notice to and be binding upon each depositor and to all persons claiming
any interest in any account. All notices to the SAVINGS BANK from depositors, or
other persons claiming any interest in any account, shall be not effective
unless they are in writing and signed by the persons giving such notice.
Rules and regulations adopted by management or any amendments thereto
shall be transmitted to the Board of Directors at its next regular monthly
meeting following the adoption of same.
ARTICLE XV. AMENDMENTS
These Bylaws may be amended in a manner consistent with regulations of the
NYB at any time by a majority vote of the Whole Board of Directors, or by the
affirmative vote of at least 80% of the votes eligible to be cast by the
shareholders of the SAVINGS BANK at any legal meeting.
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Exhibit 10.3
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of March 9 ,1997, by and
among GREENPOINT FINANCIAL CORP. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware, GREENPOINT BANK (the "Bank"),
a New York chartered savings bank, each with offices at 90 Park Avenue, New
York, New York, and CHARLES P. RICHARDSON ("Executive").
WHEREAS, the Holding Company (formerly known as GP Financial
Corp.), the Bank (formerly known as The Green Point Savings Bank) and Executive
entered into an Employment Agreement dated as of the 10th day of May, 1994 (the
"Employment Agreement"); and
WHEREAS, the Holding Company, the Bank and Executive now
desire to terminate the Employment Agreement and in lieu thereof enter into
this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Holding Company, the Bank and Executive hereby agree as follows:
1. TERMINATION OF EMPLOYMENT AGREEMENT.
Executive, the Holding Company and the Bank hereby terminate
the Employment Agreement and enter into this Agreement and agree that
Executive, the Holding Company and the Bank have no rights and are released
from any obligations under the Employment Agreement.
2. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced
as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter. Commencing on the first
anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Agreement shall renew for an additional year such that the
term shall be three (3) years unless written notice is provided to the
Executive at least ten (10) days and not more than twenty (20) days prior to
any such anniversary date, that this Agreement shall cease at the end of the
thirty-six (36) months following such anniversary date. Prior to the written
notice period for nonrenewal, the Board of Directors of the Holding Company
("Board") will conduct a formal performance evaluation of the Executive for
purposes of determining whether to extend this Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
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3. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control as defined in
Section 3(b) hereof, followed at any time during the term of this Agreement
by the voluntary (under the circumstances described in the next sentence) or
involuntary termination of Executive's employment, other than for Termination
for Cause, as defined in Section 3(c) hereof, the provisions of Section 4 and
Section 5 shall apply. Upon the occurrence of a Change in Control, Executive
shall have the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion, loss of title,
office or significant authority, reduction in his annual compensation or
benefits, relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, or
failure to continue in effect any vacation benefits, pension plan, life
insurance plan, health, accident or disability plan in which Executive is
participating immediately prior to the Change in Control.
(b) For purposes of this Agreement, a "Change in Control" shall
mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (A) the then outstanding shares of common stock of
the Holding Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the
Holding Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control: (A) any acquisition directly from the
Holding Company, (B) any acquisition by the Holding Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Holding Company or any corporation controlled by the
Holding Company or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 3(b); or
(ii) individuals who, as of the date hereof, constitute the Board of
Directors of the Holding Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
2
<PAGE>
that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Holding Company's
shareholders, was approved by a vote of at least a majority of the direc
tors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Holding Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Holding Company
or all or substantially all of the Holding Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of
3
<PAGE>
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) approval by the shareholders of the Holding Company of a complete
liquidation or dissolution of the Holding Company.
(c) Executive shall not have the right to receive termination
benefits pursuant to Section 4 and certain additional payments pursuant to
Section 5 hereof upon Termination for Cause. The term "Termination for Cause"
shall mean termination because of a material loss to the Holding Company, the
Bank or one of their affiliates caused by the Executive's personal dishonesty,
willful misconduct, any breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses) or final
cease and desist order, or any material breach of this Agreement. For purposes
of this Section, no act, or the failure to act, on Executive's part shall be
"willful" unless done, or omitted to be done, not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Holding Company, the Bank or their affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Termination for Cause
unless and until there shall have been delivered to him a Notice of Termination
(as defined in Section 6(a)) which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. Any stock options and limited rights granted to Executive
under any stock option plan or any unvested awards granted to Executive under
any recognition and retention plan of the Bank, the Holding Company or any
affiliate thereof, shall become null and void effective upon Executive's receipt
of Notice of Termination and shall not be exercisable by Executive at any time
subsequent to such Termination for Cause.
4. TERMINATION BENEFITS.
(a) The Holding Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination (as defined in Section
6(b)) the aggregate of the following amounts:
4
<PAGE>
(i) the sum of (A) the Executive's annual base salary through the
Date of Termination to the extent not theretofore paid, (B) the product of
(x) the higher of (I) the maximum bonus pursuant to the Holding Company's
annual incentive plans and (II) the annual bonus paid or payable pursuant
to the Holding Company's annual incentive plans, including any bonus or
portion thereof which has been earned but deferred (and annualized for any
fiscal year consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the most
recently completed fiscal year during the term of this Agreement, if any
(such higher amount being referred to as the "Highest Annual Bonus") and
(y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator
of which is 365 and (C) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid; and
(ii) the amount equal to the product of (A) three and (B) the sum of
(x) the Executive's annual base salary and (y) the Highest Annual Bonus;
and
(iii) an amount equal to the difference between (A) the actuarial
equivalent of the benefit (utilizing actuarial assumptions no less
favorable to the Executive than those in effect under the Holding
Company's qualified defined benefit retirement plan (the "Retirement
Plan"))under the Retirement Plan immediately prior to the Effective Date
(as defined in Section 6(c)), and any excess or supplemental retirement
plan in which the Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment continued for three
years after the Date of Termination assuming for this purpose that all
accrued benefits are fully vested, and, assuming that the Executive's
compensation in each of the three years is the sum of Executive's annual
base salary and the maximum bonus pursuant to the Holding Company's annual
incentive plans, and (B) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination.
(b) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Holding Company shall continue benefits to the
Executive and/or
5
<PAGE>
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies of the
Holding Company if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Holding Company and its affiliated
companies and their families; provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or other
welfare benefits under an other employer-provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day of
such period;
(c) the Holding Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in his reasonable discretion; and
(d) to the extent not theretofore paid or provided, the Holding
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is entitled
to receive under any plan, program, policy or practice or contract or agreement
of the Holding Company and its affiliated companies.
5. CERTAIN ADDITIONAL PAYMENTS.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by the
Holding Company to or for the benefit of the Executive (whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 5) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes and net of any
benefits that result from the deductibility by the Executive of such taxes
(including, in each case, any interest or penalties imposed with respect to such
taxes), including, without
6
<PAGE>
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Price
Waterhouse LLP or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Holding Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Holding Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the Executive shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Holding Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Holding Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Holding Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Holding Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Holding Company exhausts its remedies pursuant
to Section 5(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Holding Company to or for the benefit of the Executive.
(c) The Executive shall notify the Holding Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Holding Company of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Holding
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Holding
7
<PAGE>
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Holding Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Holding Company any information reasonably requested by
the Holding Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Holding Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Holding Company,
(iii) cooperate with the Holding Company in good faith in order to
effectively contest such claim, and
(iv) permit the Holding Company to participate in any proceedings
relating to such claim;
provided, however, that the Holding Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 5(c), the Holding Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Holding Company shall determine; provided, however, that if the Holding Company
directs the Executive to pay such claim and sue for a refund, the Holding
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is
8
<PAGE>
limited solely to such contested amount. Furthermore, the Holding Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Holding Company pursuant to Section 5(a) or 5(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Holding Company's complying with the requirements of Section
5(c)) promptly pay to the Holding Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Holding Company
pursuant to Section 5(c), a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Holding Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
6. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company, or by the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination which, in the instance of Termination for Cause, shall be
immediate.
(c) "Effective Date" shall mean the first date after the date
hereof on which a Change in Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and if the Executive's
employment with the Holding Company is terminated prior to the date on which the
Change in Control occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change in Control or (ii)
otherwise arose in connection with or anticipation of a Change in Control, then
9
<PAGE>
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
7. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided
in this Agreement shall be paid in cash or check from the general funds of the
Bank. The Bank, however, unconditionally guarantees payment and provision of all
amounts and benefits due hereunder to the Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid and provided by the Holding Company.
8. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior agreement among the Holding Company, the
Bank and Executive, including the Employment Agreement, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon the Executive the
right to continue in the employ of the Bank or shall impose on the Holding
Company, the Bank or their affiliates any obligation to employ or retain the
Executive in their employ for any period.
9. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the
benefit of, Executive, the Holding Company, the Bank and their respective
successors and assigns.
10. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
10
<PAGE>
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part
of any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Holding Company, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) The Holding Company shall indemnify, hold harmless and defend
Executive against reasonable costs, including
11
<PAGE>
legal fees, incurred by him in connection with his consultation with legal
counsel or arising out of any action, suit or proceeding in which he may be
involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement.
(b) In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of the Executive,
whether by judgment, arbitration or settlement, Executive shall be entitled to
the payment of all back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
(c) The Holding Company shall indemnify, hold harmless and defend
Executive for all acts or omissions taken or not taken by him in good faith
while performing services for the Holding Company, to the same extent and upon
the same terms and conditions as other similarly situated officers and directors
of the Holding Company. If and to the extent that the Holding Company maintains,
at any time during the period of Executive's employment, an insurance policy
covering the other officers and directors of the Holding Company, against
lawsuits, the Holding Company, shall use its best efforts to cause Executive to
be covered under such policy upon the same terms and conditions as other
similarly situated officers and directors.
16. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the Bank or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
12
<PAGE>
IN WITNESS WHEREOF, GREENPOINT FINANCIAL CORP. and GREENPOINT
BANK have caused this Agreement to be executed by their duly authorized officer,
and Executive has signed this Agreement, on the 9th day of March, 1997.
ATTEST: GREENPOINT FINANCIAL CORP.
Howard C. Bluver By:/s/Thomas S. Johnson
- ---------------------- --------------------------------
Secretary Thomas S. Johnson
President and Chief Executive Officer
Seal
ATTEST: GREENPOINT BANK
Howard C. Bluver By:/s/Thomas S. Johnson
- ---------------------- --------------------------------
Secretary Thomas S. Johnson
President and Chief Executive Officer
Seal
WITNESS: /s/Charles P. Richardson
------------------- ---------------------------------
Charles P. Richardson
Executive
13
<PAGE>
Exhibit 11.1
Statement Regarding Computation of Per Share Earnings
(In millions, except share and per share amounts )
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income .............................................. $ 147.6 $ 132.5 $ 107.5
Weighted average number of common shares
outstanding during each year - basic* ................... 75.3 85.1 92.5
Weighted average number of common shares
and common stock equivalents outstanding during
each year - diluted * .................................. 79.3 87.8 93.9
---------- ---------- ----------
Basic earnings per share * ............................. $ 1.96 $ 1.56 $ 1.16
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share * ............................ $ 1.86 $ 1.51 $ 1.14
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
* Share and per share data have been restated to reflect the impact of a
2-for-1 split of the Company's stock on March 4, 1998.
<PAGE>
EXHIBIT 12.1
Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(Dollars in millions)
The Company's consolidated ratios of earnings to combined fixed charges and
preferred stock dividends for each of the periods indicated are set forth below:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income before income taxes ........................................... $ 242.0 $ 224.5 $ 198.4
-------- -------- --------
Combined fixed charges and preferred stock dividends:
Interest expense on deposits .................................... 472.7 525.7 345.8
Interest expense on long term debt .............................. 6.4 -- --
Interest expense on Guaranteed Preferred Beneficial
Interest in Company's Junior Subordinated Debentures ......... 10.7 -- --
Appropriate portion (1/3) of rent expense ....................... 3.5 3.0 1.0
Preferred stock dividend requirements ........................... 0.4 0.3 --
-------- -------- --------
Total combined fixed charges and
preferred stock dividends ........................... 493.7 529.0 346.8
-------- -------- --------
Earnings before income taxes and combined fixed
charges and preferred stock dividends ............................. $ 735.7 $ 753.5 $ 545.2
-------- -------- --------
-------- -------- --------
Ratio of earnings to combined fixed charges and
preferred stock dividends ......................................... 1.49x 1.42x 1.57x
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
Exhibit 13.1
================================================================================
Financial Review
================================================
Table of Contents
================================================
Five Year Selected Consolidated Data 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
Consolidated Financial Statements 22
Notes to the Consolidated Financial
Statements 27
Report of Independent Accountants 45
10
<PAGE>
================================================================================
Selected Consolidated Financial Condition Data
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995 1994 1993
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Total assets $ 13,083.5 $ 13,325.6 $ 14,670.5 $ 6,955.0 $ 7,377.1
Loans receivable held for investment, net 8,795.6 7,294.3 5,858.6 5,594.1 5,376.6
Allowance for possible loan losses 109.0 105.0 105.5 103.0 147.0
Securities 2,036.7 4,359.4 5,900.8 736.7 378.2
Money market investments 1,060.0 494.1 1,550.7 265.0 1,151.8
Goodwill 577.1 623.6 670.2 0.5 0.7
Other real estate owned, net 24.0 28.6 29.2 54.0 74.8
Deposits 10,973.0 11,452.3 12,898.3 5,223.5 5,650.4
Stockholders' equity 1,269.6 1,459.8 1,551.3 1,521.2 786.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Selected Consolidated Operating Data
<TABLE>
<CAPTION>
For the For the
For the Six Months Year
Year Ended Ended Ended
December 31, December 31, June 30,
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995 1994 1993 1993
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest income $972.7 $974.0 $696.5 $563.8 $ 273.2 $547.6
Interest expense 497.7 527.5 345.8 226.3 114.8 244.4
Provision for possible loan losses (18.9) (15.7) (9.5) (32.3) (25.3) (63.6)
Non-interest income 56.2 56.9 35.8 27.1 16.2 33.0
Non-interest expense 270.3 263.2 178.6 121.4 51.8 99.7
Income taxes 94.4 92.0 90.9 98.0 41.2 83.7
Cumulative effect of change in
accounting principles(1) -- -- -- -- -- (5.3)
Net income $147.6 $132.5 $107.5 $112.9 $ 56.3 $ 83.9
=================================================================================================================================
</TABLE>
See notes on following page.
11
<PAGE>
===============================================================================
Selected Consolidated Financial Ratios and Other Data
<TABLE>
<CAPTION>
At or At or
For the For the
At or For the Six Months Year
Year Ended Ended Ended
December 31, December 31, June 30,
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1997 1996 1995 1994 1993(2) 1993
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets(3) 1.08% 0.91% 1.18% 1.59% 1.72% 1.36%
Return on average equity(3) 10.64 8.62 6.96 7.91 14.96 12.22
Net interest margin 3.93 3.51 4.05 4.92 5.05 5.07
Operating expense to average assets(4) 1.69 1.57 1.76 1.75 1.58 1.62
Efficiency ratio(5) 42.7 44.3 41.4 34.0 28.7 26.8
Per Share Data(6):
Basic earnings per share $ 1.96 $ 1.56 $ 1.16 $ 1.12(7) -- --
Diluted earnings per share 1.86 1.51 1.14 1.11(7) -- --
Book value per common share 17.00 17.39 17.12 16.16 -- --
Tangible book value per common share 9.27 9.96 9.56 16.15 -- --
Dividends per share 0.50 0.40 0.40 0.30(7) -- --
Dividend payout ratio 26.88% 26.49% 34.93% 27.15% -- --
Asset Quality Ratios:
Non-performing loans to total loans 3.97% 4.78% 6.49% 6.80% 12.02% 11.63%
Non-performing assets to total assets 2.90 2.89 2.94 6.42 10.21 10.99
Allowance for possible loan losses to
non-performing loans 30.70 29.48 26.24 26.26 23.45 23.70
Allowance for possible loan losses
to total loans 1.22 1.41 1.75 1.79 2.63 2.52
Net loan charge-off
experience to average total loans 0.18 0.25 0.22 0.56 0.27 0.71
Ratio of allowance for possible
loan losses to net charge-offs 7.32x 6.48x 8.05x 3.24x 3.54x 3.63x
Capital Data:
Tier 1 Capital (to risk weighted assets) 14.29% 15.47% 16.25% 39.61% 16.55% 15.73%
Tier 1 Capital (to average assets) 7.19 6.78 6.19 21.85 10.68 11.33
Purchase of treasury stock $ 355.5 $ 169.5 $ 73.8 -- -- --
Other Data:
Mortgage loan originations $ 2,848.7 $2,353.0 $1,023.5 $1,058.3 $582.4 $1,079.6
Full-service consumer bank offices 74 76 84 24 24 24
Full-time equivalent employees (FTE) 1,951 2,135 2,025 1,392 1,411 1,372
=================================================================================================================================
</TABLE>
(1) Reflects changes due to the adoption of Statements of Financial Accounting
Standards No. 106 and 112.
(2) Income statement ratios for the six months ended December 31, 1993 are
annualized.
(3) Excludes after-tax gains on branch and asset sales.
(4) Operating expense excludes goodwill expense, ORE (income) or expense and
restructuring (recovery) or charge.
(5) The efficiency ratio is calculated by dividing operating expense by the
sum of net interest income and non-interest income, excluding pre-tax
gains on branch and asset sales.
(6) The per share data has been restated to reflect the impact of a 2-for-1
split of the Company's common stock on March 4, 1998.
(7) Earnings per share and dividends per share, respectively, are for the
period and three quarters subsequent to the initial public offering on
January 28, 1994.
12
<PAGE>
================================================================================
Management's Discussion and Analysis of Financial Condition and Results of
Operations
On March 4, 1998, GreenPoint Financial Corp. completed a 2-for-1 split of its
common stock. All financial data included in the 1997 Annual Report have been
restated to reflect the impact of the stock split.
- --------------------------------------------------------------------------------
GreenPoint Financial Corp.
- --------------------------------------------------------------------------------
GreenPoint Financial Corp. (the "Company" or "GreenPoint") is the leading
national lender in no-documentation ("No-Doc") mortgages. Its principal
subsidiaries are GreenPoint Bank (the "Bank"), a New York State chartered
savings bank with 74 branches serving customers throughout the New York City
area, and GreenPoint Mortgage Corp. ("GPMC"), a national mortgage banking
company headquartered in Charlotte, N.C.
- --------------------------------------------------------------------------------
Overview of 1997 Financial Results
During 1997, the Company continued to expand its presence in the national
mortgage market. Summarized below are several significant 1997 financial
results.
o Net income per diluted share for the year increased 23% over 1996.
o Diluted core cash earnings per share for the year were $2.65, or $210.3
million, an increase of 24% over 1996.
o Core cash return on average equity increased to 15.68% in 1997 from 12.70%
in 1996.
o Mortgage loan originations totaled $2.85 billion for 1997, an increase of
21% over the $2.35 billion in 1996.
o The Company repurchased 11.4 million shares of its stock during 1997 at a
total cost of $ 355.5 million.
o GreenPoint continues to maintain a strong capital position with a leverage
ratio of 7.19%, a Tier 1 risk-based ratio of 14.29% and a total risk based
ratio of 15.54% at December 31, 1997.
o Asset quality continued to improve. The ratio of non-performing loans to
total loans at December 31, 1997 was 3.97% versus 4.78% at December 31,
1996. Although the Company's loan portfolio grew by $1.5 billion in 1997,
or 21%, total non-performing loans of $355.1 million at December 31, 1997
were essentially equal to the amounts reported last year.
- --------------------------------------------------------------------------------
Comparison of Operating Results for the
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
Core Cash Earnings
Core cash earnings are net of non-recurring items, and include certain non-cash
charges, related to goodwill and the Employee Stock Ownership Plan ("ESOP"). The
non-cash expenses, unlike all other expenses incurred by the Company, result in
net increases in GreenPoint's tangible capital and 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>
For the Year Ended
December 31,
- ----------------------------------------------------------------
(In millions, except per share amounts) 1997 1996
================================================================
<S> <C> <C>
Net income (excluding
non-recurring items)(a) $ 144.2 $ 126.3
Add back:
Goodwill amortization(b) 46.4 46.5
Employee stock plans expense 19.7(c) 14.7
- ----------------------------------------------------------------
Core cash earnings $ 210.3 $ 187.5
================================================================
Core cash earnings per share(d) $ 2.65 $ 2.14
================================================================
</TABLE>
(a) Non-recurring items include branch sales, asset sales and restructuring
(recovery) charge.
(b) Goodwill amortization relates to the 1995 acquisitions. This expense will
continue through the year 2010.
(c) Includes ESOP amortization expense of $17.1 million and stock plans share
amortization expense of $2.6 million. ESOP amortization expense is
scheduled to occur through the year 2018 and will vary from year to year
based upon changes in the average annual market price of the Company's
stock and by changes in annual allocations to plan participants. Stock
plans share amortization expense is scheduled to occur through the year
2000 and will be approximately $2.1 million annually.
(d) Based on the weighted average shares used to calculate diluted earnings
per share.
- --------------------------------------------------------------------------------
Net Interest Income
Net interest income on a taxable equivalent basis increased by $28.4 million, or
6.3%, to $482.1 million for 1997 from $453.7 million for 1996. The increase
primarily reflects the reduction of the lower yielding securities portfolio to
fund the net growth in the Company's loan portfolio. During 1997, the Company
also made greater use of alternative funding sources such as repurchase
agreements and long-term debt as a means of managing the cost of funds.
13
<PAGE>
================================================================================
Interest income on mortgages increased by $137.2 million, or 23.2%, to
$728.9 million for 1997 from $591.7 million for 1996 primarily as a result of
$1.6 billion average loan portfolio growth partially offset by a 14 basis point
decrease in the average yield. The decline in the average yield on mortgages
reflects the generally lower interest rate environment of 1997, particularly its
effects on increased loan prepayments. Interest income on securities and money
market investments decreased by a combined $148.5 million, or 38.4%, to $238.4
million for 1997 from $386.9 million for 1996.
The shift in the Company's interest-earning asset mix into the higher
yielding loan portfolio resulted in a 40 basis point increase in the yield on
average interest-earning assets to 7.99% for 1997 from 7.59% for 1996.
The Company continued to manage aggressively its cost of funds during 1997
by reducing core deposit rates, allowing certain high cost customer deposits to
run off and, where appropriate, replacing those funds with alternative sources
such as repurchase agreements and long-term debt. The cost of funds for 1997 was
4.36%, the same as for 1996.
The increase in the yield on average interest-earning assets, combined
with control of the cost of funds resulted in GreenPoint's 1997 interest rate
spread and net interest margin rising to 3.63% and 3.93%, respectively, from
3.23% and 3.51%, respectively, for 1996.
- --------------------------------------------------------------------------------
Provision for Possible Loan Losses
The provision for possible loan losses increased by $3.2 million, or 20.4%, to
$18.9 million for 1997 from $15.7 million for 1996. The increase included 1997
net additions to the allowance for possible loan losses totaling $4.0 million.
- --------------------------------------------------------------------------------
Non-Interest Income
Non-interest income decreased slightly to $56.2 million for 1997 from $56.9
million for 1996. The decline was primarily the result of lower net gains on
sales of loans, lower proceeds from branch sales and a decline in securities
lending fee income. These declines were partially offset by larger securities
gains and gains on the sale of assets.
The Company's consumer branch network generated $4.5 million of additional
fee income during 1997 compared with 1996 primarily as the result of the
introduction of new fee generating services and products such as sales of
annuities, mutual funds and GreenPoint's new credit card.
- --------------------------------------------------------------------------------
Non-Interest Expense
Total non-interest expense increased by $7.1 million, or 2.7%, to $270.3 million
for 1997 from $263.2 million in 1996. The 1997 amount includes a $2.5 million
restructuring charge related to the transfer of the Company's mortgage servicing
from New York to Georgia, while the 1996 amount includes a $1.6 million recovery
of an unrelated 1995 restructuring charge. The Company's emphasis on expense
control resulted in a 160 basis point improvement in the efficiency ratio to
42.7% for 1997 from 44.3% for 1996.
Salaries and benefits increased by $6.9 million, or 8.0%, to $93.7 million
for 1997 from $86.8 million in 1996, primarily as a result of the expansion of
the Company's national mortgage business.
ESOP and stock plans expense increased by $5.0 million, or 33.6%, to $19.7
million primarily as a result of a higher average market price of the Company's
stock during 1997 compared to 1996.
Lower FDIC deposit insurance rates combined with a smaller deposit base
for 1997 resulted in a $2.4 million, or 46.2%, decrease in deposit insurance
premiums to $2.8 million for 1997 from $5.2 million for 1996.
Net expense of premises and equipment remained relatively flat at $47.3
million for 1997 compared with $46.6 million for 1996. Other administrative
expense fell $6.1 million, or 9.4%, to $59.7 million for 1997 compared to $65.8
million for 1996.
- --------------------------------------------------------------------------------
Income Tax Expense
Income tax expense increased by $2.4 million, or 2.6%, to $94.4 million for 1997
from $92.0 million for 1996 primarily as a result of higher pre-tax income in
1997 partially offset by a drop in the Company's effective tax rate. The
Company's effective tax rate was 39.0% for 1997 compared to 41.0% for 1996.
- --------------------------------------------------------------------------------
Financial Condition
Total assets were $13.1 billion at December 31, 1997 compared with $13.3 billion
at December 31, 1996.
Net loans receivable held for investment increased by $1.5 billion to $8.8
billion at December 31, 1997 on total originations of $2.9 billion.
14
<PAGE>
================================================================================
The combined balances of money market investments and securities available
for sale decreased by $1.8 billion to $3.1 billion at December 31, 1997. During
1997, the Company used the proceeds from the decline of these investments
primarily to fund loan portfolio growth.
Total deposits decreased by $0.5 billion to $11.0 billion at December 31,
1997.
- --------------------------------------------------------------------------------
Risk Management
- --------------------------------------------------------------------------------
Market Risk Management
- --------------------------------------------------------------------------------
Overview
The Company's primary market risk exposure is limited solely to interest rate
risk.
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.
- --------------------------------------------------------------------------------
Market Risk Management Process
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 Chief Operating Officer, the Treasurer
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 counterparties 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.
- --------------------------------------------------------------------------------
Interest Rate Risk Position
The Company's income is affected by changes in the level of market interest
rates based upon mismatches between the repricing of its assets and liabilities.
One measure of interest rate sensitivity is provided by the accompanying net gap
analysis, which organizes assets and liabilities according to the time period in
which they reprice or mature. For many of the Company's assets and liabilities,
the maturity or repricing date is not determinable with certainty. For example,
the Company's mortgage loans and its mortgage-backed securities can be prepaid
before contractual amortization and/or maturity. Also, repricing of the
Company's non-time deposits is subject to management's evaluation of the
existing interest rate environment, current funding and liquidity needs, and
other factors influencing the market competition for such deposits. The amounts
in the accompanying schedule reflect management's judgment of the most likely
repricing schedule; actual results could vary from those detailed herein.
The difference between assets and liabilities repricing in a given period
is one approximate measure of interest rate sensitivity. More assets than
liabilities repricing in a period (a positive gap) implies earnings will rise as
interest rates rise, and decline as interest rates decline. More liabilities
repricing than assets implies declining income as rates rise.
The use of interest rate instruments such as interest rate swaps is
integrated into the Company's interest rate risk management. The notional
amounts of these instruments are not reflected in the Company's balance sheet.
These instruments are included in the interest rate sensitivity table for
purposes of analyzing interest rate risk. However, these relationships do not
consider the impact that rate movements might have on other components of the
Bank's risk profile; for example, an increase in interest rates while implying
that earnings will rise in a positive gap period, might also result in higher
credit or default risk due to a higher probability of borrowers being unable to
pay the contractual payments on loans. Likewise, a decrease in rates might
result in an increase in the risk that funds received from loan prepayments
cannot be reinvested at rates and spreads on earlier investments and loan
originations.
15
<PAGE>
================================================================================
The following table presents the Company's interest rate sensitivity gap
position as of December 31, 1997:
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gap Analysis
At December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
More Than More Than More Than More
Within 1 Year to 3 Years to 5 Years to Than
(Dollars in millions) One Year 3 Years 5 Years 10 Years 10 Years Total
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Total loans $3,079.6 $ 1,692.6 $ 1,273.1 $ 1,459.8 $1,296.0 $ 8,801.1
Money market investments(1) 1,060.0 -- -- -- -- 1,060.0
Trading assets -- 25.0 -- -- -- 25.0
Securities held to maturity 2.1 -- -- -- 1.9 4.0
Securities available for sale 920.2 312.3 508.7 184.1 82.4 2,007.7
Other interest-earning assets 117.0 -- -- -- -- 117.0
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 5,178.9 2,029.9 1,781.8 1,643.9 1,380.3 12,014.8
- --------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 93.2 -- -- -- -- 93.2
Goodwill 42.0 83.9 83.9 168.0 199.3 577.1
Other non-earning assets 398.4 -- -- -- -- 398.4
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $5,712.5 $ 2,113.8 $ 1,865.7 $ 1,811.9 $1,579.6 $13,083.5
- --------------------------------------------------------------------------------------------------------------------------------
Term certificates of deposit $4,749.8 $ 1,530.1 $ 221.2 $ 18.1 -- $ 6,519.2
Core deposits 1,018.3 1,871.6 1,224.9 339.0 -- 4,453.8
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,768.1 3,401.7 1,446.1 357.1 -- 10,973.0
- --------------------------------------------------------------------------------------------------------------------------------
Securities sold under
agreements to repurchase 106.1 -- -- -- -- 106.1
Long term debt -- -- -- -- 199.8 199.8
Guaranteed Preferred Beneficial
Interest in Company's Junior
Subordinated Debentures -- -- 199.7 -- -- 199.7
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,874.2 3,401.7 1,645.8 357.1 199.8 11,478.6
- --------------------------------------------------------------------------------------------------------------------------------
Other liabilities 335.3 -- -- -- -- 335.3
Stockholders' equity -- -- -- -- 1,269.6 1,269.6
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $6,209.5 $ 3,401.7 $ 1,645.8 $ 357.1 $1,469.4 $13,083.5
- --------------------------------------------------------------------------------------------------------------------------------
Off-balance sheet
financial instruments 400.0 (300.0) (100.0) -- -- --
================================================================================================================================
Interest rate sensitivity gap $ (97.0) $(1,587.9) $ 119.9 $ 1,454.8 $ 110.2
================================================================================================================================
Cumulative interest rate
sensitivity gap $ (97.0) $(1,684.9) $(1,565.0) $ (110.2)
================================================================================================================================
Cumulative interest rate
sensitivity gap as a percentage
of total assets at
December 31, 1997 (0.74%) (12.88%) (11.96%) (0.84%)
================================================================================================================================
</TABLE>
(1) Consists of interest-bearing deposits in other banks, federal funds sold
and securities purchased under agreements to resell.
16
<PAGE>
================================================================================
As of December 31, 1997, the cumulative volume of liabilities maturing or
repricing within one year exceeded assets by $97.0 million, or 0.7% of assets,
implying modest current-year income sensitivity to movements in the level of
interest rates.
- --------------------------------------------------------------------------------
Earnings at Risk Sensitivity Analysis
The static gap analysis is an incomplete representation of interest rate risk
for several reasons. It fails to account for changes in prepayment speeds on the
Company's mortgage loan and mortgage backed securities portfolios. The behavior
of deposit balances will vary with changes in the general level of interest
rates and management's pricing strategies. The gap analysis does not provide a
clear presentation of the risks to income arising from options embedded in the
balance sheet.
Accordingly, ALCO makes extensive use of an earnings simulation model in
the formulation of its market risk management strategy.
The model gives effect to management assumptions concerning the repricing
of assets, liabilities and off-balance sheet financial instruments, as well as
business volumes, under a variety of hypothetical interest rate scenarios. These
hypothetical scenarios incorporate interest rate increases and decreases of 200
basis points. Actual interest rate changes during the past three years have
fallen within this range and management expects that any changes over the next
year will not exceed this range.
Management's assumptions, particularly those concerning prepayments in the
loan portfolio and pricing of the Company's deposit products, are based on
frequent historical analyses of the behavior patterns of the Company's customers
in response to changes in both general market interest rates and rates offered
by GreenPoint. These assumptions represent management's estimate of the likely
effect of changes in interest rates and do not necessarily reflect actual
results. The earnings simulation model takes into account interest rate caps and
floors, call options and balloon payments embedded in certain mortgage loans and
mortgage backed securities in determining the earnings at risk.
At December 31, 1997, based on this model, the Company's potential
earnings at risk to a gradual, parallel 200 basis point rise in market interest
rates over the next twelve months on instruments held for other than trading
purposes was approximately 2.6% of projected 1998 net income. GreenPoint does
not have significant exposure to such risk on instruments held for trading
purposes due to the Company's limited use of these instruments.
Management has included all derivative and other financial instruments
that have a material effect in calculating the Company's potential earnings at
risk.
These measures of risk represent the Company's exposure to interest rate
movements at a particular point in time. The risk position is always changing.
ALCO continuously monitors the Company's risk profile as it changes, and alters
the rate sensitivity to ensure limits are adhered to, and that the resulting
risk profile is appropriate to its views on the likely course of interest rates
and developments in its core business.
- --------------------------------------------------------------------------------
Liquidity Risk Management
The Company's primary sources of funds are deposits and proceeds from principal
and interest payments on loans, mortgage-backed securities and other securities.
While maturities and scheduled amortization of loans and securities are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rate levels, economic conditions and competition.
The Company and the Bank also have both short-term and long-term debt
ratings from four recognized credit rating firms. These ratings allow the
Company and the Bank to access the wholesale debt markets thereby providing the
Company with additional flexibility in accessing and utilizing the most cost
effective and appropriate means for meeting its funding needs.
The Company's most liquid assets are cash and cash equivalents, including
money market investments. The level of these assets is dependent on the
Company's operating, financing, lending, and investing activities during any
given period. Cash and cash equivalents, including money market investments,
totaled $1.2 billion at December 31, 1997 compared to $0.6 billion at December
31, 1996.
The Company had outstanding mortgage loan commitments of $438.9 million at
December 31, 1997. The Company anticipates that it will have sufficient funds
available to meet its current loan commitments.
- --------------------------------------------------------------------------------
Capital Risk Management
The Company and the Bank are subject to minimum regulatory capital requirements
imposed by various federal and state banking authorities, including the Federal
Reserve Board, the FDIC and the New York State Banking Department. These capital
requirements vary according to an institution's capital level and the
composition of its assets. Furthermore, pursuant to the FDIC Improvement Act of
1991 ("FDICIA"), the federal banking regulators have set the minimum capital
ratios for a well-capitalized banking institution at 6% Tier 1 risk-based
capital, 10% total risk-based capital and 5% Tier 1 leverage capital. At
December 31, 1997, the Company and the Bank exceeded these levels and expects to
be in excess of the minimum ratios required of well-capitalized institutions in
the future.
17
<PAGE>
================================================================================
Following is a table of the components of regulatory capital as defined by
the banking regulators for risk-based capital and leverage ratio guidelines.
<TABLE>
<CAPTION>
Components of Capital
At December 31,
- ---------------------------------------------------------------
(In millions) 1997 1996
===============================================================
<S> <C> <C>
Tier 1 Capital:
Common stockholders' equity $1,391.5 $1,587.7
Unallocated ESOP shares (114.9) (119.6)
Unearned stock plans shares (7.0) (8.3)
Guaranteed Preferred Interest
in Company's Junior
Subordinated Debentures 199.7 --
Preferred shares of subsidiary -- 3.6
Less: Goodwill (577.1) (623.6)
Add: Net unrealized loss on securities
available for sale, net of tax 3.6 23.3
- ---------------------------------------------------------------
Tier 1 Capital 895.8 863.1
- ---------------------------------------------------------------
Tier 2 Capital:
Qualifying allowance
for possible loan losses 78.3 69.7
- ---------------------------------------------------------------
Tier 2 Capital 78.3 69.7
- ---------------------------------------------------------------
Total qualifying capital $ 974.1 $ 932.8
- ---------------------------------------------------------------
Risk-weighted assets $6,266.1 $5,578.3
===============================================================
</TABLE>
During 1997, strong cash earnings and liquidity levels enabled the Company to
complete two stock repurchase programs. The Company purchased a total of 11.4
million shares at an average cost per share of $31.05.
Total stockholders' equity decreased by $190.2 million to $1.3 billion at
December 31, 1997 primarily due to the Company's repurchase of its common stock
valued at $355.5 million and the declaration of $37.7 million in dividends.
These decreases were partially offset by net income of $147.6 million and $28.6
million in additional capital arising from ESOP and employee stock plans share
allocations and stock option exercises by employees and a decrease in net
unrealized loss on securities available for sale, net of tax, of $19.7 million.
- --------------------------------------------------------------------------------
Credit Risk Management
In conducting its lending activities, the Company is exposed to the possibility
that borrowers may default on their loans. To manage this risk, the Company
focuses its efforts on its fundamental disciplines, loan underwriting and
administration.
The Company lends funds based on the borrower's level of equity in the
property securing the loan. The Company does not originate loans with a loan to
value ratio in excess of 75%. Strict appraisal standards are maintained,
requiring all appraisers to be state certified, and all appraisals are subject
to additional levels of review by senior management.
The Company closely monitors trends in delinquent and nonperforming loans
through cycles in the economy and in the real estate market. The Company also
tracks economic and housing market trends. These performance and economic trends
are analyzed in the ongoing fine-tuning of lending practices. In 1997, the
Company created an independent, executive-level risk management function. Along
with monitoring trends and developing lending policies, the risk management
function is building scoring and other quantitative models to enhance
GreenPoint's strong expertise in effectively managing credit risk.
The Company uses various collection procedures and works to maintain
contact with the borrowers to obtain repayment. In addition, the Company reviews
the trends in amount and frequency of loans that were transferred to other real
estate owned, trends in sales activity of its foreclosed property including
average principal loss experienced and the holding period for such properties.
Management has set forth a policy for establishment and review of the
adequacy of the allowance for loan losses. The policy requires management to
provide for estimated future costs related to problem loans. Management believes
that the allowance for loan losses is adequate. However, such determination is
susceptible to the effect of future unanticipated changes in general economic
and market conditions that may affect the financial circumstances of borrowers
and/or residential real estate values within the Company's lending areas.
- --------------------------------------------------------------------------------
Allowance for Possible Loan Losses
As outlined in Note 6 to the consolidated financial statements, the allowance
for possible loan losses increased by $4.0 million to $109.0 million at December
31, 1997 from $105.0 million at December 31, 1996. The provision of $18.9
million exceeded charge offs (net of recoveries) of $14.9 million for the year.
- --------------------------------------------------------------------------------
Non-Performing Assets
Total non-performing assets were $379.1 million at December 31, 1997 compared
with $384.7 million at December 31, 1996. The Company attempts to convert these
assets to interest-earning assets as quickly as possible, while minimizing
potential losses on the conversion. The tables in Notes 6 and 7 to the
consolidated financial statements present further information about the
Company's non-performing assets.
18
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Comparison of Operating Results for the
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Effect of 1995 Acquisitions on Comparability of Operating Results
The comparability of 1996 and 1995 operating results is significantly affected
by two acquisitions completed by the Company during 1995. GreenPoint purchased
the wholesale residential mortgage lending business of Barclays
American/Mortgage Corp. ("BAM") in July 1995 and the 60 New York consumer
banking branches of Home Savings of America, FSB ("HSA") in September 1995. The
1995 annual results include only those related revenues and expenses subsequent
to the respective acquisition dates.
Substantial increases in the Company's asset, liability and employee bases
resulting from the acquisitions (and the inclusion of a full year's effect in
1996) are the primary factors contributing to increases in revenue, expense and
average balances from year to year. The HSA acquisition also resulted in a
substantial change in the composition of the Company's balance sheet that
affected certain key performance ratios. The Company received cash, certificates
of deposit and short-term debt securities totaling approximately $7.5 billion in
return for assuming approximately $8.1 billion of customer deposits from HSA.
The resulting shift in the Company's average interest-earning asset mix away
from the higher yielding loan portfolio caused a reduction in the yield on
average interest-earning assets and contributed to compression of the interest
rate spread.
- --------------------------------------------------------------------------------
General
Net income for 1996 was $132.5 million, or $1.51 per diluted share, a 23.2%
increase over the $107.5 million, or $1.14 per diluted share, earned in 1995,
reflecting the full year's effect in 1996 of the two 1995 acquisitions, a
substantial increase in loan production and the achievement of planned cost
savings.
Core cash earnings rose to $187.5 million, or $2.14 per diluted share, in
1996 compared to $140.7 million, or $1.50 per diluted share in the prior year.
- --------------------------------------------------------------------------------
Net Interest Income
Net interest income on a taxable equivalent basis increased by $103.0 million,
or 29.4%, to $453.7 million for 1996 from $350.7 million for 1995. The increase
reflects the Company's higher level of average net interest-earning assets
resulting from the two 1995 acquisitions, the Company's ability to re-deploy
proceeds from the maturity of lower yielding money market and securities
investments into loan portfolio growth during 1996, and significant improvement
in the Company's average cost of funds resulting from an aggressive deposit
pricing strategy.
- --------------------------------------------------------------------------------
Provision for Possible Loan Losses
The provision for possible loan losses increased by $6.2 million, or 65.3%, to
$15.7 million for 1996 from $9.5 million for 1995. The 1995 provision included
the effect of a $6.1 million recovery of a special contingency reserve relating
to a 1994 bulk sale of non-performing loans.
- --------------------------------------------------------------------------------
Non-Interest Income
Non-interest income increased by $21.1 million, or 58.9%, to $56.9 million for
1996 from $35.8 million for 1995. The increase is primarily the result of higher
fee income generated by the Company's expanded consumer banking branch network,
a $1.5 million increase in securities lending fees and an $8.9 million gain on
the sale of two branches.
- --------------------------------------------------------------------------------
Non-Interest Expense
Total non-interest expense increased by $84.6 million, or 47.4%, to $263.2
million for 1996 from $178.6 million for 1995. The 1995 results include an $8.0
million restructuring charge while the 1996 results include a $1.6 million
recovery of the same charge. Excluding the 1995 restructuring charge and the
subsequent recovery in 1996, the increase in non-interest expense is primarily
the result of recognizing a full year's effect of the 1995 acquisitions in 1996,
partially offset by lower FDIC deposit insurance premiums.
- --------------------------------------------------------------------------------
Income Tax Expense
Income tax expense increased by $1.1 million to $92.0 million for 1996 from
$90.9 million for 1995. The increase resulted from a $26.1 million increase in
pre-tax income, which was partially offset by the effect of a 10.6% decrease in
the Company's effective tax rate to 40.98%.
19
<PAGE>
================================================================================
Average Consolidated Balance Sheet, Interest and Rates
<TABLE>
<CAPTION>
(Taxable-Equivalent Interest and Rates, in millions)(1) Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Yield/ Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Mortgage loans(2) $ 8,167.0 $728.9 8.92% $ 6,531.0 $591.7 9.06% $5,822.0 $532.2 9.14%
Other loans(2) 28.9 2.3 7.94 31.7 2.6 8.12 26.6 1.9 7.35
Money market
investments(3) 740.3 41.4 5.59 1,261.0 70.0 5.54 742.7 43.8 5.91
Securities(4) 3,212.9 197.0 6.13 5,101.4 316.9 6.22 2,059.9 118.6 5.76
Trading assets 3.9 0.2 5.93 -- -- -- -- -- --
Other interest-earning assets 110.9 10.0 9.05 -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 12,263.9 979.8 7.99 12,925.1 981.2 7.59 8,651.2 696.5 8.05
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest earning
assets(5) 904.9 1,031.0 437.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 13,168.8 $13,956.1 $9,089.1
==================================================================================================================================
Liabilities &
Stockholders' Equity:
Savings $ 1,830.1 46.7 2.55% $ 1,976.5 55.2 2.79% $ 972.1 28.4 2.93%
N.O.W. 330.5 5.3 1.61 333.9 6.1 1.83 170.9 3.4 1.97
Money market and variable
rate savings 2,273.7 76.5 3.36 2,541.9 85.6 3.37 1,675.1 55.7 3.33
Term certificates of deposit 6,512.8 343.1 5.26 7,126.6 377.8 5.30 4,472.4 257.0 5.75
Mortgagors' escrow 98.3 1.1 1.09 80.9 1.0 1.26 79.6 1.3 1.59
Securities sold under
agreements to repurchase 170.9 7.8 4.58 47.9 1.8 3.88 -- -- --
Trading liabilities 1.9 0.1 5.89 -- -- -- -- -- --
Long term debt 92.4 6.4 6.92 -- -- -- -- -- --
Guaranteed Preferred
Beneficial Interest in
Company's Junior
Subordinated Debentures 115.4 10.7 9.29 -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 11,426.0 497.7 4.36 12,107.7 527.5 4.36 7,370.1 345.8 4.69
Other liabilities(6) 397.7 371.5 173.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,823.7 12,479.2 7,543.9
Preferred shares of
subsidiary 3.4 0.9 --
Stockholders' equity 1,341.7 1,476.0 1,545.2
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities &
stockholders' equity $13,168.8 $13,956.1 $9,089.1
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/interest
rate spread(7) $482.1 3.63% $453.7 3.23% $350.7 3.36%
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/
net interest margin(8) $ 837.9 3.93% $ 817.4 3.51% $1,281.1 4.05%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning
assets to interest-
bearing liabilities 1.07x 1.07x 1.17x
==================================================================================================================================
</TABLE>
(1) The Company's incremental tax rate used to adjust tax-exempt interest to a
taxable-equivalent basis was 44.2% and 44.6% for the years ended December
31, 1997 and 1996.
(2) In computing the average balances and average yield on loans, non-accruing
loans and loans held for sale have been included.
(3) Includes interest-bearing deposits in other banks, federal funds sold and
securities purchased under agreements to resell.
(4) The average yield does not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(5) Includes goodwill, banking premises and equipment, net, deferred tax
assets, net, accrued interest receivable, and other miscellaneous
non-interest earning assets.
(6) Includes accrued interest payable, accounts payable, official checks drawn
against the Bank, accrued expenses, and other miscellaneous non-interest
bearing obligations of the Company.
(7) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(8) Net interest margin represents net interest income divided by average
interest-earning assets.
20
<PAGE>
================================================================================
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 and interest expense during the years indicated.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to volume and rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
Compared to Compared to
Year Ended December 31, 1996 Year Ended December 31, 1995
Increase/(Decrease) Increase/(Decrease)
- ---------------------------------------------------------------------------------------------------------------------------------
Due to Due to
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average Net Average Average Net
(Dollars in millions) Volume Rate Change Volume Rate Change
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans(1) $ 146.2 $ (9.0) $ 137.2 $ 64.2 $ (4.7) $ 59.5
Other loans(1) (0.2) (0.1) (0.3) 0.5 0.2 0.7
Money market investments(2) (29.1) 0.5 (28.6) 29.0 (2.8) 26.2
Securities (114.2) (5.7) (119.9) 195.7 2.6 198.3
Trading assets 0.2 -- 0.2 -- -- --
Other interest-earning assets 10.0 -- 10.0 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earned on assets 12.9 (14.3) (1.4) 289.4 (4.7) 284.7
- ---------------------------------------------------------------------------------------------------------------------------------
Savings (4.0) (4.5) (8.5) 28.2 (1.4) 26.8
N.O.W. (0.1) (0.7) (0.8) 2.9 (0.2) 2.7
Money market and variable
rate savings (9.0) (0.1) (9.1) 29.2 0.7 29.9
Term certificates of deposit (31.3) (3.4) (34.7) 142.1 (21.3) 120.8
Mortgagors' escrow 0.2 (0.1) 0.1 -- (0.3) (0.3)
Securities sold under agreements
to repurchase 5.6 0.4 6.0 1.8 -- 1.8
Trading liabilities 0.1 -- 0.1 -- -- --
Long term debt 6.4 -- 6.4 -- -- --
Guaranteed Preferred Beneficial
Interest in Company's Junior
Subordinated Debentures 10.7 -- 10.7 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest paid on liabilities (21.4) (8.4) (29.8) 204.2 (22.5) 181.7
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 34.3 $ (5.9) $ 28.4 $ 85.2 $ 17.8 $103.0
=================================================================================================================================
</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 interest-bearing deposits in other banks, federal funds sold and
securities purchased under agreements to resell.
21
<PAGE>
================================================================================
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(In millions, except share amounts) 1997 1996
================================================================================================================================
<S> <C> <C>
Assets:
Cash and due from banks $ 93.2 $ 81.9
Money market investments:
Interest-bearing deposits in other banks 11.4 105.6
Federal funds sold and securities purchased under agreements to resell 1,048.6 388.5
- --------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 1,153.2 576.0
- --------------------------------------------------------------------------------------------------------------------------------
Loans receivable held for sale 5.5 4.8
Securities available for sale 2,007.7 4,355.4
Securities held to maturity (fair value of $4.0 and $4.0, respectively) 4.0 4.0
Trading assets 25.0 --
Loans receivable held for investment (net of allowance for possible loan
losses of $109.0 in 1997 and $105.0 in 1996) 8,795.6 7,294.3
Other interest-earning assets 117.0 --
Accrued interest receivable, net 81.2 89.5
Banking premises and equipment, net 118.8 128.2
Deferred income taxes, net 71.4 80.2
Other real estate owned, net 24.0 28.6
Goodwill 577.1 623.6
Other assets 103.0 141.0
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $13,083.5 $13,325.6
================================================================================================================================
Liabilities and Stockholders' Equity:
Liabilities:
Deposits:
N.O.W. and checking $ 533.9 $ 524.2
Savings and club 1,739.4 1,901.7
Variable rate savings 1,702.1 1,853.7
Money market 478.4 561.3
Term certificates of deposit 6,519.2 6,611.4
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 10,973.0 11,452.3
- --------------------------------------------------------------------------------------------------------------------------------
Mortgagors' escrow 117.8 66.9
Securities sold under agreements to repurchase 106.1 89.5
Trading liabilities 10.6 --
Long term debt 199.8 --
Guaranteed Preferred Beneficial Interest in Company's
Junior Subordinated Debentures 199.7 --
Accrued income taxes payable 67.7 45.1
Other liabilities 139.2 208.4
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,813.9 11,862.2
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Preferred shares of subsidiary -- 3.6
Stockholders' equity:
Preferred stock ($0.01 par value; 50,000,000 shares authorized; none issued) -- --
Common stock ($0.01 par value; 220,000,000 shares authorized;
110,261,164 and 110,231,164 shares issued, respectively.) 1.1 1.1
Additional paid-in capital 830.4 809.6
Unallocated Employee Stock Ownership Plan (ESOP) shares (114.9) (119.6)
Unearned stock plans shares (7.0) (8.3)
Retained earnings 1,142.4 1,038.0
Net unrealized loss on securities available for sale, net of tax (3.6) (23.3)
Treasury stock, at cost (27,192,578 shares and 15,742,800 shares, respectively.) (578.8) (237.7)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,269.6 1,459.8
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,083.5 $13,325.6
================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE>
================================================================================
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C>
Interest income:
Mortgages $728.9 $591.7 $532.2
Money market investments 41.3 68.0 43.8
Securities 193.6 311.7 118.6
Other 8.9 2.6 1.9
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income 972.7 974.0 696.5
Interest expense 497.7 527.5 345.8
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 475.0 446.5 350.7
Provision for possible loan losses (18.9) (15.7) (9.5)
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 456.1 430.8 341.2
Non-interest income:
Income from fees and commissions:
Mortgage loan operations fee income 15.7 14.6 13.8
Mortgage servicing fees 6.9 8.3 10.0
Banking services fees and commissions 21.9 17.4 6.4
Other fee income 1.7 3.9 4.4
Net gain (loss) on securities 2.0 0.9 (0.6)
Net (loss) gain on sales of loans (0.3) 2.9 1.8
Net gain on sale of assets 2.4 -- --
Gain on sale of branches 5.9 8.9 --
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 56.2 56.9 35.8
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and benefits 93.7 86.8 68.6
Employee Stock Ownership and
stock plans expense 19.7 14.7 15.1
Net expense of premises and equipment 47.3 46.6 23.6
Federal deposit insurance premiums 2.8 5.2 9.2
Other administrative expenses 59.7 65.8 43.7
Other real estate owned operating income (1.8) (0.8) (3.4)
Goodwill amortization 46.4 46.5 13.8
Restructuring charge (recovery) 2.5 (1.6) 8.0
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 270.3 263.2 178.6
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 242.0 224.5 198.4
Income taxes 94.4 92.0 90.9
- --------------------------------------------------------------------------------------------------------------------------------
Net income $147.6 $132.5 $107.5
=================================================================================================================================
Basic earnings per share $ 1.96 $ 1.56 $ 1.16
=================================================================================================================================
Diluted earnings per share $ 1.86 $ 1.51 $ 1.14
=================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE>
================================================================================
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
For the Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C>
Common stock
Balance at beginning of year $ 1.1 $ 1.1 $ 1.1
Balance at end of year 1.1 1.1 1.1
- --------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital
Balance at beginning of year 809.6 800.8 794.0
Issuance of common stock to stock plans 0.8 3.7 --
Amortization of ESOP shares committed to be released 12.4 4.5 3.5
Amortization of stock plans shares 0.5 0.6 0.1
Tax benefit for vested stock plans shares 7.1 -- 0.9
Exercise of stock options -- -- 1.1
Adjustment to initial public offering issuance costs -- -- 1.2
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 830.4 809.6 800.8
- --------------------------------------------------------------------------------------------------------------------------------
Unallocated ESOP shares
Balance at beginning of year (119.6) (124.0) (131.0)
Amortization of ESOP shares committed to be released 4.7 4.4 7.0
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (114.9) (119.6) (124.0)
- --------------------------------------------------------------------------------------------------------------------------------
Unearned stock plans shares
Balance at beginning of year (8.3) (9.8) (14.3)
Issuance of common stock to stock plans (0.8) (3.7) --
Amortization of stock plans shares 2.1 5.2 4.5
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (7.0) (8.3) (9.8)
- --------------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year 1,038.0 942.1 871.4
Net income 147.6 132.5 107.5
Dividends paid (37.7) (34.1) (36.8)
Exercise of stock options (5.5) (2.5) --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,142.4 1,038.0 942.1
- --------------------------------------------------------------------------------------------------------------------------------
Net unrealized (loss) gain on securities available for sale,
net of tax
Balance at beginning of year (23.3) 14.9 --
Net change in unrealized (loss) gain on securities available
for sale, net of tax 19.7 (38.2) 14.9
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (3.6) (23.3) 14.9
- --------------------------------------------------------------------------------------------------------------------------------
Treasury stock
Balance at beginning of year (237.7) (73.8) --
Exercise of stock options 14.4 5.6 --
Purchase of treasury stock (355.5) (169.5) (73.8)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (578.8) (237.7) (73.8)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $1,269.6 $1,459.8 $1,551.3
================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE>
================================================================================
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 147.6 $ 132.5 $ 107.5
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for possible loan losses 18.9 15.7 9.5
Depreciation and amortization of premises and equipment 16.5 16.1 10.3
Goodwill amortization 46.4 46.5 13.8
Accretion of discount on securities, net of premium amortization (5.2) (71.0) (71.6)
Net change in trading assets (25.0) -- --
Net change in trading liabilities 10.6 -- --
ESOP and stock plans expense 19.7 14.7 15.1
Net change in loans held for sale (0.7) 170.3 (286.3)
Net gain on sales of other real estate owned (7.3) (6.6) (9.9)
Deferred income taxes (7.4) 21.5 39.4
Decrease in other assets 16.6 25.5 3.5
(Decrease) increase in other liabilities (69.9) 50.1 (17.8)
Other, net 13.2 21.4 (18.7)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 174.0 436.7 (205.2)
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Loan originations, net of principal repayments (1,522.3) (1,447.4) 10.7
Purchase of mortgage loans held for investment, net -- -- (119.6)
Proceeds from sales of other real estate owned 20.5 12.0 25.1
Repurchases of mortgage loans sold with recourse -- -- (14.3)
Purchases of securities available for sale (1,935.1) (6,363.9) (2,637.3)
Purchases of securities held to maturity (0.3) (1.1) (1.3)
Proceeds from maturities of securities available for sale 1,933.0 4,398.5 3,849.8
Proceeds from maturities of securities held to maturity -- -- 609.0
Proceeds from sales of securities available for sale 2,065.1 3,233.8 --
Investment in corporate officer life insurance policy (102.8) -- --
Principal repayments on securities 260.1 263.2 4.4
Purchases of premises and equipment (9.9) (30.6) (16.2)
Net cash and cash equivalents received in acquisitions -- -- 454.0
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 708.3 64.5 2,164.3
================================================================================================================================
</TABLE>
Statements continued on following page.
See accompanying notes to the consolidated financial statements.
25
<PAGE>
================================================================================
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
For the Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C>
Cash flows from financing activities:
Net withdrawals from depositors' accounts (348.9) (1,293.3) (440.1)
Cash paid on transfer of deposit liabilities (124.8) (143.8) --
Payments for cash dividends (37.7) (34.1) (36.8)
Purchase of treasury stock (355.5) (169.5) (73.8)
Securities sold under agreements to repurchase 106.1 -- --
Proceeds from issuance of long term debt 199.8 -- --
Proceeds from issuance of Guaranteed
Preferred Beneficial Interest in Company's
Junior Subordinated Debentures 199.7 -- --
Net increase in mortgagors' escrow 50.9 8.0 1.6
Other, net 5.3 3.1 1.1
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (305.1) (1,629.6) (548.0)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 577.2 (1,128.4) 1,411.1
Cash and cash equivalents at beginning of year 576.0 1,704.4 293.3
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,153.2 $ 576.0 $ 1,704.4
- --------------------------------------------------------------------------------------------------------------------------------
Non-cash activities:
Additions to other real estate owned, net $ 28.3 $ 28.6 $ 22.6
Loans to facilitate sales of other real estate $ 18.7 $ 22.5 $ 29.7
Unsettled trades $ 68.1 $ 89.5 $ --
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 75.0 $ 26.9 $ 35.6
Interest paid $ 488.9 $ 521.7 $ 336.7
================================================================================================================================
In addition to the non-cash investing and financing activities previously
stated, during the year ended December 31, 1995, GreenPoint Bank purchased
selected assets and assumed selected liabilities of BarclaysAmerican/Mortgage
Corp. ("BAM") for $7.1 million, and also acquired approximately $8.1 billion of
deposits and 60 New York branches of Home Savings of America, FSB.
- -------------------------------------------------------------------------------------------------------------------------------
Fair value of assets acquired, including cash and cash equivalents $ 7,462.4
Excess of cost over fair value of net assets acquired 685.0
Cash paid (7.1)
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities assumed, principally deposits $ 8,140.3
================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
26
<PAGE>
================================================================================
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
GreenPoint Financial Corp. (the "Company") is a bank holding company organized
in 1993 under the laws of the state of Delaware and registered under the Bank
Holding Company Act of 1956, as amended. The Company acquired 100% of the
outstanding capital stock of GreenPoint Bank (the "Bank"), a New York State
chartered savings bank, upon its conversion from the mutual to the capital stock
form of ownership on January 28, 1994. The Company, through the Bank and its
primary subsidiary, GreenPoint Mortgage Corp. ("GPMC"), is engaged in specialty
limited documentation mortgage lending nationally and consumer banking in the
New York City metropolitan area.
- --------------------------------------------------------------------------------
(a) Basis of Presentation
The consolidated financial statements include the accounts of the Company, the
Bank and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. When necessary, certain
reclassifications of prior year financial statement amounts have been made to
conform to the current year presentation.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of condition and revenues and
expenses for the period. Actual results could differ from those estimates.
On March 4, 1998, the Company completed a 2-for-1 split of its common
stock. Accordingly, the financial statements for all years presented have been
restated to reflect the impact of the stock split.
- --------------------------------------------------------------------------------
(b) Securities Purchased Under Agreements to Resell and Securities Sold Under
Agreements to Repurchase
The Company enters into short-term purchases of securities under agreements to
resell ("reverse repurchase agreements") and sales of securities under
agreements to repurchase ("repurchase agreements") of substantially identical
securities. The amounts advanced under reverse repurchase agreements and the
amounts borrowed under repurchase agreements are carried on the balance sheet at
the amount advanced or borrowed, respectively, plus accrued interest. Interest
earned on reverse repurchase agreements and interest incurred on repurchase
agreements are reported as interest income and interest expense, respectively.
- --------------------------------------------------------------------------------
(c) Securities Held to Maturity and Securities Available for Sale
Securities classified as held to maturity are carried at amortized cost. The
Company has the positive intent and ability to hold these securities to
maturity.
Securities that may be sold in response to or in anticipation of changes
in interest rates and resulting prepayment risk, or other factors, are
classified as available for sale and are carried at fair value. Unrealized gains
and losses on these securities are reported, net of applicable taxes, as a
separate component of stockholders' equity.
Amortization of premiums and accretion of discounts are reported in
interest income, using a method which results in a level yield over the
estimated life of the security.
Gains and losses on the sale of securities are determined using the
specific identification method.
- --------------------------------------------------------------------------------
(d) Loans Receivable Held for Investment
Loans receivable held for investment are stated at the aggregate of their
remaining unpaid principal balances, less any related charge-offs, net deferred
loan fees, unearned discount and allowance for possible loan losses.
Interest income on loans receivable is recognized on an accrual basis
except when a loan has been past due 90 days or upon determination that
collection is doubtful. When a loan is placed on non-accrual status, all accrued
but unpaid interest receivable is reversed and charged against current interest
income. Thereafter, interest income on non-accrual loans is recorded only when
received in cash. A loan is returned to accrual status when the principal and
interest are no longer past due and the borrower's ability to make periodic
principal and interest payments is reasonably assured.
Loan fees and certain direct loan origination costs are deferred. Net
deferred fees are amortized into interest income over the contractual life of
the loan using the level-yield method.
- --------------------------------------------------------------------------------
(e) Allowance for Possible Loan Losses
Management's periodic evaluation of the adequacy of the allowance for possible
loan losses is based on the Company's past loan loss experience, known and
inherent risks in the loan portfolio, adverse situations which may affect the
borrowers' ability to repay, the estimated value of the underlying real estate
collateral and current economic and market conditions within the geographic
areas surrounding the underlying real estate.
The allowance for possible loan losses is increased by provisions for
possible loan losses charged to income and is reduced by charge-offs, net of
recoveries.
27
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
(f) Loans Receivable Held for Sale
Loans receivable held for sale are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are provided for in a
valuation allowance created through charges to income. Transfers from loans held
for investment to loans held for sale are recorded at the lower of cost or
estimated market value in the aggregate.
- --------------------------------------------------------------------------------
(g) Goodwill
Goodwill arising from the 1995 acquisition of the New York branches of Home
Savings of America is being amortized over 15 years. The goodwill associated
with the 1995 BarclaysAmerican/Mortgage acquisition is being amortized over 5
years. The carrying amount of these intangible assets are evaluated for
recoverability by management on a periodic basis.
- --------------------------------------------------------------------------------
(h) Other Real Estate Owned
Other real estate owned ("ORE") consists of real estate acquired through
foreclosure or deed in lieu of foreclosure. ORE is recorded at the lower of cost
or estimated fair value less estimated selling costs at the time of foreclosure.
Valuation write downs made at or shortly after the acquisition date are charged
against the Company's allowance for possible loan losses.
Subsequent declines in the estimated fair value, net operating results,
and gains and losses on the disposition of the related properties are charged
against the Company's operating results as incurred.
- --------------------------------------------------------------------------------
(i) Derivative Financial Instruments
The Company has limited involvement in derivative financial instruments, using
interest-rate swaps to manage interest rate exposure associated with its fixed
rate mortgage loan portfolio as well as its variable rate mortgage-backed
securities portfolio. When purchased, these derivative instruments are
designated as hedges against interest rate exposure associated with specific
pools of loans or mortgage backed securities over a specific period of time.
These instruments are considered derivative financial instruments held for
purposes other than trading. Derivatives linked to loans are accounted for under
the accrual method. Derivatives linked to available for sale securities are
carried at fair value. Unrealized gains and losses on derivatives linked to
available for sale securities, exclusive of net interest accruals, are reported
net of applicable taxes as a separate component of stockholders' equity.
Interest income (expense) resulting from the derivatives is accrued and reported
as an adjustment to mortgage loan or securities interest income.
Realized gains and losses from the settlement or termination of
derivatives contracts are deferred on the balance sheet and are amortized to
interest income or interest expense over the appropriate risk management
periods. Amortization commences when the contract is settled or terminated. If
the related assets or liabilities are sold or otherwise disposed, then the
deferred gain or loss on the derivative contract is recognized as an adjustment
to the gain or loss on disposition of the related assets or liabilities.
- --------------------------------------------------------------------------------
(j) Banking Premises and Equipment
Buildings, equipment, improvements and furniture and fixtures are carried at
cost, less accumulated depreciation and amortization. Buildings, equipment and
furniture and fixtures are depreciated over their estimated useful lives using
the straight-line method. Leasehold improvements are amortized using the
straight-line method over the shorter of their estimated useful lives or the
terms of related leases.
- --------------------------------------------------------------------------------
(k) Stock-Based Compensation Plans
Deferred compensation for stock award plans is recorded as a reduction of
stockholders' equity and is calculated as the cost of the shares purchased by
the Bank and contributed to the plan. Compensation expense is recognized over
the vesting period of actual stock awards based upon the fair value of shares at
the award date.
Compensation expense for the Employee Stock Ownership Plan ("ESOP") is
recognized for the number of shares allocated to ESOP participants as they are
committed to be released. The difference between the fair value of the shares
allocated and the cost of the shares to the ESOP is charged or credited to
additional paid-in capital.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). SFAS No. 123 permits either the recognition of compensation cost for
the estimated fair value of employee stock-based compensation arrangements on
the date of grant, or the disclosure in the notes to the financial statements of
the pro forma effects on net income and earnings per share, determined as if the
fair value-based method had been applied in measuring compensation cost. The
Company has adopted the disclosure option and continues to apply APB Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
plans. Accordingly, no compensation cost has been recognized for the Company's
stock option plans.
- --------------------------------------------------------------------------------
(l) Income Taxes
The Company and certain of its subsidiaries file consolidated tax returns with
the Federal, state and local taxing authorities. Other subsidiaries file
separate domestic tax returns as required.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of exist-
28
<PAGE>
================================================================================
ing assets and liabilities and their respective tax bases ("temporary
differences"). Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for deferred tax assets where realization is not considered "more
likely than not". The effect of changes in tax laws or rates on deferred tax
assets and liabilities is recognized in the period that includes the enactment
date.
- --------------------------------------------------------------------------------
(m) Earnings per Share
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares outstanding, with no consideration of
potential outstanding shares. Diluted EPS is calculated using the same method as
basic EPS, but reflects the potential dilution that would occur if stock options
or other contracts were exercised and converted into common stock. Common stock
equivalents are computed using the treasury stock method. ESOP shares that have
been allocated to participants' accounts or are committed to be released for
allocation are considered outstanding for EPS calculations.
- --------------------------------------------------------------------------------
(n) Impact of Recent Accounting Pronouncements
In February 1998, Statement of Financial Accounting Standards No. 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits (an
amendment of FAS Statements No. 87, 88 and 106)" ("SFAS No. 132") was issued.
The statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable. This
statement is effective for fiscal years beginning after December 15, 1997.
In June 1997, Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS No. 130") was issued. The statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This statement
is effective for fiscal years beginning after December 15, 1997.
In December 1996, Statement of Financial Accounting Standards No. 127
"Deferral of the Effective Date of Certain Provisions of FAS 125, (An amendment
of FAS 125)", was issued. The statement states that for repurchase agreement,
dollar-roll, securities lending, and similar transactions, SFAS No. 125 will be
effective for transfers of financial assets occurring after December 31, 1997.
The Company does not believe that implementation of these three new statements
will have a material effect on the financial statements of the Company.
- --------------------------------------------------------------------------------
(o) Statement of Cash Flows
For the purpose of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest-bearing deposits in other banks, federal funds sold
and reverse repurchase agreements, all of which have initial maturities of less
than ninety days.
- --------------------------------------------------------------------------------
Note 2 Business Acquisitions
- --------------------------------------------------------------------------------
On July 7, 1995, the Company paid approximately $7.1 million to acquire the
national wholesale residential mortgage lending operation of
BarclaysAmerican/Mortgage Corporation, a subsidiary of Barclays Bank PLC. The
transaction was structured as a purchase of certain assets and an assumption of
certain liabilities which generated goodwill of approximately $5.0 million.
On September 22, 1995, the Bank completed the acquisition of the New York
branch system of Home Savings of America, FSB ("HSA"), a subsidiary of H.F.
Ahmanson & Company. The Bank assumed approximately $8.1 billion of customer
deposit liabilities and received approximately $7.5 billion in cash,
certificates of deposit and short-term Federal agency debt securities. The
acquisition was structured as a purchase of assets and assumption of liabilities
which generated goodwill of approximately $680.0 million.
On April 30, 1997, the Company purchased the Columbus, GA mortgage
servicing operations of Citizens Financial Group, for a net purchase price of
approximately $4 million. The purchase of the Georgia facility gives the Company
a more efficient platform for servicing its national mortgage portfolio.
- --------------------------------------------------------------------------------
Note 3 Restrictions on Cash and Due from Banks
- --------------------------------------------------------------------------------
The Company is required to maintain reserves on deposit with the Federal Reserve
Bank of New York. The amount of required reserves at December 31, 1997 was $22.3
million. The average amount of those reserve deposits was approximately $28.4
million for the year ended December 31, 1997.
- --------------------------------------------------------------------------------
Note 4 Securities Purchased Under Agreements to Resell
- --------------------------------------------------------------------------------
The maximum amounts of reverse repurchase agreements outstanding on any day
during the years ended December 31, 1997 and 1996, were $0.84 billion and $1.42
billion, respectively. The average amounts of these agreements outstanding
during the years ended December 31, 1997 and 1996, were $335.5 million and
$791.6 million, respectively.
During 1997 and 1996, the underlying securities purchased under resale
agreements were delivered into a third-party account that recognizes the
Company's rights and interests in these securities.
29
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Note 5 Securities
- --------------------------------------------------------------------------------
Securities Available for Sale
The amortized cost and estimated fair value of securities available for sale at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale December 31, 1997
===============================================================================================================================
<S> <C> <C> <C> <C>
U.S. Government and Federal Agency Obligations:
U.S. Treasury notes/bills $ 700.6 $ -- $ (4.8) $ 695.8
Agency notes/Asset-backed securities 125.9 0.1 (0.2) 125.8
Mortgage-backed securities 780.6 0.8 (1.8) 779.6
Collateralized mortgage obligations 113.9 0.5 -- 114.4
Trust certificates collateralized by GNMA securities 124.5 -- (0.9) 123.6
Corporate asset-backed securities 25.0 -- -- 25.0
Commercial paper 113.5 -- -- 113.5
Other 30.0 -- -- 30.0
- -------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 2,014.0 $ 1.4 $ (7.7) $ 2,007.7
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale December 31, 1996
===============================================================================================================================
<S> <C> <C> <C> <C>
U.S. Government and Federal Agency Obligations:
U.S. Treasury notes/bills $ 1,944.3 $ 0.3 $(16.2) $ 1,928.4
Agency notes/Asset-backed securities 66.4 -- -- 66.4
Mortgage-backed securities 1,881.0 -- (23.1) 1,857.9
Collateralized mortgage obligations 32.4 -- -- 32.4
Trust certificates collateralized by GNMA securities 409.8 -- (3.3) 406.5
Other 63.9 0.2 (0.3) 63.8
- -------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 4,397.8 $ 0.5 $(42.9) $ 4,355.4
===============================================================================================================================
</TABLE>
During the year ended December 31, 1997, the Company sold available for sale
securities aggregating $2.1 billion, resulting in gross realized gains of $3.9
million and gross realized losses of $1.9 million.
During the year ended December 31, 1996, the Company sold available for
sale securities aggregating $3.2 billion, resulting in gross realized gains of
$2.7 million and gross realized losses of $2.1 million. There were no sales of
securities during the year ended 1995.
In December 1995, in accordance with guidance issued by the Financial
Accounting Standards Board, the Company reclassified $105.1 million in
securities from the held to maturity category to the available for sale
category. The securities were adjusted to market value, resulting in unrealized
gains of approximately $1.7 million.
Mortgage-backed securities and collateralized mortgage obligations, most
of which have contractual maturities of more than 10 years, are subject to
scheduled and nonscheduled principal payments which shorten the average life to
an estimated 3.7 years. The amortized cost and estimated fair value of
securities at December 31, 1997 by contractual maturity are summarized below:
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
- -------------------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
Maturity schedule of securities December 31, 1997
===============================================================================================================================
<S> <C> <C> <C> <C>
Due in one year or less $ 463.9 $ 463.2 $ -- $ --
Due after one year through five years 569.8 565.4 2.1 2.1
Due after five years through ten years 259.5 258.8 -- --
Due after ten years 720.8 720.3 1.9 1.9
- -------------------------------------------------------------------------------------------------------------------------------
Total securities $ 2,014.0 $2,007.7 $ 4.0 $ 4.0
===============================================================================================================================
</TABLE>
30
<PAGE>
================================================================================
The Company lends portions of its investment in U.S. government and agency
securities to pre-authorized securities dealers in return for a securities
lending fee. These loaned securities are collateralized at 102% of their fair
value with government and/or agency securities. To protect the Company's
investment, the agreements contain provisions to increase the collateral
obtained, should the value of the collateral decline or the fair value of the
securities loaned increase. Upon maturity or early termination of a loan, the
Company's securities are returned. At December 31, 1997 and 1996 there were $0.7
billion and $1.9 billion, respectively, of the Company's securities on loan to
securities dealers. Income earned on loaned securities, included in other
income, for the years ended December 31, 1997, 1996 and 1995 was $1.1 million,
$2.0 million, and $0.5 million, respectively. The maximum amount of securities
loaned on any day during the years ended December 31, 1997 and 1996 was $1.9
billion and $2.3 billion, respectively.
- --------------------------------------------------------------------------------
Note 6 Loans Receivable
- --------------------------------------------------------------------------------
The Company's loans receivable balances are summarized as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Conventional first mortgage loans:
Residential one- to four-family $ 7,660.7 $ 6,350.4
Residential multi-family 620.0 544.1
Commercial property 536.5 467.1
Second mortgage and home
equity loans 88.5 44.1
Other 30.1 41.8
- --------------------------------------------------------------------------------
Total loans receivable held
for investment 8,935.8 7,447.5
Net deferred loan origination fees
and unearned discount (31.2) (48.2)
Allowance for possible loan losses (109.0) (105.0)
- --------------------------------------------------------------------------------
Loans receivable held for
investment, net $ 8,795.6 $ 7,294.3
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Non-Accrual Loans
The outstanding balances of non-accrual loans as of December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Mortgage loans secured by:
Residential one- to four-family $ 271.0 $ 271.2
Residential multi-family 46.0 48.3
Commercial property 38.0 36.5
Other loans 0.1 0.1
- --------------------------------------------------------------------------------
Total $ 355.1 $ 356.1
================================================================================
</TABLE>
The effect of non-accrual loans on interest income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Interest Income
As originally contracted $ 45.3 $ 45.1 $ 50.8
As recognized (29.5) (22.9) (33.7)
- --------------------------------------------------------------------------------
Reduction of interest income $ 15.8 $ 22.2 $ 17.1
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Allowance for Possible Loan Losses
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Balance at beginning of year $ 105.0 $ 105.5 $ 103.0
Provisions charged to
income 18.9 15.7 9.5
Charge offs (16.0) (17.5) (15.5)
Recoveries 1.1 1.3 8.5(a)
- --------------------------------------------------------------------------------
Balance at end of year $ 109.0 $ 105.0 $ 105.5
================================================================================
</TABLE>
(a) Includes a $6.1 million recovery of 1994's bulk sale charge off.
- --------------------------------------------------------------------------------
Geographic Concentration
As of December 31, 1997, 69% of the Company's mortgage loan portfolio was
secured by properties located in New York State. The properties securing the
remaining portfolio are dispersed throughout the country, with no state
representing more than 10%.
- --------------------------------------------------------------------------------
Note 7 Other Real Estate Owned
- --------------------------------------------------------------------------------
The following is a summary of ORE owned by the Company:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Property type:
Residential one- to four-family $ 18.4 $ 17.5
Residential multi-family 2.6 4.0
Commercial 3.9 8.4
Allowance for declines in value (0.9) (1.3)
- --------------------------------------------------------------------------------
Other real estate owned, net $ 24.0 $ 28.6
================================================================================
</TABLE>
Activity in the allowance for declines in value for ORE is summarized as
follows:
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Balance at beginning of year $ 1.3 $ 2.2 $ 5.1
Provisions charged to
income 0.8 0.9 0.5
Charge offs (1.2) (1.8) (3.4)
- --------------------------------------------------------------------------------
Balance at end of year $ 0.9 $ 1.3 $ 2.2
================================================================================
</TABLE>
31
<PAGE>
================================================================================
The following is a summary of ORE income activity:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Operating expense, net of
rental and other income $ 4.7 $ 4.9 $ 6.0
Provision for decline in
value of ORE 0.8 0.9 0.5
Net gain on sales of
ORE properties (7.3) (6.6) (9.9)
- --------------------------------------------------------------------------------
Net ORE operating income $ (1.8) $ (0.8) $ (3.4)
================================================================================
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, the Company acquired
through foreclosure or deed in lieu of foreclosure, loans with book values of
$32.2 million, $33.1 million and $27.2 million, respectively. Charges to the
allowance for possible loan losses, reducing the carrying value of ORE
properties to their estimated fair values, amounted to $4.2 million, $4.5
million and $5.5 million during the years ended December 31, 1997, 1996 and
1995, respectively. Sales of ORE properties during these respective periods
totaled $32.6 million, $29.3 million and $46.5 million.
- --------------------------------------------------------------------------------
Note 8 Deposits
- --------------------------------------------------------------------------------
The contractual maturities of term certificates of deposit are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
of Term of Term
(In millions) Amount Deposits Amount Deposits
==================================================================================================================================
<S> <C> <C> <C> <C>
Due within six months $ 2,030.1 31.14% $ 2,961.6 44.80%
Due within six to twelve months 2,719.7 41.72 1,745.6 26.40
Due within one to two years 1,205.1 18.48 1,311.6 19.84
Due within two to three years 325.0 4.98 305.0 4.61
Due within three to four years 108.6 1.67 179.7 2.72
Due within four to five years 112.6 1.73 69.1 1.05
Due beyond five years 18.1 0.28 38.8 0.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 6,519.2 100.00% $ 6,611.4 100.00%
==================================================================================================================================
</TABLE>
Included in term certificates of deposit are certificates in denominations of
$100,000 or more at December 31, 1997 and 1996, aggregating $723.7 million and
$687.8 million, respectively.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Account type:
N.O.W $ 5.3 $ 6.1 $ 3.4
Savings 46.7 55.2 28.4
Variable rate savings 59.9 66.1 41.5
Money market 16.6 19.5 14.2
Term certificates of deposit 343.1 377.8 257.0
- --------------------------------------------------------------------------------
Total $ 471.6 $ 524.7 $ 344.5
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Note 9 Preferred Shares of Subsidiary
- --------------------------------------------------------------------------------
GreenPoint Mortgage Trust ("GPMT"), a wholly-owned subsidiary of the Bank, was a
real estate investment trust established for the purpose of acquiring, holding
and managing real estate mortgage assets.
During 1996, GPMT issued 10,000 shares of 12.0% cumulative preferred stock
with a liquidation preference of $1,000. Preferred shareholders were entitled to
receive quarterly cumulative cash dividends, which was considered minority
interest expense by the Company.
The cumulative preferred shares were redeemable at any time or from time
to time, in whole or in part, at a redemption price equal to the liquidation
value, plus any dividends accrued and unpaid at the option of GPMT. The
preferred shares were treated as Tier 1 capital for the Company and the Bank.
The preferred shares had no stated maturity and were not subject to any
mandatory sinking fund or redemption rights.
On December 15, 1997, the voluntary liquidation of GPMT was completed. The
assets of GPMT were distributed to GreenPoint Bank on that date.
- --------------------------------------------------------------------------------
Note 10 Guaranteed Preferred Beneficial Interest in Company's Junior
Subordinated Debentures
- --------------------------------------------------------------------------------
In June 1997, GreenPoint Capital Trust I (the "Trust"), a Delaware statutory
business trust owned by the Company, issued $200 million of 9.10% Guaranteed
Preferred Beneficial Interest in the Company's Subordinated Debentures ("Capital
Securities"). The Trust exists for the sole purpose of issuing the Capital
Securities
32
<PAGE>
================================================================================
and investing the proceeds thereof in 9.10% Junior Subordinated Debentures to be
issued by the Company. The Junior Subordinated Debentures mature on June 1,
2027. Payment of distributions out of monies held by the Trust and payments on
liquidation of the Trust or the redemption of Capital Securities, are guaranteed
by the Company to the extent the Trust has funds available therefore. The
obligations of the Company under the Guarantee and the Junior Subordinated
Debentures are subordinate and junior in right of payment to all indebtedness of
the Company and will be structurally subordinated to all liabilities and
obligations of the Company's subsidiaries.
Distributions on the Capital Securities are payable semi-annually in
arrears on June 1 and December 1 of each year, commencing December 1, 1997. The
Junior Subordinated Debentures are not redeemable prior to June 1, 2007, unless
certain events have occurred.
The proceeds from the issuance of the Capital Securities were used to
repurchase $200 million of common stock.
Interest expense on Capital Securities was $10.7 million for the year
ended December 31, 1997.
- --------------------------------------------------------------------------------
Note 11 Long Term Debt
- --------------------------------------------------------------------------------
In July 1997, the Company published an Offering Circular under Regulation D
authorizing it to issue, from time to time, up to $3 billion of Senior and
Subordinated Bank Notes ("Notes") with maturities ranging from 7 days to 30
years. On July 10, 1997, the Company issued $200 million of 6.70% Senior Notes
maturing July 15, 2002. Interest is paid semi-annually on January 15 and July
15.
The proceeds of the Notes will be used by the Company for general
corporate and banking purposes in the ordinary course of business.
Long term debt interest expense for the year ended December 31, 1997 was
$6.4 million.
- --------------------------------------------------------------------------------
Note 12 Restructuring Charge
- --------------------------------------------------------------------------------
In December 1995, the Company recorded a pre-tax restructuring charge of $8.0
million that reflected actions initiated during the fourth quarter of that year
and during 1996 to improve operating efficiency. In 1996, the Company recovered
$1.6 million of the restructuring charge, due to lower than expected severance
payments and write-downs on sold or closed facilities.
In June 1997, the Company recorded a pre-tax restructuring charge of $2.5
million pertaining to the transfer of mortgage servicing from New York to
Georgia. As of December 31, 1997, the transfer of servicing had been completed
and the full reserve was utilized for related severance payments and asset
writedowns.
- --------------------------------------------------------------------------------
Note 13 Pension Plan and Other Employee Benefits
- --------------------------------------------------------------------------------
Defined Benefit Pension Plan
The Bank maintains a noncontributory, qualified, defined benefit pension plan
(the "Pension Plan") covering substantially all employees of the Company who
have completed one year of service with the Company. Effective May 6, 1996, the
Pension Plan was amended to calculate future benefits under a cash balance
formula. Each participant has an account to which amounts are allocated based on
a percentage of the participant's eligible base salary and years of service,
which grows at a specified rate of interest. Benefits accrued prior to May 6,
1996 were based primarily on each participant's years of service and highest
average compensation. The funding of the Pension Plan is actuarially determined
on an annual basis. The Pension Plan conforms to the applicable requirements of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Internal Revenue Code of 1986, as amended (the "Code").
The actuarial present value of benefit obligations as of December 31, 1997
and 1996 are shown as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Actuarial present value of benefit
obligation:
Accumulated benefit obligation
(including vested benefits of
$31.3 and $26.3, respectively) $ 32.9 $ 27.9
Effect of future compensation 2.6 2.6
- --------------------------------------------------------------------------------
Projected benefit obligation $ 35.5 $ 30.5
- --------------------------------------------------------------------------------
Plan assets at fair value
(Primarily investments in
mutual fund shares of equity
and bond funds) $ 49.1 $ 43.4
Projected benefit obligation $ (35.5) $ (30.5)
- --------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 13.6 12.9
Unrecognized net transition asset (0.9) (1.3)
Unrecognized net gain (8.1) (6.9)
Unrecognized prior service benefit (2.8) (3.1)
- --------------------------------------------------------------------------------
Prepaid pension cost $ 1.8 $ 1.6
================================================================================
</TABLE>
Net periodic pension (benefit) costs reported for the years ended December 31,
1997, 1996 and 1995, were $(0.2) million, $1.0 million and $1.1 million,
respectively.
33
<PAGE>
================================================================================
The assumptions used for the years ended December 31, 1997, 1996 and 1995 to
determine the net periodic pension (benefit) cost were:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
================================================================================
<S> <C> <C> <C>
Weighted average
discount rate 7.00% 7.50% 7.00%
Rate of increase in future
compensation levels 4.50% 4.50% 6.00%
Expected long-term rate
of return on assets 9.00% 8.00% 8.00%
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Supplemental Executive Retirement Plan and Retirement Plan for Directors
The Bank maintains a non-qualified, unfunded Supplemental Executive Retirement
Plan ("SERP") for the primary purpose of providing benefits to certain eligible
employees in excess of limitations imposed by the Code. For the years ended
December 31, 1997, 1996 and 1995, the SERP expense was $0.1 million, $0.7
million and $0.5 million, respectively.
The Bank also maintains a non-qualified, unfunded defined benefit
Retirement Plan for Directors who are not entitled to receive benefits under the
Pension Plan. This plan provides retirement benefits to eligible retired or
disabled Independent Directors and their beneficiaries. For the years ended
December 31, 1997, 1996 and 1995, the Retirement Plan for Directors expense was
$0.3 million, $0.3 million and $0.5 million, respectively.
- --------------------------------------------------------------------------------
401(k) Savings Plan
During 1996, the Bank amended its Incentive Savings Plan to include provisions
under Section 401(k) of the Code (the "401(k) Savings Plan"). Substantially all
of the employees of the Company employed prior to July 1, 1996 and employees
employed after such date who have been credited with 1,000 hours of service
during a twelve month period are eligible to participate. Participants may
contribute on a pre-tax basis up to 6% of their eligible salary and may be
eligible to receive a matching contribution equal to 100% of the first 3% of
eligible salary they contribute to the 401(k) Savings Plan. Participants may
invest their pre-tax contributions in any of the investment funds made available
under the 401(k) Savings Plan, including a fund that invests primarily in the
Company's stock. The matching contribution may be funded by using some of the
shares released for allocation under the Bank's ESOP. Matching contributions
generally become vested over a five-year period. The 401(k) Savings Plan
conforms to the applicable requirements of ERISA and the Code. 401(k) Savings
Plan expenses for matching contributions were approximately $1.3 million and
$0.8 million for the years ended December 31, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
Other Postretirement Benefits
The Company provides certain unfunded health care and life insurance benefits to
eligible retired employees. Participants generally become eligible for retiree
health care and life insurance benefits after 10 years of service with the
Company. The Company also gives retired directors the option of participating in
certain retiree health care benefits.
The following table sets forth the Accumulated Postretirement Benefit
Obligation ("APBO") at December 31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Retirees $ 6.7 $ 7.0
Fully eligible active plan
participants 1.2 1.8
Other plan participants 6.8 5.2
- --------------------------------------------------------------------------------
Total APBO 14.7 14.0
- --------------------------------------------------------------------------------
Unrecognized prior
service cost 0.3 0.2
Unrecognized gain 0.5 0.3
- --------------------------------------------------------------------------------
Accrued postretirement
benefit cost $ 15.5 $ 14.5
================================================================================
</TABLE>
The net postretirement benefits expense for the years ended December 31, 1997,
1996 and 1995 was comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Service cost (benefits
for service during
the year) $ 1.1 $ 1.2 $ 0.7
Interest cost on APBO 0.8 0.9 1.0
- --------------------------------------------------------------------------------
Net postretirement
benefits expense $ 1.9 $ 2.1 $ 1.7
================================================================================
</TABLE>
In measuring the APBO, an 8.0% annual trend rate for health care costs was
assumed for the year ended December 31, 1997, a 9.0% annual trend rate was
assumed for the year ended December 31, 1996 and an 11.5% annual trend rate was
assumed for the year ended December 31, 1995. This rate is assumed to decline to
5.0% by the year 2000. The weighted average discount rate used in determining
the APBO was 7.0%, 7.5% and 7.0%, for the years ended December 31, 1997, 1996
and 1995, respectively.
If the assumed health care cost trend rate increased by 1%, the APBO as of
December 31, 1997 would increase by $2.0 million. The effect of a 1% increase in
the cost trend rate on the service and interest cost components of net periodic
postretirement benefits expense would be an increase of $0.4 million.
34
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Employer's Accounting for Postemployment Benefits
The Company is accounting for postemployment benefits on a comprehensive accrual
basis. This basis requires the Company to charge to expense the expected costs
of providing these benefits to all postemployment employees, during the years
such employees are actively employed by the Company. At December 31, 1997 and
1996, the Company's postemployment benefits liability was approximately $0.4
million and $0.5 million, respectively.
- --------------------------------------------------------------------------------
Note 14 Income Taxes
- --------------------------------------------------------------------------------
For the tax years prior to 1996, a special bad debt deduction was allowed for
additions to the Bank's tax bad debt reserves. As a result of Federal
legislation, for tax years beginning after January 1, 1996, the Bank is only
permitted to take deductions for bad debts for Federal tax purposes on the basis
of actual loan charge-off activity. This legislation also requires that the Bank
recapture into taxable income the portion of existing tax bad debt reserves
created in the years beginning after December 31, 1987 over a six year period.
The amount of such reserve subject to recapture at December 31, 1997 is
approximately $2.0 million.
At December 31, 1997, no Federal income tax provision has been made
against the Bank's pre-1988 tax bad debt reserve of approximately $140 million.
However, these reserves remain subject to recapture should the Bank make certain
non-dividend distributions or cease to maintain a Bank charter. Management has
no intention of taking any such actions.
For New York State and City income tax purposes, the Bank is permitted to
continue to take special reserve method bad debt deductions. For the tax year
ended December 31, 1997 the Bank maintained state and city tax bad debt reserves
in excess of the Federal reserve of approximately $295 million and $296 million
respectively, for which no state or city taxes have been provided. In the
event the Bank were to allow qualifying assets to fall below 60% or otherwise
fail state thrift definitional tests, the balance of the excess New York State
and City reserves would be subject to recapture into taxable income.
Furthermore, any charge to the qualifying tax bad debt reserves other than for
losses on qualifying loans may create income for State tax purposes only. The
Bank's qualifying assets at December 31, 1997 and 1996 exceeded 60%.
The Company's deferred tax asset represents the anticipated Federal, state
and local tax benefits expected to be realized in future years upon the
utilization of the underlying tax attributes comprising this balance. In
management's opinion, the net deferred tax asset is fully realizable.
Accordingly, no valuation allowance has been provided.
The components of income tax expense for the years ended December 31,
1997, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Current:
Federal $ 85.3 $60.3 $34.3
State and local 16.6 10.2 17.2
- --------------------------------------------------------------------------------
Total current 101.9 70.5 51.5
- --------------------------------------------------------------------------------
Deferred:
Federal (6.1) 11.4 24.1
State and local (1.4) 10.1 15.3
- --------------------------------------------------------------------------------
Total deferred (7.5) 21.5 39.4
- --------------------------------------------------------------------------------
Total $ 94.4 $92.0 $90.9
================================================================================
</TABLE>
In addition to the income tax expense attributable to operations, deferred
income tax (benefit) expense in the amount of ($16.3) million, ($31.6) million
and $12.6 million was separately allocated to stockholders' equity to recognize
the related tax effect of the change in the net unrealized loss or gain on
securities available for sale for the years ended December 31, 1997, 1996 and
1995, respectively.
The amounts reported as income tax expense vary from amounts that would be
reported by applying the statutory Federal income tax rate to income before
income taxes due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of Pre-tax of Pre-tax of Pre-tax
Amount Earnings Amount Earnings Amount Earnings
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Tax expense at Federal statutory rate $ 84.7 35.00% $78.6 35.00% $69.4 35.00%
State and local taxes, net of Federal
income tax benefit 11.7 4.83 13.2 5.89 20.9 10.53
Other (2.0) (0.82) 0.2 0.09 0.6 0.29
- ---------------------------------------------------------------------------------------------------------------------------------
Total income taxes $ 94.4 39.01% $92.0 40.98% $90.9 45.82%
=================================================================================================================================
</TABLE>
Included in deferred income tax expense for the year ended December 31, 1995 is
an expense of $0.8 million relating to adjustments to deferred tax assets and
liabilities for enacted changes in tax laws and rates.
35
<PAGE>
================================================================================
The balances of the net deferred tax asset at December 31, 1997 and 1996
were comprised as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Deferred Tax Assets:
Allowance for possible
loan losses $ 48.0 $ 45.4
Interest income on non-accrual loans 6.9 8.3
Capitalized cost of acquisition,
other real estate 4.3 4.4
Other real estate, valuation allowance
for market decline 0.8 0.1
Postretirement and post-
employment benefits 10.4 6.8
Unrealized loss on securities
available for sale 2.7 19.0
Other 11.7 4.4
- --------------------------------------------------------------------------------
$ 84.8 $ 88.4
================================================================================
Deferred Tax Liabilities:
Premises and equipment $ (2.1) $ (3.4)
Mortgage servicing rights (1.9) (1.8)
Deferred loan fees (9.4) (3.0)
- --------------------------------------------------------------------------------
(13.4) (8.2)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 71.4 $ 80.2
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Note 15 Derivative Financial Instruments
- --------------------------------------------------------------------------------
The Bank enters into interest rate swap contracts in managing the interest rate
risk associated with its fixed-rate mortgages and variable rate securities in
its investment portfolio. The notional amounts of these contracts approximate
$475 million and $300 million at December 31, 1997 and 1996, respectively. These
contracts have an average term of approximately 2 years. Under the terms of the
contracts for 1997, the Bank pays an average fixed rate of 6.37% and receives an
average variable rate of 5.84% on the swaps hedging the fixed rate loan
portfolio and pays an average variable rate of 6.01% and receives an average
variable rate of 5.88% on the swaps hedging the variable rate securities
portfolio. The notional amounts of derivatives do not represent amounts
exchanged by the parties and, thus, are not a measure of the Company's exposure
through its use of derivatives. The amounts exchanged are determined by
reference to the notional amounts and the other terms of the derivatives.
Interest rate swaps are contracts in which a series of interest rate flows
in a single currency are exchanged over a prescribed period. The risks inherent
in interest rate swaps are the potential inability of a counterparty to meet the
terms of its contract and the risk associated with changes in the market values
of the contracts due to movements in the underlying interest rates. The current
credit exposure of derivatives is represented by the fair value of contracts
with a positive fair value at the reporting date. To reduce credit risk,
management may deem it necessary to obtain collateral.
- --------------------------------------------------------------------------------
Note 16 Commitments and Contingencies
- --------------------------------------------------------------------------------
In the normal course of business, there are various outstanding commitments and
contingent liabilities that have not been reflected in the consolidated
financial statements. In addition, in the normal course of business, there are
various other outstanding legal proceedings. In the opinion of management, after
consultation with legal counsel, the financial position and results of
operations of the Company will not be affected materially as a result of such
commitments and contingent liabilities or by the outcome of such legal
proceedings.
The principal commitments and contingent liabilities of the Company are
discussed in the following paragraphs.
- --------------------------------------------------------------------------------
Pending Litigation
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 has been named as a defendant in fifteen
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
complaints are in various early stages of discovery. Outside 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.
The Company currently believes that such liability exposure, if any, would not
be material to the Bank's financial condition and results of operations.
The Bank is a defendant in a purported class action lawsuit in which
plaintiffs allege that the Bank collected monthly mortgage escrow reserves in
excess of the amounts it is entitled to collect under applicable law and the
mortgage contract. Plaintiffs seek, among other things, treble damages and
injunctive relief under breach of contract theories and alleged violation of the
Federal Racketeer Influenced and Corrupt Organization Act ("RICO"), and a
judgment based upon alleged breach of contract, breach of fiduciary duty and
intentional and/or negligent misrepresentation. The Bank has filed an answer
denying all of the Plaintiff's claims, believes its mortgage loan servicing
practices with respect to escrow deposits comply in all material respects with
applicable requirements, and intends to defend vigorously this action. While the
ultimate outcome of this lawsuit, whether by judgment or a satisfactory
settlement, cannot be predicted, management does not believe that the outcome of
this litigation is likely to have a material adverse effect on the consolidated
financial condition and results of operations of the Company.
36
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Loan Commitments
At December 31, 1997 and 1996, the Company had outstanding commitments to
originate mortgage loans totaling approximately $438.9 million and $486.0
million, respectively. The commitments to originate mortgage loans at December
31, 1997 included $308.5 million of commitments to originate fixed rate mortgage
loans and $130.4 million of commitments to originate adjustable rate mortgage
loans.
- --------------------------------------------------------------------------------
Recourse Obligations
The Company has sold loans to FNMA with recourse obligations. The aggregate
amount of loans still subject to recourse was $56.5 million at December 31,
1997. The Company's obligation to repurchase loans is to be reduced by 89.8 % at
December 31, 1998, and by the final 10.2 % at December 31, 1999.
- --------------------------------------------------------------------------------
Lease Commitments
The Company has entered into noncancelable operating lease agreements for
banking premises and equipment with expiration dates ranging through the year
2023. The Company's premises are used principally for branch offices and
administrative operations, and it is expected that many agreements will be
renewed at expiration in the normal course of business.
Rental expense for the Company's premises for the years ended December 31,
1997, 1996 and 1995 amounted to $10.6 million, $9.1 million and $3.1 million,
respectively.
The projected minimum rental payments under the terms of the noncancelable
leases, exclusive of taxes and escalation charges, at December 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Year Ended
(In millions) December 31, Amount
================================================================================
<S> <C> <C>
1998 $ 12.8
1999 10.4
2000 9.5
2001 8.9
2002 7.7
thereafter 50.7
- --------------------------------------------------------------------------------
Total $100.0
================================================================================
</TABLE>
Minimum rental income under noncancelable sublease agreements aggregate $19.7
million.
- --------------------------------------------------------------------------------
Note 17 Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
The methods and assumptions used to estimate fair values are set forth in the
following paragraphs for each major grouping of the Company's financial
instruments.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(In millions) Values Fair Values Values Fair Values
======================================================================================================================
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 93.2 $ 93.2 $ 81.9 $ 81.9
Interest-bearing deposits in other banks 11.4 11.4 105.6 105.6
Federal funds sold and securities
purchased under agreements to resell 1,048.6 1,048.6 388.5 388.5
Securities:
Securities available for sale 2,007.7 2,007.7 4,355.4 4,355.4
Securities held to maturity 4.0 4.0 4.0 4.0
Trading assets 25.0 25.0 -- --
Loans receivable held for sale 5.5 5.5 4.8 4.8
Loans receivable held for investment 8,795.6 9,023.1 7,294.3 7,469.7
Other interest-earning assets 117.0 117.0 -- --
Liabilities:
Deposits:
Deposits due on demand and/or with
no specified maturities 4,453.8 4,453.8 4,840.9 4,840.9
Term certificates of deposit 6,519.2 6,582.9 6,611.4 6,669.0
Accrued Interest:
Receivable 81.2 81.2 89.5 89.5
Payable 15.1 15.1 6.3 6.3
Securities sold under agreements to repurchase 106.1 106.1 89.5 89.5
Trading liabilities 10.6 10.6 -- --
Long term debt 199.8 202.5 -- --
Guaranteed Preferred Beneficial Interest in Company's
Junior Subordinated Debentures 199.7 220.4 -- --
Off-balance sheet:
Commitments to originate mortgage loans -- -- -- --
Interest rate swaps -- (3.4) -- (1.8)
======================================================================================================================
</TABLE>
37
<PAGE>
================================================================================
The carrying values of the following balance sheet items all approximate their
fair values primarily due to their liquidity and very short-term nature:
o Cash and Due From Banks
o Interest-Bearing Deposits in Other Banks
o Federal Funds Sold and Securities Purchased Under Agreements to Resell
o Accrued Interest Receivable and Payable
o Securities Sold Under Agreements to Repurchase
- --------------------------------------------------------------------------------
Securities, Trading Assets, Trading Liabilities and Other Interest-Earning
Assets
The fair values of these securities are based on published market valuations or
estimated price quotations provided by securities dealers.
- --------------------------------------------------------------------------------
Loans Receivable Held for Sale
The fair values of loans held for sale are estimated using quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics.
- --------------------------------------------------------------------------------
Loans Receivable Held for Investment
The fair value of the Company's mortgage loan portfolio is based on
comprehensive portfolio valuation analyses performed as of December 31, 1997 and
1996 by an independent pricing firm, engaged specifically for this purpose by
the Company.
The remaining categories of loans, home equity loans, student loans and
home improvement loans, were deemed to have estimated market values
approximating their respective carrying values.
- --------------------------------------------------------------------------------
Derivative Instruments
Interest rate swaps-the fair value generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts at the reporting
date, thereby taking into account the current unrealized gains or losses of open
contracts.
- --------------------------------------------------------------------------------
Long Term Debt and Guaranteed Preferred Beneficial Interest in the Company's
Junior Subordinated Debentures
The valuation of these securities takes into account several factors including
current market interest rates and the Company's credit rating. Quotes were
obtained from securities dealers or calculated by adding the Bank's credit
spread to the applicable treasury rate.
- --------------------------------------------------------------------------------
Deposits
The fair value of all deposits with no specified maturities is deemed to be
equal to the amounts payable on demand.
The fair value of the Company's term certificates of deposit was estimated
by discounting cash flows based on contractual maturities at current interest
rates for raising funds of similar remaining maturities.
- --------------------------------------------------------------------------------
Commitments to Originate Mortgage Loans
Loan commitments issued and outstanding as of December 31, 1997 and 1996 contain
rates and terms similar to the rates and terms of commitments issued by the
Company at December 31, 1997 and 1996. Accordingly, the fair value of these
commitments approximates the carrying amount.
- --------------------------------------------------------------------------------
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments being
estimated. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. In those instances for which no market exists
for portions of the Company's financial instruments, fair value estimates were
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of the affected financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, should not be
considered to represent any specific market values. Changes in the assumptions
could significantly affect the fair valuation estimates.
- --------------------------------------------------------------------------------
Note 18 Regulatory Matters
- --------------------------------------------------------------------------------
The Company and the Bank are subject to various regulatory capital requirements
administered by the Federal and state banking agencies. The Board of Governors
of the Federal Reserve System establishes minimum capital requirements for the
consolidated bank holding company as well as for the Bank.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities, and certain off balance sheet
items as calculated under regulatory accounting practices. These guidelines
require minimum ratios of risk-based capital to risk adjusted assets of 4% for
Tier 1 capital and 8% for total capital. The Federal Reserve Board also has
guidelines for a leverage ratio that is designed to complement the risk-based
capital ratios in determining the overall capital adequacy of banks and bank
holding companies. A minimum leverage ratio of Tier 1 capital to average total
assets of 3% is required for banks and bank holding companies, with an
additional 100 to 200 basis points required for all but the highest rated
institutions. Management believes, as of December 31, 1997, that the Company and
the Bank meet all capital adequacy requirements to which it is subject.
38
<PAGE>
================================================================================
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum Tier 1 capital, total capital and leverage ratios of 6%, 10%
and 5%, respectively. There have been no conditions or events since that
notification that management believes have changed the Company's or Bank's
category.
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
- --------------------------------------------------------------------------------
(In millions) Amount Ratio Amount Ratio
================================================================================
<S> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets):
Company $ 974.1 15.54% $ 501.3 8.00%
Bank 959.6 15.34% 500.6 8.00%
Tier 1 Capital (to Risk
Weighted Assets):
Company $ 895.8 14.29% $ 250.6 4.00%
Bank 881.4 14.09% 250.3 4.00%
Tier 1 Capital (to Average Assets):
Company $ 895.8 7.19% $ 498.5 4.00%
Bank 881.4 7.08% 497.7 4.00%
================================================================================
</TABLE>
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
- --------------------------------------------------------------------------------
(In millions) Amount Ratio Amount Ratio
================================================================================
<S> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets):
Company $ 932.8 16.72% $446.2 8.00%
Bank 914.2 16.40% 445.8 8.00%
Tier 1 Capital (to Risk
Weighted Assets):
Company $ 863.1 15.47% $223.1 4.00%
Bank 844.5 15.15% 222.9 4.00%
Tier 1 Capital (to Average Assets):
Company $ 863.1 6.78% $509.0 4.00%
Bank 844.5 6.64% 508.4 4.00%
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Dividend Limitation
The Company's principal source of funds for distributions of dividends to
shareholders, stock repurchase activities and any acquisitions to be made at the
holding company level, are dividends from the Bank. Federal law imposes
limitations on the payment of dividends by member banks of the Federal Reserve
System. Under such limitations, dividend payments by such banks are limited to
the lesser of (i) the amount of undivided profits and (ii) an amount not in
excess of net income for the current year plus retained net income for the
preceding two years. Dividends paid by the Bank during 1997 were within these
limitations.
In accordance with the requirements of the New York State Banking Law, the
Bank established a liquidation account in the amount equal to its capital as of
the date of the latest consolidated statement of condition appearing in the
final IPO prospectus. The liquidation account is maintained for the benefit of
eligible pre-conversion depositors who continue to maintain their accounts at
the Bank after the Transaction. The liquidation account is reduced annually to
the extent that such depositors have reduced their qualifying deposits as of
each subsequent audited balance sheet date. Subsequent increases in their
balances will not restore such depositors' interest in the liquidation account.
In the event of a liquidation of the Bank (a circumstance not envisioned or
expected by management) such depositors would be entitled, under New York State
law, to receive a distribution from the liquidation account in an amount
proportionate to their then current adjusted qualifying account balances for all
such depositors then holding qualifying deposits in the Bank. The balance of the
liquidation account at December 31, 1997 was $101.9 million.
In addition to the restrictions described above, the Bank may not declare
or pay cash dividends on or repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below then
applicable capital maintenance requirements or if such declaration and payment
would otherwise violate either regulatory requirements and/or applicable banking
laws, or would reduce the Bank's capital level below the then aggregate balance
required for the liquidation account.
- --------------------------------------------------------------------------------
Note 19 Stock Benefit Plans
- --------------------------------------------------------------------------------
Employee Stock Ownership Plan
The Bank's ESOP covers substantially all employees of the Company who have been
credited with 1,000 hours of service during a twelve month period. Participants
receive allocations on the basis of their eligible salary and generally become
vested over a five-year period. Participants fully vest in their benefit upon
retirement, death or disability while in active employment, or in the event of a
change in control of the Company or the Bank. Participants who terminate
employment before becoming 100% vested forfeit the unvested portion of their
accounts. Forfeitures are reallocated among the remaining participants. The ESOP
conforms to the applicable requirements of ERISA and the Code.
During 1994, the ESOP purchased 16,467,604 shares of the Company's common
stock, at a weighted average price of $8.33 per share. The purchases were funded
with a loan of $137.1 million from the Company, which is collateralized by the
unallocated Company shares owned by the ESOP. The loan will be repaid primarily
from contributions by the Bank and dividends paid by the Company on unallocated
shares over the applicable loan amortization period. The outstanding principal
balance of the loan as of December 31, 1997 and 1996 was $128.4 million and
$129.9 million, respectively, and the interest rate was 6.00% at both dates.
39
<PAGE>
================================================================================
The shares owned by the ESOP are held by a third party trustee and
released for allocation to participants as repayments of the loan are made. The
number of shares released for allocation in any year is based upon the ratio of
current year principal and interest payments to the total of current year and
all projected future years' principal and interest payments. As of December 31,
1997, 2,665,314 shares have been allocated to participants' accounts. There are
13,802,290 unallocated shares with a value of $500.7 million, based upon the
December 31, 1997 closing price of $36.28 per share.
The Company recognized $15.8 million, $8.2 million and $10.5 million of
compensation expense relating to the ESOP for the years ended December 31, 1997,
1996 and 1995, respectively.
- --------------------------------------------------------------------------------
Restricted Stock Plan
The Bank's Recognition and Retention Plan ("RRP") authorizes the granting of up
to 2,484,036 shares of the Company's common stock to officers, employees and
directors emeriti of the Company.
In 1994, the Bank purchased 2,484,036 shares of the Company's common stock
on behalf of the RRP, at the initial public offering price of $7.50 per share.
Through December 31, 1997, 2,430,088 shares have been awarded to participants.
These awards vest ratably over a three to five year period on the anniversary
dates of the awards. Participants' awards fully vest upon retirement, death or
disability while in active employment, or in the event of the participants'
termination of employment due to a change in control of the Company or the Bank.
For the years ended December 31, 1997, 1996 and 1995, the Company
recognized $1.7 million, $5.1 million and $4.6 million, respectively, of
compensation expense relating to the RRP.
- --------------------------------------------------------------------------------
Stock Incentive Plan
Under the Company's Amended and Restated 1994 Stock Incentive Plan (the "Stock
Incentive Plan"), grants may be made in the form of incentive stock options
("ISOs"), non-statutory stock options ("NSOs"), limited rights and restricted
stock to officers and other key employees. The Stock Incentive Plan provides
that the total number of shares available for grant shall be 11,000,000 shares
of the Company's common stock.
The ISOs and NSOs granted under the Stock Incentive Plan vest and become
exercisable over a three to five year period and expire on the tenth anniversary
of the grants. In the event of the employee's retirement (for grants made prior
to 1997), death or disability while in active employment, or in the event of an
employee's termination of service due to a change in control of the Company or
the Bank, all ISOs and NSOs held by such participant vest and generally become
exercisable in full for a period of one year. The term during which any future
ISOs and NSOs granted vest and become exercisable is at the discretion of the
Compensation Committee. The exercise price for all ISOs or NSOs is at least 100%
of the fair market value of the stock on the grant date.
As of December 31, 1997, 330,000 shares of restricted stock at a weighted
average fair value of $13.72, had been granted under the Stock Incentive Plan.
For the years ended December 31, 1997 and 1996, the Company recognized
$0.9 million and $0.7 million of compensation expense relating to the Stock
Incentive Plan.
The following table presents a summary of the aggregate stock option
transactions for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Stock Exercise of Stock Exercise of Stock Exercise
Options Price Options Price Options Price
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding,
beginning of year 5,364,786 $10.49 5,475,124 $ 9.66 3,073,392 $ 7.89
Granted 1,289,000 27.79 544,000 15.84 2,609,468 11.57
Exercised (1,032,198) 8.96 (534,034) 7.69 (147,128) 7.50
Canceled (110,052) 10.76 (120,304) 9.01 (60,608) 7.50
- ------------------------------------------------------------------------------------------------------------------------------
Stock options outstanding,
end of year 5,511,536 $14.82 5,364,786 $10.49 5,475,124 $ 9.66
==============================================================================================================================
Options exercisable at year-end 1,394,400 964,620 376,734
Weighted-average fair value of
options granted during the year $6.98 $4.24 $2.84
==============================================================================================================================
</TABLE>
40
<PAGE>
================================================================================
The range of exercise prices on options outstanding for the years ended
December 31, 1997, 1996 and 1995 were $7.50 to $34.35, $7.50 to $24.13 and $7.50
to $13.63, respectively. The weighted average remaining contractual life for
options outstanding at December 31, 1997 is 7.52 years.
- --------------------------------------------------------------------------------
Directors' Stock Option Plan
Under the Company's Directors' Stock Option Plan the Company may grant up to
1,450,000 NSOs to directors who are not officers or employees of the Company
("Non-Employee Directors").
The exercise price is equal to 100% of the fair market value of the stock
on the grant date. The term of each NSO is ten years from the grant date. All
options become exercisable immediately upon a change of control, or death,
disability, or retirement on or after January 28, 2000. In the event of death,
disability or retirement prior to January 28, 2000, one-half of all
unexercisable options shall become immediately exercisable, with all remaining
options becoming exercisable pro rata over the remaining option term.
The following table presents a summary of the aggregate NSO transactions
for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
NSOs Price NSOs Price NSOs Price
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NSOs outstanding, beginning of year 1,254,000 $11.01 1,242,000 $10.98 30,000 $12.13
Granted 52,000 28.88 12,000 14.25 1,212,000 10.95
Exercised (127,808) 10.94 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
NSOs outstanding, end of year 1,178,192 $11.81 1,254,000 $11.01 1,242,000 $10.98
=============================================================================================================================
Options exercisable at year-end 300,172 204,990 18,000
Weighted-average fair value of options
granted during the year $7.49 $2.10 $3.45
=============================================================================================================================
</TABLE>
The range of exercise prices on options outstanding for the years ended December
31, 1997, 1996 and 1995 were $10.94 to $28.78, $10.94 to $14.25 and $10.94 to
$12.13, respectively. The weighted average remaining contractual life for
options outstanding at December 31, 1997 is 7.18 years.
Because stock options under the Stock Incentive Plan and the Directors'
Stock Option Plan have characteristics significantly different from those of
traded options and because changes in the subjective assumptions can materially
affect the fair value estimate, the Company used a Black Scholes option-pricing
model with the following weighted-average assumptions used for grants in 1997,
1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
================================================================================
<S> <C> <C> <C>
Dividend yield 1.80% 2.60% 3.52%
Expected volatility 24.05% 22.70% 24.62%
Risk-free interest rate 6.34% 6.54% 7.09%
Expected option lives 4.00 years 5.65 years 6.79 years
================================================================================
</TABLE>
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards made under
those plans, consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions, except per share data) 1997 1996 1995
================================================================================
<S> <C> <C> <C> <C>
Net income As reported $147.6 $132.5 $107.5
Pro forma $143.8 $130.7 $106.4
Diluted earnings
per share As reported $ 1.86 $ 1.51 $ 1.14
Pro forma $ 1.82 $ 1.49 $ 1.13
================================================================================
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosures are not
indicative of the effects on reported net income for future years because SFAS
No. 123 has not been applied to all outstanding, non-vested awards (does not
apply to awards prior to January 1, 1995). Additional awards in future years are
anticipated.
41
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Note 20 Earnings Per Share
- --------------------------------------------------------------------------------
The Company's reconciliation of the income and shares used in the basic and
diluted EPS computations is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions, except
share and per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available
to common
stockholders $147.6 75,333,000 $1.96 $132.5 85,145,000 $1.56 $107.5 92,540,000 $1.16
Effect of dilutive
securities:
Stock options -- 3,998,000 -- 2,672,000 -- 1,398,000
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available
to common
stockholders
plus assumed
conversions $147.6 79,331,000 $1.86 $132.5 87,817,000 $1.51 $107.5 93,938,000 $1.14
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Note 21 Educational and Charitable Foundation
- --------------------------------------------------------------------------------
The Bank has committed to endow a $50 million Educational and Charitable
Foundation (the "Foundation"). The purpose of the Foundation is to fund grants
for civic, cultural, affordable housing and educational programs within the
communities served by the Bank. The endowment of this program is to be
established through contributions of a portion of future net earnings in excess
of an annual amount of $90 million of pro forma earnings by the Bank. As of
December 31, 1997, the Bank has contributed $17.4 million, or 34.9%, of its
funding commitment to the Foundation.
- --------------------------------------------------------------------------------
Note 22 Condensed Parent Company
Financial Statements
- --------------------------------------------------------------------------------
The following condensed statements of financial condition at December 31, 1997
and 1996 and condensed statements of income and cash flows for the years ended
December 31, 1997, 1996 and 1995 for GreenPoint Financial Corp. (parent company
only) reflect the Company's investment in its wholly-owned subsidiaries using
the equity method of accounting.
42
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Parent Company Only-
Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996
================================================================================
<S> <C> <C>
Assets:
Cash and due from banks $ 2.1 $ 0.6
Money market investments -- 12.5
Other assets 8.6 0.5
Investment in subsidiaries 1,466.4 1,446.3
- --------------------------------------------------------------------------------
Total assets $ 1,477.1 $ 1,459.9
================================================================================
Liabilities and Stockholders' Equity:
Liabilities:
Due to subsidiaries $ 6.2 $ --
Guaranteed Preferred Beneficial
Interest in Company's Junior
Subordinated Debentures 199.7 --
Accrued income taxes payable 0.1 0.1
Accrued interest payable 1.5 --
- --------------------------------------------------------------------------------
Total liabilities 207.5 0.1
- --------------------------------------------------------------------------------
Stockholders' equity 1,269.6 1,459.8
- --------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 1,477.1 $ 1,459.9
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Parent Company Only-
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Dividends from
GreenPoint Bank $ 185.2 $ 207.9 $ 47.9
- --------------------------------------------------------------------------------
Interest Income:
Loan to GreenPoint Bank ESOP -- -- 5.8
Line of credit-subsidiary 0.4 -- --
Money market investments 1.3 0.4 5.4
Securities 0.8 -- 8.1
- --------------------------------------------------------------------------------
Total interest income 2.5 0.4 19.3
- --------------------------------------------------------------------------------
Interest Expense:
Guaranteed Preferred Beneficial
Interest in Company's Junior
Subordinated Debentures 10.7 -- --
- --------------------------------------------------------------------------------
Total interest expense 10.7 -- --
- --------------------------------------------------------------------------------
Net interest income (8.2) 0.4 19.3
- --------------------------------------------------------------------------------
Securities lending fees -- -- 0.1
- --------------------------------------------------------------------------------
Total non-interest income -- -- 0.1
- --------------------------------------------------------------------------------
Administrative expenses 0.4 0.5 1.1
- --------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed (loss)
earnings of subsidiaries 176.6 207.8 66.2
Income taxes (3.6) -- 8.3
- --------------------------------------------------------------------------------
Income before equity in
undistributed (loss) earnings
of subsidiaries 180.2 207.8 57.9
- --------------------------------------------------------------------------------
Equity in undistributed (loss)
earnings of subsidiaries (32.6) (75.3) 49.6
- --------------------------------------------------------------------------------
Net income $ 147.6 $ 132.5 $ 107.5
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Parent Company Only-
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Operating Activities:
Net income $ 147.6 $ 132.5 $ 107.5
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed loss
(earnings) of subsidiaries 32.6 75.3 (49.6)
Net change in other liabilities 1.5 (1.0) (1.1)
Net change in other assets (8.1) (0.5) 0.5
Other, net (0.7) -- (2.6)
- --------------------------------------------------------------------------------
Net cash provided by
operating activities 172.9 206.3 54.7
================================================================================
Investing Activities:
Purchases of securities (432.5) -- --
Maturities of securities 433.3 -- 170.2
Payments for investments
in and advances to
subsidiaries (278.7) -- (124.3)
Repayment of investments in
and advances to subsidiaries 278.7 -- 0.6
Other, net -- 0.2 (0.2)
- --------------------------------------------------------------------------------
Net cash provided by
investing activities 0.8 0.2 46.3
================================================================================
Financing Activities:
Guaranteed Preferred
Beneficial Interest in
Company's Junior
Subordinated Debentures 199.7 -- --
Proceeds from issuance
of common stock 8.8 3.1 1.1
Purchase of treasury stock (355.5) (169.5) (73.8)
Dividends paid (37.7) (34.1) (36.8)
- --------------------------------------------------------------------------------
Net cash used in
financing activities (184.7) (200.5) (109.5)
- --------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (11.0) 6.0 (8.5)
Cash and cash equivalents
at beginning of period 13.1 7.1 15.6
- --------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 2.1 $ 13.1 $ 7.1
================================================================================
</TABLE>
In connection with the HSA acquisition in September 1995, the Company made
a $353.2 million capital contribution to the Bank. The contribution was effected
through the transfer of certain assets as detailed in the table below:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Cash $113.1
Securities held to maturity 99.7
ESOP loan receivable(1) 134.2
Other 6.2
- --------------------------------------------------------------------------------
Total $353.2
================================================================================
</TABLE>
Notes:
(1) The ESOP loan receivable relates solely to the Bank's employee stock
ownership plan. The transfer assigns the right to receive the loan
payments made by the ESOP trustee and does not release the Bank from its
obligation to make contributions to the plan.
43
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarterly Results of Operations (Unaudited)
Year Ended December 31, 1997 Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
(In millions, except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $245.1 $248.0 $241.3 $238.3 $237.4 $239.0 $246.5 $251.1
Interest expense 128.5 130.3 121.0 117.9 122.9 126.9 134.2 143.5
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 116.6 117.7 120.3 120.4 114.5 112.1 112.3 107.6
Provision for possible
loan losses (4.1) (5.4) (4.4) (5.0) (4.9) (3.4) (3.7) (3.7)
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible
loan losses 112.5 112.3 115.9 115.4 109.6 108.7 108.6 103.9
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest income 13.2 12.4 11.4 19.2 10.8 11.2 23.4 11.5
Non-interest expense 66.8 66.8 68.5 68.2 63.3 64.9 67.2 67.8
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 58.9 57.9 58.8 66.4 57.1 55.0 64.8 47.6
Income taxes 22.2 21.8 23.7 26.7 23.3 20.9 27.5 20.3
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 36.7 $ 36.1 $ 35.1 $ 39.7 $ 33.8 $ 34.1 $ 37.3 $ 27.3
============================================================================================================================
Basic earnings per share $ 0.52 $ 0.50 $ 0.45 $ 0.49 $ 0.42 $ 0.41 $ 0.43 $ 0.31
============================================================================================================================
Diluted earnings per share $ 0.49 $ 0.47 $ 0.43 $ 0.47 $ 0.40 $ 0.39 $ 0.42 $ 0.30
============================================================================================================================
Stock price per common share
High $ 36.28 $ 33.00 $ 33.28 $ 31.69 $ 25.07 $ 19.13 $ 15.25 $ 14.50
Low $ 31.13 $ 29.34 $ 25.88 $ 22.81 $ 19.63 $ 13.50 $ 13.63 $ 12.00
Closing $ 36.28 $ 31.69 $ 33.28 $ 25.75 $ 23.75 $ 19.07 $ 14.13 $ 13.75
============================================================================================================================
</TABLE>
44
<PAGE>
================================================================================
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
GreenPoint Financial Corp. and Subsidiaries
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of GreenPoint Financial Corp. and its subsidiaries at December 31, 1997
and 1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. The consolidated financial statements of the Company for the year ended
December 31, 1995 were audited by other independent accountants whose report
dated January 19, 1996 expressed an unqualified opinion on those statements.
/s/ Price Waterhouse LLP
New York, New York
January 20, 1998, except as to paragraph four of Note 1, which is as of March 4,
1998
45
<PAGE>
================================================================================
Directors and Officers
================================================================================
Board of Directors
Edward C. Bessey Charles B. McQuade
Retired Vice Chairman President and
of Pfizer, Inc. Chief Executive Officer
of the Securities Industry
Bharat B. Bhatt Automation Corporation
President and
Chief Operating Officer Alvin N. Puryear
Professor of Management at
Dan F. Huebner Bernard M. Baruch College of
Retired Vice Chairman the City University of New York
and Director of
Grumman Corporation Robert P. Quinn
Retired General Partner and Managing
William M. Jackson Director of Salomon Brothers Inc.
Partner in the law firm
of Satterlee, Edward C. Schmults
Stephens, Burke & Burke, L.L.P. Retired Senior Vice President
and General Counsel of
Thomas S. Johnson GTE Corporation
Chairman and
Chief Executive Officer Wilfred O. Uhl
Retired President of the
Susan J. Kropf Long Island Lighting Company
Executive Vice President,
President and Robert F. Vizza
Director, North America, President,
Avon Products, Inc. Chief Executive Officer,
and Vice Chairman
Robert M. McLane of St. Francis Mercy Corporation
Retired Senior Vice President
of Marsh & McLennan, Inc. Jules Zimmerman
Retired President and
Chief Executive Officer
of Hickok Associates, Incorporated
Senior Management
Thomas S. Johnson
Chairman and
Chief Executive Officer
Bharat B. Bhatt
President and
Chief Operating Officer
Ralph J. Hall
Executive Vice President,
Mortgage Banking
S.A. Ibrahim
Executive Vice President,
Risk Management
Jeffrey R. Leeds
Executive Vice President,
Finance
Charles P. Richardson
Executive Vice President,
Corporate Development
Ramesh N. Shah
Executive Vice President,
Consumer Banking
Howard C. Bluver
Senior Vice President and
General Counsel
================================================================================
GreenPoint Foundation
================================================================================
Board of Directors
The Reverend Dr. Calvin O. Butts III The Most Reverend Joseph M. Sullivan
The Abyssinian Baptist Church Brooklyn Catholic Charities
46
<PAGE>
================================================================================
Corporate Information
================================================================================
Executive Offices
90 Park Avenue
New York, NY 10016-1303
Common Stock
GreenPoint Financial Corp.'s common stock is listed on the New York Stock
Exchange (NYSE) under the symbol GPT.
Sources of Information
For more information relating to share positions, transfer requirements, lost
certificates and related matters, call our transfer agent at:
1-800-851-9677.
For information regarding Annual and Quarterly Reports and related matters, call
our Stockholder Relations Department at 212-834-1710.
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Transfer Agent
Chase Mellon Shareholder Services
JAF Building
P.O. Box 3068
New York, NY 10116-3068
47
<PAGE>
Exhibit 21.1
Subsidiary Activities
The Company has formed three subsidiaries:
GreenPoint Community Development Corp. This for-profit community
development subsidiary was incorporated in 1993. The subsidiary offers lending
programs, development opportunities and assistance, consulting and other
activities which promote the objective of greater access to affordable housing
for low-and moderate-income persons residing in the New York metropolitan area.
GreenPoint Community Development Corp. is a subsidiary of the holding company.
GreenPoint Bank. The Bank was organized in 1868 as a New York State
chartered mutual savings bank. On January 28, 1994, the Bank converted from the
mutual to the stock form of ownership, and 100% of its outstanding shares were
acquired by the Company. The Bank is the principal subsidiary of the Company.
GreenPoint Capital Trust I. This subsidiary was incorporated on June 3,
1997. The subsidiary issued $200. million of Capital Securities, the proceeds of
which were used for general corporate purposes, including the repurchase of
stock and financing growth.
As of December 31, 1997 the Bank has formed ten subsidiaries:
GreenPoint Mortgage Corp. This subsidiary was incorporated on October 12,
1994 and began operations in the first quarter of 1995. On July 7, 1995, GPMC
acquired the wholesale residential mortgage lending business of
BarclaysAmerican/Mortgage Corp. ("BAM"). On April 30, 1997, the Company
purchased the Columbus, Georgia mortgage servicing operations of Citizens
Financial Group. GPMC's activities consist of the origination, sale and
servicing of mortgage loans.
GreenPoint Purchasing Corp. This subsidiary was incorporated on July 19,
1996, with an agreement between the Company and the Nassau County Industrial
Development Agency. This agreement enables the Company, on a sales tax exempt
basis, to (1) purchase and/or lease machinery and equipment for the Lake Success
facility and (2) renovate and improve the facility.
3090 Ocean Avenue Realty Corp. This subsidiary was incorporated on June 6,
1996, as a real estate investment subsidiary.
75 Route 25A Realty Corp. This subsidiary was incorporated on June 7,
1996, as a real estate investment subsidiary.
GreenPoint Corporate Officer Life Insurance. This subsidiary was
incorporated on July 25, 1996, as an insurance trust established for the purpose
of purchasing corporate life insurance policies for the officers of the Company.
Other Real Estate Subsidiaries. The Bank has formed five wholly-owned
subsidiary corporations, all of which are incorporated under the laws of the
State of New York, for the purpose of holding and maintaining certain properties
acquired by the Bank as a result of foreclosure proceedings or deeds in lieu
thereof. As of December 31, 1997, four of these subsidiaries were active. The
Bank attempts to limit the carrying value of property held by any one subsidiary
to approximately $5 million. Accordingly, in the event the Bank acquires
additional properties through foreclosure or deeds in lieu thereof, the Bank may
form additional subsidiaries for the purpose of holding and maintaining such
properties. The properties selected by the Bank to be held in its subsidiaries
generally consist of multi-family properties with five units or more, commercial
properties and one-to four-family properties which have been identified by the
Bank as having attributes which may subject the Bank to liabilities beyond those
normally associated with its other real estate such as properties which are not
in compliance with building codes or properties with potential environmental
problems. A description of the Bank's subsidiaries are set forth below:
<PAGE>
Neerg Corp. This subsidiary was formed in January 1990 and currently holds
11 properties having an aggregate carrying value of $1.1 million and an
aggregate appraised value of $1.3 million, as of December 31, 1997, based on the
Company's most recent appraisals.
298 15th Street Realty Corp. This subsidiary was formed in January 1993
and currently holds 13 properties having an aggregate carrying value of $1.2
million and an aggregate appraised value of $1.4 million as of December 31,
1997, based on the Company's most recent appraisals.
Neerg Second Corp. This subsidiary was formed in June 1993 and currently
holds 26 properties having an aggregate carrying value of $2.8 million and an
aggregate appraised value of $3.8 million, as of December 31, 1997, based on the
Company's most recent appraisals.
Alpha REO Corporation. This subsidiary was formed in March 1994 and
currently holds 6 properties having an aggregate carrying value of $0.5 million
and an aggregate appraised value of $0.7 million, as of December 31, 1997, based
on the Company's most recent appraisals.
Beta REO Corp. This subsidiary was formed in June 1994 and currently holds
no properties.
Liquidation of Subsidiary:
GreenPoint Mortgage Trust. This subsidiary was incorporated on February
16, 1996, as a real estate investment trust established for the purpose of
acquiring, holding and managing real estate mortgage assets. On December 15,
1997, the voluntary liquidation of GreenPoint Mortgage Trust was completed.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Shareholder and the Board of Directors of GreenPoint Financial Corp.
We consent to incorporation by reference in the registration statements (Nos.
33-74556, 33-87758 and 33-87760) on Form S-8 of GreenPoint Financial Corp. of
our report dated January 19, 1996, relating to the consolidated statements of
income, changes in stockholders' equity and cash flows of GreenPoint Financial
Corp. and Subsidiaries for the year ended December 31, 1995, which report is
included in the December 31, 1997 annual report on Form 10-K of GreenPoint
Financial Corp.
/s/ KPMG Peat Marwick LLP
Jericho, New York
March 25, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-74556, 33-87756, 33-87760 and 33-45917) of
GreenPoint Financial Corp. of our report dated January 20, 1998 except as to
paragraph four of Note 1, which is as of March 4, 1998, which appears on Page
45 of the 1997 Annual Report to Stockholders of GreenPoint Financial Corp.,
which is incorporated by reference in this Annual Report on Form 10-K for the
year ended December 31, 1997.
/s/ Price Waterhouse LLP
New York, New York
March 24, 1998
<PAGE>
Exhibit 23.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
To the Board of Directors and Shareholders
GreenPoint Financial Corp. and Subsidiaries
We have audited the consolidated statements of income, changes in
stockholders' equity and cash flows of GreenPoint Financial Corp. and
Subsidiaries for the year ended December 31, 1995. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the
cash flows of GreenPoint Financial Corp. and Subsidiaries for the year ended
December 1995, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Jericho, New York
January 19, 1996
<PAGE>
Exhibit 23.2(b)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of GreenPoint Financial Corp.
In our opinion, the consolidated statements of financial condition and the
related consolidated statements of income, of changes in stockholders' equity
and of cash flows, appearing on pages 22 through 43 of the 1997 Annual Report
to Stockholders, present fairly, in all material respects, the financial
position of GreenPoint Financial Corp. and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
January 20, 1998, except as to paragraph four
of Note 1, which is as of March 4, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000911935
<NAME> GREENPOINT FINANCIAL CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 91
<INT-BEARING-DEPOSITS> 13
<FED-FUNDS-SOLD> 1,049
<TRADING-ASSETS> 25
<INVESTMENTS-HELD-FOR-SALE> 2,008
<INVESTMENTS-CARRYING> 4
<INVESTMENTS-MARKET> 4
<LOANS> 8,910
<ALLOWANCE> (109)
<TOTAL-ASSETS> 13,084
<DEPOSITS> 10,973
<SHORT-TERM> 106
<LIABILITIES-OTHER> 335
<LONG-TERM> 400
0
0
<COMMON> 1
<OTHER-SE> 1,269
<TOTAL-LIABILITIES-AND-EQUITY> 13,084
<INTEREST-LOAN> 731
<INTEREST-INVEST> 235
<INTEREST-OTHER> 6
<INTEREST-TOTAL> 973
<INTEREST-DEPOSIT> 473
<INTEREST-EXPENSE> 498
<INTEREST-INCOME-NET> 475
<LOAN-LOSSES> (19)
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 270
<INCOME-PRETAX> 242
<INCOME-PRE-EXTRAORDINARY> 148
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 3.93
<LOANS-NON> 355
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (105)
<CHARGE-OFFS> (16)
<RECOVERIES> 1
<ALLOWANCE-CLOSE> (109)
<ALLOWANCE-DOMESTIC> (109)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
