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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, 1998
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
incorporation or organization) (I.R.S. employer identification number)
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, 1999: Common stock par value $0.01 per share,
$2,639,300,664.
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, 1999 which
was $33.00 as reported in the Wall Street Journal on March 24, 1999. The number
of shares of the registrant's Common Stock issued and outstanding as of March
23, 1999 was 96,631,642 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 7, 1999 and the Annual Report to Shareholders for
fiscal 1998 are incorporated herein by reference - Parts II, III and IV.
<PAGE>
TABLE OF CONTENTS
Page
No.
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PART I
ITEM 1. BUSINESS........................................................... 1
General................................................................. 1
Mortgage Banking Activities ............................................ 2
Manufactured Housing Activities......................................... 5
Delinquent Loans and Foreclosed Assets.................................. 10
Allowance for Possible Loan Losses...................................... 13
Consumer Banking Activities............................................. 15
Competition............................................................. 15
Market Risk Management.................................................. 16
Liquidity Management.................................................... 16
Securities Investment Activities........................................ 16
Sources of Funds........................................................ 19
Subsidiary Activities................................................... 21
Savings Bank Life Insurance............................................. 22
Personnel............................................................... 23
Federal Taxation........................................................ 23
State and Local Taxation................................................ 24
Bank Regulation and Supervision......................................... 24
ITEM 2. PROPERTIES......................................................... 27
ITEM 3. LEGAL PROCEEDINGS.................................................. 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 28
ITEM 4A. EXECUTIVE OFFICERS................................................. 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................ 29
ITEM 6. SELECTED FINANCIAL DATA............................................ 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK............ 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................ 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................ 29
<PAGE>
Page
No.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 30
ITEM 11. EXECUTIVE COMPENSATION............................................ 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................ 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.......................................................... 31
<PAGE>
PART I
ITEM 1. BUSINESS
General
GreenPoint Financial Corp. (the "Company" or "GreenPoint") is a bank
holding company organized under the laws of the state of Delaware and registered
under the Bank Holding Company Act of 1956, as amended.
The Company provides a variety of financial services, primarily through
its bank subsidiary, GreenPoint Bank, a New York State chartered savings bank
(the "Bank"), GreenPoint Mortgage Corp. ("GreenPoint Mortgage "), a national
home mortgage banking company wholly-owned by the Bank and headquartered in
Charlotte, North Carolina, and GreenPoint Credit Corp. ("GreenPoint Credit"), a
Delaware corporation wholly-owned by the Bank and headquartered in San Diego,
California.
Through the Bank, GreenPoint Mortgage and GreenPoint Credit, the Company
is primarily engaged in lending in New York and across the nation. GreenPoint
Mortgage originates both adjustable and fixed rate mortgage loans, primarily
through a network of mortgage brokers, mortgage bankers, attorneys and other
real estate professionals and, to a lesser extent, from customers and members of
the local communities in GreenPoint's lending area. GreenPoint Credit is engaged
in originating, purchasing and servicing manufactured housing loans. The Bank
continues to attract retail deposits from the general public and invests those
deposits, together with funds generated from operations, in 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, proceeds from loan sales and securitizations, and proceeds from
principal and interest payments on loans, mortgage-backed securities and other
securities.
GreenPoint Community Development Corp. ("GPCDC") was organized in 1993 as
a for-profit community development subsidiary of the Company. 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.
On December 9, 1998, the Company announced a definitive agreement to
acquire Headlands Mortgage Company ("Headlands") in a stock transaction valued
at approximately $473 million. The acquisition will be accounted for as a
tax-free pooling of interests, with 0.62 shares of the Company's stock being
exchanged for each share of Headlands stock. The acquisition is expected to be
completed by the end of the first quarter of 1999.
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking
statements which are based on management's current expectations. These
forward-looking statements include information concerning possible or assumed
future results of operations and business plans, including those relating to
earnings growth, revenue growth, expense levels, and other business operations.
Forward-looking statements involve inherent risks and uncertainties. We caution
you that a number of important factors could cause actual results to differ
materially from those contained in any forward-looking statement. Such factors
include, but are not limited to: risks and uncertainties related to execution of
pending or future acquisitions, including integration activities and the ability
of the Company to realize the revenue growth and expense reductions assumed in
such acquisitions; changes in interest rates, loan demand, real estate values,
and competition, which can affect the ability of the Company to meet its
origination goals; the level of defaults and prepayments on loans made by the
Company and its affiliates; changes in accounting principles, policies, and
guidelines; adverse changes or conditions in capital or financial markets, which
can affect the ability of the Company and its affiliates to sell loans in the
secondary market at favorable prices; changes in any applicable law, rule,
regulation or practice with respect to tax or legal issues; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products, and services. The forward-looking
statements are made as of the date of this release, and the Company assumes no
obligation to update the forward-looking statements or to update the reasons why
actual results could differ from those projected in the forward-looking
statements.
1
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Mortgage Banking Activities
Products and Services
The Company, through its mortgage banking subsidiary, specializes in a
limited documentation mortgage loan product ("No Doc" loans). These loans serve
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 return, the
borrower receives more expedient loan processing by virtue of providing less
income and asset information, as compared to loans underwritten in conformance
with Fannie Mae ("FNMA") standards. These loans are typically held for
investment in the Company's loan portfolio. As a result of this strategy,
combined with strict appraisal requirements, GreenPoint Mortgage 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.
GreenPoint Mortgage originates both adjustable rate ("ARM") and fixed rate
mortgage loans, the amounts and maturities of which are dependent upon customer
demand and market rates of interest. The most significant origination volume
relates to loans secured by one to four family residences including condominiums
and planned unit developments.
GreenPoint Mortgage'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 generally do not have loan to value ratios in excess of 75%. 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, GreenPoint Mortgage prices loans according to a risk based system or
requires borrowers to have a higher equity position in the property securing the
loan. GreenPoint Mortgage's No Doc lending program accounted for 99% of total
mortgage originations.
As compared to other lending institutions which rely more heavily upon a
borrower's income and demonstrated ability to repay the loan, GreenPoint
Mortgage 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) prepared or reviewed by in-house
appraisers who are state licensed real estate appraisers and are subject to two
additional levels of appraisal and underwriting review; or are (2) conducted by
one or more appraisers, or appraisal services, which are chosen directly by the
Company from the Company's approved list of independent appraisers.
One-to Four-Family Mortgage Lending. GreenPoint Mortgage currently offers
one-to four-family mortgage 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. Generally, the maximum loan
amount of a No Doc loan is $1.0 million. Additionally, credit reports are
obtained on all borrowers to ascertain the credit history of the borrower.
GreenPoint Mortgage also originates 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 70% of the lower of
the appraised value or purchase price for loans involving the purchase or
refinance of the property and subject to a lower limit of up to 60% 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, GreenPoint Mortgage requires the submission of rental
information and considers such information in arriving at its underwriting
determination. GreenPoint Mortgage charges higher rates of interest with respect
to these loans as compared to its other one-to four-family loans secured by
owner-occupied properties and may
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impose penalties for early repayment. At December 31, 1998 non-owner occupied
loans totaled approximately 7% of loans held for investment.
GreenPoint Mortgage offers fixed rate mortgage loans with terms of 10 to
30 years. 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, 1998, GreenPoint Mortgage originated $2.2 billion of
fixed rate loans, which primarily consisted of one-to four-family residential
mortgage loans.
GreenPoint Mortgage offers ARM loans 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 GreenPoint
Mortgage 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
original loan rate at the time of commitment over the term of the loan. Such
loans also have interest rate floors which limit the minimum amount the interest
rate payable may decline. The product line includes 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
GreenPoint Mortgage's fully indexed rate, which varies by ARM adjustment period.
For the year ended December 31, 1998, GreenPoint Mortgage originated $0.5
billion of ARM loans, which primarily consisted of one-to four-family
residential loans. At December 31, 1998, 23.5% of GreenPoint Mortgage's one-to
four-family residential mortgage loans consisted of ARM loans.
The volume and types of ARM loans originated have been affected by such
market factors as the level of interest rates, competition, and consumer
preferences. GreenPoint Mortgage will continue to offer ARM loans; however,
there can be no assurance that in the future GreenPoint Mortgage 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 GreenPoint Mortgage's loan
portfolio serves to reduce the exposure to increases in interest rates. However,
ARM loans generally pose credit risks and prepayment 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, GreenPoint Mortgage'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.
During 1998, GreenPoint Mortgage expanded its product offerings to include
loans specifically designed to be sold to third parties on a servicing released
basis. This program offers loans in excess of 75% LTV to a maximum of 90% LTV.
These programs place a greater reliance on the borrower's past credit history.
Loans are offered in two forms: "With Asset Verification" and "Without Asset
Verification". Asset verification refers to verification of liquid assets held
in a depository institution.
GreenPoint Mortgage also offers home equity loans and 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. Home equity fixed rate loans are available with No Income, as
well as Full Income verification, for terms from 5 to 15 years in amounts
ranging from $20,000 up to $750,000. Depending on the balance of the first
mortgage, the loan amount and verification method, a maximum LTV of 80% is
available. As of December 31, 1998, there were 1,593 home equity lines
outstanding with loans drawn against such lines totaling $82.1 million, or 0.9%,
of total loans held for investment.
GreenPoint Mortgage's mortgage loans generally include due-on-sale clauses
which provide for the contractual right to deem the loan immediately due and
payable in the event that the borrower transfers ownership of the property
without GreenPoint Mortgage's consent. Such due-on-sale provisions are enforced
within the applicable regulations and guidelines imposed by federal and state
laws and secondary market purchasers.
Multi-Family Lending. GreenPoint Mortgage 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, 1998, GreenPoint
Mortgage had 4,881 of such loans with an average loan balance of $121,000.
Multi-family loans are generally made with terms of 5 to 20 years for fixed rate
loans and 5 to 25 years for ARM loans, in amounts up to a maximum of $3.0
million. Product enhancements implemented during the year included a 20 year
fixed rate mortgage and a 5 year ARM with a 20 year term. Loans on multi-family
properties are made in amounts up to 70% of the appraisal value or purchase
price of the property for loans to purchase the property and up to 65%
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of the appraised value for loans to refinance an existing mortgage. The
underwriting guidelines for multi-family loans are the same standards and
procedures applicable to its one-to four-family No Doc loans. In addition,
documentation regarding rental and vacancy levels, rental income, property
expense statements and tax return information must be submitted. GreenPoint
Mortgage verifies rental income of the property but does not verify the
borrower's personal income levels, unless the loan amount exceeds $1.0 million,
in which case the borrower's financial statements are required. GreenPoint
Mortgage 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. GreenPoint Mortgage also originates
commercial real estate loans located in the New York metropolitan area.
Commercial real estate loans are offered in amounts up to $1.0 million, under
the same terms and underwriting guidelines applicable to its multi-family loans.
Loans in excess of $1.0 million are made on an exception basis. There are
penalties imposed for early repayments. As of December 31, 1998, there were
3,925 commercial real estate loans with an average balance of $145,000. The
largest commercial real estate loan in GreenPoint Mortgage's portfolio at
December 31, 1998 had an outstanding balance of $4.3 million, secured by a
non-residential building located in New York.
Origination Sources. During 1998, the New York metropolitan sales network
continued to be the largest originator of loans. On the national front, we
continued to expand into new markets moving into 14 locations across the United
States. This brings the total number of cities covered to 28.
Loan originations are primarily obtained from GreenPoint Mortgage's
network of registered mortgage brokers, licensed mortgage bankers, attorneys and
other real estate professionals. GreenPoint Mortgage'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. Based on licensing and other criteria, members may
submit loans through the program in various capacities. Eligible members may
table fund or process one-to four-family residential loans on behalf of
GreenPoint Mortgage, while others simply refer a completed loan application for
processing. In all cases, GreenPoint Mortgage requires that the appraisal and
underwriting be performed by its in house appraisers and underwriters, thereby
controlling key components of risk. As of December 31, 1998, there were 1,058
Advantage Program members.
GreenPoint Mortgage's Lender Associate Program consists of 3,751 approved
mortgage brokers operating in 47 states. These brokers are generally small to
mid-sized mortgage originators, which rely on GreenPoint Mortgage 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 197 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, 1998, 92.6% of total mortgage loans were
originated through these programs .
Student Loans and Other Lending. The Bank 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 Bank generally sells in the
secondary market upon the borrower's commencement of repayment of the loan,
these other loans are originated for retention. The Bank does not currently
originate or purchase other types of business or consumer loans such as loans
secured by automobiles, unsecured business loans or credit card loans.
Credit Parameters
Loan amount limits, maximum loan-to-value 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 GreenPoint Mortgage. In making this determination, GreenPoint
Mortgage obtains credit verification from three 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 loans and revolving
lines of credit, collection and charge-off experience, and prior bankruptcies
and foreclosures. GreenPoint Mortgage also considers a credit score ascribed to
the borrower under a credit evaluation methodology developed by Fair, Isaac and
Company ("FICO").
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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.
Due to GreenPoint Mortgage'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, particularly with respect to its No Doc loan
programs, GreenPoint Mortgage has established a comprehensive in-house appraisal
system made up of 96 staff appraisers, all of whom are state licensed. From time
to time, third party independent appraisers are utilized. GreenPoint Mortgage's
appraisal system generally involves a three-tier review for every mortgage loan
originated, consisting of an appraisal conducted by a licensed appraiser, which
is then reviewed by a senior appraiser or 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. GreenPoint Mortgage 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,
GreenPoint Mortgage has made no loans in excess of $6.5 million.
Loan Servicing
At December 31, 1998, GreenPoint Mortgage serviced approximately 95,000
mortgage loans with outstanding principal balances of $9.8 billion, including
$9.2 billion of loans in its own portfolio, and $0.6 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
balance of the loans.
GreenPoint Mortgage's 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, GreenPoint Mortgage has implemented programs which allow it to focus
its early 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. GreenPoint Mortgage believes
these efforts have enabled it to minimize losses associated with these types of
loans.
Manufactured Housing Activities
Products and Services
During 1998, the Company expanded its lending activities through the
acquisition of BankAmerica Housing Services which is the second largest lender
nationally in the manufactured housing finance industry. The Company was renamed
GreenPoint Credit. GreenPoint Credit originates a variety of fixed and variable
term loans in the manufactured housing market. GreenPoint Credit serves 48
states through its principal offices in San Diego, California and service
centers throughout the United States. Manufactured housing ("MH") or a
"manufactured home" is a structure, transportable in one or more sections, which
is designed to be a dwelling with or without a permanent foundation. MH does not
include modular housing or recreational vehicles.
GreenPoint Credit pools and securitizes substantially all of the loans it
originates, retaining the servicing on these loans. Such pools are structured
into asset-backed securities which are primarily sold in the public securities
markets. GreenPoint Credit services these loans, collecting payments from the
borrower and remitting principal and interest payments to the holder of the
contract, or investor certificate backed by the loans. The Company securitized
and sold $728 million of manufactured housing loans during the fourth quarter of
1998.
Manufactured housing financing transactions are originated on either an
"indirect" or "direct" basis. All direct or indirect originations are written on
forms provided or approved by GreenPoint Credit and are originated or purchased
on an individually approved basis in accordance with GreenPoint Credit
underwriting guidelines. Under an "indirect" financing transaction, a dealer
sells a product to a customer and enters into a sales contract with the customer
evidencing a monetary obligation and providing security for that obligation.
Upon satisfactory review, GreenPoint Credit purchases such sales contracts from
retailers. If a retailer wishes to make such financing available to its
customers, the retailer would apply for retailer approval. Upon satisfactory
results of GreenPoint Credit's investigation of the retailer's creditworthiness
and general business reputation, GreenPoint Credit and the retailer would enter
into a retailer agreement.
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Under a "direct" origination, GreenPoint Credit and the borrower are
direct parties to the loan documentation which evidences the borrower's
obligation to GreenPoint Credit. GreenPoint Credit originated $656 million of
manufactured housing loans in the fourth quarter of 1998, 92% indirectly
purchased from dealers and 8% directly originated.
GreenPoint Credit offers a variety of "Home Only" and "Land/Home" products
with fixed and variable rate options. The Home Only loans are secured by the
manufactured home and is a conventional loan program for new and previously
owned manufactured homes. "Land/Home" loans are secured by both the manufactured
home and the land.
Credit Parameters
GreenPoint Credit believes that the creditworthiness of a potential
borrower should be the most important criterion in determining whether to
approve the purchase or origination of a loan. The borrower's creditworthiness
is measured by custom credit scorecards which were developed based on GreenPoint
Credit's extensive portfolio in conjunction with Fair Isaac & Company.
GreenPoint Credit continually monitors the performance of its scorecards to
ensure that they are correctly rank-ordering the borrowers' credit risk. The
borrowers' credit history, employment history, residence history and debt to
income ratio are also reviewed by GreenPoint Credit personnel as part of the
underwriting decision. GreenPoint Credit's lending criteria also varies by
product type to reflect the risk associated with each product.
Loan Servicing
GreenPoint Credit's servicing responsibilities include collecting
principal and interest payments, taxes, insurance premiums and other payments
from obligors and, when such loans are not owned by GreenPoint Credit, remitting
principal and interest payments to the owners. Collection procedures which are
managed at the regional office level include repossession and resale of
manufactured homes securing defaulted loans (and foreclosure if land is
involved). GreenPoint Credit will enter into workout agreements with obligors
under certain defaulted loans, if deemed advisable. Although decisions as to
whether to repossess any manufactured home are made on an individual basis,
GreenPoint Credit's general policy is to institute repossession procedures
promptly after regional office personnel determine that it is unlikely that a
defaulted loan will be brought current, and thereafter to diligently pursue the
resale of such manufactured homes.
GreenPoint Credit services loans on behalf of other entities and its own
portfolio. In conjunction with the purchase of BAHS, GreenPoint Credit acquired
$108.3 million of servicing assets associated with servicing loans for
BankAmerica Corporation ("BAC"). In addition, GreenPoint Credit sold $728
million of manufactured housing loans in one securitization transaction
resulting in retained servicing assets of $15.0 million. At December 31, 1998,
GreenPoint Credit's servicing assets totaled $115.1 million, relating primarily
to the underlying loan portfolio serviced for BAC. GreenPoint Credit serviced
approximately 388,700 manufactured housing loans owned by other entities with an
outstanding principal balance of $10.5 billion at December 31, 1998.
GreenPoint Credit receives a servicing fee equal to 1% of the outstanding
principal balance of each loan serviced for customers. Servicing fees are
collected by GreenPoint Credit out of the borrowers monthly payments. In
addition, GreenPoint Credit recognizes interest income on trust accounts and
late charge fee income on loans serviced for other entities. GreenPoint Credit
is not responsible for repossession costs incurred on loans serviced for other
entities. In 1998, GreenPoint Credit's revenues generated from loan servicing
totaled $21.7 million, primarily as a result of the revenue stream received from
the loan portfolio serviced for BAC.
At December 31, 1998, GreenPoint Credit serviced approximately 20,300
manufactured housing loans in its own portfolio with an outstanding principal
balance of $764.3 million. GreenPoint Credit does not recognize service fee
income for loans serviced in its own portfolio.
GreenPoint Credit sells its portfolio of loans to a real estate mortgage
investment conduit ("REMIC") or owner trust, that issues classes of certificates
representing undivided ownership interests in the income stream to the trust.
The agreements between GreenPoint Credit and the REMIC typically require
GreenPoint Credit to advance interest (but not principal) on delinquent loans to
holders of the senior interests in the related REMIC trust.
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Loans held for Investment Portfolio
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.
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>
<CAPTION>
December 31,
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
Percent Percent Percent
Amounts of Total Amounts of Total Amounts of Total
-------- -------- -------- -------- -------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable held for investment:
Mortgage loans:
One-to four-family $8,022.9 85.3% $7,681.3 86.0% $6,394.4 85.9%
Multi-family 594.4 6.3 621.0 7.0 545.5 7.3
Commercial 573.8 6.1 537.1 6.0 467.9 6.3
Home equity loans 82.1 0.9 66.3 0.7 16.2 0.2
-------- -------- -------- -------- -------- --------
Total mortgage loans held for investment 9,273.2 98.6 8,905.7 99.7 7,424.0 99.7
-------- -------- -------- -------- -------- --------
Other loans:
Loans secured by depositors' funds 24.0 0.3 30.1 0.3 23.5 0.3
Construction in process 50.6 0.5 -- -- -- --
Recreational vehicle loans 23.7 0.3 -- -- -- --
Manufactured housing loans 28.9 0.3 -- -- -- --
Home improvement loans -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total other loans 127.2 1.4 30.1 0.3 23.5 0.3
-------- -------- -------- -------- -------- --------
Total loans receivable held for investment 9,400.4 100.0% 8,935.8 100.0% 7,447.5 100.0%
-------- -------- -------- -------- -------- --------
Less:
Net deferred loan origination fees and
unearned discount 14.3 31.2 48.2
Allowance for possible loan losses 113.0 109.0 105.0
-------- -------- --------
Loans receivable held for investment, net $9,273.1 $8,795.6 $7,294.3
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994
------------------- -------------------
Percent Percent
Amounts of Total Amounts of Total
-------- -------- -------- --------
(Dollars in millions)
<S> <C> <C> <C> <C>
Loans receivable held for investment:
Mortgage loans:
One-to four-family $5,135.4 85.2 % $4,933.9 85.7 %
Multi-family 475.9 7.9 456.9 7.9
Commercial 376.8 6.3 349.7 6.1
Home equity loans 4.7 0.1 10.1 0.2
-------- -------- -------- --------
Total mortgage loans held for investment 5,992.8 99.5 5,750.6 99.9
-------- -------- -------- --------
Other loans:
Loans secured by depositors' funds 29.5 0.5 7.7 0.1
Construction in process -- -- -- --
Recreational vehicle loans -- -- -- --
Manufactured housing loans -- -- -- --
Home improvement loans 0.1 -- 0.1 --
-------- -------- -------- --------
Total other loans 29.6 0.5 7.8 0.1
-------- -------- -------- --------
Total loans receivable held for investment 6,022.4 100.0% 5,758.4 100.0%
-------- -------- -------- --------
Less:
Net deferred loan origination fees and
unearned discount 58.3 61.3
Allowance for possible loan losses 105.5 103.0
-------- --------
Loans receivable held for investment, net $5,858.6 $5,594.1
======== ========
</TABLE>
7
<PAGE>
As of December 31, 1998, 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%.
Loans Held for Sale
The following table sets forth the composition of the Company's loans receivable
held for sale, at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Loans receivable held for sale: $ 0.6 $ 1.3 $ 0.3 $168.2 $ 0.5
Residential mortgage loans 3.3 4.2 4.5 6.9 10.6
Guaranteed student loans 535.2 -- -- -- --
Manufactured housing loans 139.1 -- -- -- --
Manufactured housing land/home loans
Deferred loan origination fees and
Unearned discount (10.8) -- -- -- --
------ ------ ------ ------ ------
Loans receivable held for sale, net $667.4 $ 5.5 $ 4.8 $175.1 $ 11.1
====== ====== ====== ====== ======
</TABLE>
Loan Sales
GreenPoint sells the loans it purchases or originates through either (1)
securitization, which involves the private placement or public offering of
pass-through asset-backed securities; or (2) whole loan sales, which involves
selling pools of loans to individual purchasers. This approach allows GreenPoint
to capitalize on favorable conditions in either the securitization or whole loan
sale market when loan production is sold. In addition, this dual approach allows
GreenPoint to diversify its exposure to the volatility of the capital markets.
Securitization. The primary funding strategy of GreenPoint Credit is to
securitize manufactured housing loans originated or purchased. During the 4th
quarter of 1998, GreenPoint Credit sold $728 million manufactured housing loans
in one securitization transaction. Management has structured the operations and
processes specifically for the purpose of efficiently originating, purchasing,
underwriting and servicing loans for securitization in order to meet the
requirements of rating agencies, credit enhancers, and investors.
The purchasers of the pass-through certificates issued in the 1998
securitization transaction received a credit-enhanced security. Credit
enhancement on the 1998 security was achieved by (1) the Bank's subordination of
their residual excess spread, (2) corporate guarantee issued by the Bank and
backed by a letter of credit, (3) an insurance policy by a monoline insurance
company. As a result, the 1998 offering of the senior REMIC pass-through
certificates has received ratings of AAA from Standard & Poor's and Aaa from
Moody's Investor Service.
Whole Loan Sales. Mortgage loans in excess of 75% LTV originated outside of
Metropolitan New York City, and fixed rate loans originated through the
correspondent channel, may be sold into the secondary market. All loans
originated in Metropolitan New York City are held in the Company's own
portfolio. The Company also originates guaranteed student loans which are held
for sale.
8
<PAGE>
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, 1998. The table does not include prepayments or scheduled
principal amortization. Prepayments and scheduled principal amortization on
mortgage loans totaled $2.3 billion for the year ended December 31, 1998.
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------
Mortgage Loans
----------------------------------------
One-to Four- Other Total Loans
Family Multi-Family Commercial Loans Receivable
------------ ------------ ---------- ----- ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Amounts due (1):
Within one year $ 6.2 $ 1.8 $ 2.2 $ 84.6 $ 94.8
One to five years 173.0 52.2 56.9 13.9 296.0
Over five years 7,700.5 506.9 489.0 706.3 9,402.7
-------- -------- -------- -------- --------
Total amounts due $7,879.7 $ 560.9 $ 548.1 $ 804.8 $9,793.5
======== ======== ======== ======== ========
</TABLE>
(1) Does not include non-accrual loans.
The following table sets forth, at December 31, 1998, the dollar amount of
all fixed rate loans contractually due and adjustable rate loans repricing after
December 31, 1999.
Due or Repricing After December 31, 1999
----------------------------------------
Fixed Adjustable Total
----------- ------------- -----------
(Dollars in millions)
Mortgage loans (1):
One-to four-family $5,804.5 $ 105.4 $5,909.9
Multi-family 548.2 0.3 548.5
Commercial 533.0 0.3 533.3
Other loans (1) 554.8 -- 554.8
-------- -------- --------
Total loans receivable $7,440.5 $ 106.0 $7,546.5
======== ======== ========
(1) Does not include non-accrual loans.
9
<PAGE>
Delinquent Loans and Foreclosed Assets
Mortgage Loans
GreenPoint Mortgage'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,
as well as property inspections. Telephone calls and property inspections
continue until the loan is current or payment arrangements are made. On or about
the 61st 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 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 GreenPoint Mortgage's attorney for foreclosure upon the loan
becoming 61 days past due.
GreenPoint Mortgage discontinues accruing interest and charges-off the
accrued interest on all delinquent mortgage loans upon the loan becoming 90 days
past due. GreenPoint Mortgage generally does not restructure the original terms
of delinquent loans by modifying the interest rate paid or capitalizing past due
interest.
GreenPoint Mortgage 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 GreenPoint Mortgage 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, GreenPoint Mortgage may resume
its foreclosure action. As of December 31, 1998, GreenPoint Mortgage had $55.0
million of loans, or 19.3%, of total non-performing loans subject to such
forbearance agreements, the substantial majority of which were one-to
four-family mortgage loans.
Historically, GreenPoint Mortgage has relied solely on its collection and
foreclosure process to reduce its level of non-performing loans. This process,
combined with GreenPoint Mortgage's low LTV ratios, has in the past protected
GreenPoint Mortgage from high loan losses.
Based on its LTV policies, GreenPoint Mortgage does not believe that the
overall risk of loss associated with its current loan portfolio and
non-performing assets is excessive. However, GreenPoint Mortgage'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 regional economies will not result in increased delinquencies or
increases in foreclosure-related expenses and expenses related to its other real
estate owned.
Manufactured Housing Loans
GreenPoint Credit maintains regular contact with the borrower through
telephone calls, approved mailings and field contact to collect delinquent
accounts. The collection staff work staggered schedules to maximize customer
contact while following the guidelines of the Federal Fair Debt and Collection
Practices Act. On or about the 61st day of delinquency, a notice of default is
sent to the borrower demanding payment in full of all arrears within a 30 day
time period. Collection efforts continue throughout the default period and if
the borrower has not paid by the default deadline, the account is referred to an
attorney to commence repossession proceedings.
GreenPoint Credit charges off delinquent loans at the earlier of
repossession date or the month end following 120 days of delinquency. GreenPoint
Credit records partial charge-offs of delinquent loans to approximate net
realizable value if foreclosure occurs before the loans become 120 days
delinquent. Accounts are 100% charged-off if still in repossession 91 days after
date of foreclosure. Accounts that have not yet been repossessed are 100%
charged-off after 120 days of delinquency.
GreenPoint Credit relies on its platform of regional offices throughout
the United States and its experienced personnel to collect delinquent accounts
effectively and reduce its level of non-performing loans. GreenPoint Credit does
not believe that the overall risk of loss associated with its loan portfolio is
excessive based on its credit policies. GreenPoint Credit's underwriting
determinations rely heavily upon the borrower's ability to pay. No assurances
can be given that declines in regional economics will not result in increased
delinquencies and losses.
10
<PAGE>
At December 31, 1998, 1997, 1996, 1995 and 1994, loans delinquent 90 days
or more were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997
---------------------------------------------------
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 1,930 $ 213.1 2,596 $ 254.6
Multi-family 286 33.7 372 41.0
Commercial real estate 192 24.7 258 34.0
Home equity loans 26 1.6 48 1.1
------- ------- ------- -------
Total mortgage loans 2,434 273.1 3,274 330.7
Other loans 134 1.3 84 0.1
------- ------- ------- -------
Total loans 2,568 $ 274.4 3,358 $ 330.8
======= ======= ======= =======
Delinquent loans to total loans 2.72% 3.71%
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------
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 2,559 $ 242.7 2,737 $ 254.3 2,438 $ 220.9
Multi-family 430 46.0 533 57.9 619 68.6
Commercial real estate 271 35.2 358 46.8 413 56.8
Home equity loans 7 0.5 16 0.8 14 0.7
------- ------- ------- ------- ------- -------
Total mortgage loans 3,267 324.4 3,644 359.8 3,484 347.0
Other loans 168 0.1 -- -- 46 0.3
------- ------- ------- ------- ------- -------
Total loans 3,435 $ 324.5 3,644 $ 359.8 3,530 $ 347.3
======= ======= ======= ======= ======= =======
Delinquent loans to total loans 4.36% 5.81% 6.02%
</TABLE>
11
<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 $37.0 million, as opposed to $30.7 million, which was included in
interest income for the year ended December 31, 1998.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans $ 285.1 $ 355.0 $ 356.0 $ 402.1 $ 391.9
Non-accrual other loans (1) 0.1 0.1 0.1 -- --
Other loans 90 days or more delinquent
and still accruing 1.2 -- -- -- 0.3
------- ------- ------- ------- -------
Total non-performing loans (2) 286.4 355.1 356.1 402.1 392.2
------- ------- ------- ------- -------
Other real estate owned, net (3) 11.2 24.0 28.6 29.2 54.0
------- ------- ------- ------- -------
Total non-performing assets $ 297.6 $ 379.1 $ 384.7 $ 431.3 $ 446.2
======= ======= ======= ======= =======
Non-performing loans to total loans
held for investment 3.03% 3.97% 4.78% 6.68% 6.80%
Non-performing assets to total assets 2.12% 2.90% 2.89% 2.94% 6.42%
</TABLE>
- ----------
(1) 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.
(2) As of December 31, 1998, non-accrual loans included 2,026 one-to
four-family loans, with an aggregate balance of $225.1 million, 290
multi-family loans with an aggregate balance of $33.4 million, 205
commercial real estate loans with an aggregate balance of $26.0 million,
117 other loans with an aggregate balance of $0.1 million and 27 home
equity loans with an aggregate balance of $1.7 million.
(3) Net of related valuation allowance of $0.3 million, $0.9 million, $1.3
million, $2.2 million, and $5.1 million for foreclosed real estate at
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
At December 31, 1998, the Company's net other real estate owned totaled
$11.2 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 99 one-to four-family
properties with an aggregate carrying value of $7.8 million, 17 multi-family
properties with an aggregate carrying value of $1.7 million and 17 commercial
real estate properties with an aggregate carrying value of $2.0 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 that 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, 1998 totaled $0.3 million, or 2.6% 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.
12
<PAGE>
Allowance for Possible Loan Losses
The Company 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.
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>
Year Ended December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 109.0 $ 105.0 $ 105.5 $ 103.0 $ 147.0
Provisions charged to income 13.8 18.9 15.7 9.5 32.3
Transfer from allowance for loans
held for sale -- -- -- -- 11.6
Loans charged-off:
Mortgage loans held for investment (1.9) (4.4) (4.7) (5.3) (15.3)
Other loans (1.0) (0.3) (0.2) -- --
Mortgage loans held for sale -- -- -- -- (4.9)
Bulk sale charge-off of
non-performing loans -- -- -- -- (56.1)(2)
Net loan foreclosure costs (7.7) (11.3) (12.6) (10.2) (16.8)
-------- -------- -------- -------- --------
Total charge-offs (10.6) (16.0) (17.5) (15.5) (93.1)
Recoveries 0.8 1.1 1.3 8.5(1) 5.2
-------- -------- -------- -------- --------
Balance at end of period $ 113.0 $ 109.0 $ 105.0 $ 105.5 $ 103.0
======== ======== ======== ======== ========
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.11% 0.18% 0.25% 0.12%(1) 1.54%(2)
Ratio of allowance for possible loan
losses to total loans held for investment at
the end of the period 1.20% 1.22% 1.41% 1.75% 1.79%
Ratio of allowance for possible loan
losses to total non-performing loans at
the end of the period 39.63% 30.70% 29.48% 26.24% 26.26%
</TABLE>
(1) 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%.
(2) 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%.
13
<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, 1998, 1997, 1996, 1995, and
1994. 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,
----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------- ------------------- -------------------- -------------------- -------------------
Percentage Percentage Percentage Percentage Percentage
of Loans in of Loans in of Loans in of Loans in of Loans in
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Category:
Mortgage loans:
One-to four family $ 86.3 85.3% $ 81.9 86.0% $ 75.5 85.9% $ 72.5 85.2% $ 66.5 85.7%
Multi-family residential 12.9 6.3 12.8 7.0 16.0 7.3 18.2 7.9 19.8 7.9
Commercial 11.4 6.1 13.2 6.0 13.2 6.3 14.6 6.3 16.4 6.1
Home equity loans
from lines of credit 1.4 0.9 1.1 0.7 0.3 0.2 0.2 0.1 0.3 0.2
Other loans 1.0 1.4 -- 0.3 -- 0.3 -- 0.5 -- 0.1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
possible loan
losses $113.0 100.0% $109.0 100.0% $105.0 100.0% $105.5 100.0% $103.0 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
14
<PAGE>
Consumer Banking Activities
The Consumer Branch Network ("Branch Network") consists of 73 full-service
banking offices with 95 automated teller machines. The Branch Network operates
29 branches in Long Island, 40 branches in New York City, and 4 branches in
Westchester County in New York. In addition to its branch system, the Bank's
deposit gathering network includes its telephone banking system. The Branch
Network also offers a variety of financial services to meet the needs of the
communities it serves. Among the services offered are traditional time, savings
and checking accounts, annuity products, mutual funds, mortgages, home equity
loans, credit cards, Savings Bank Life Insurance, safe deposit services, student
loans, installment loans and automatic payroll and Social Security deposit
programs.
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 Bank faces
additional competition for deposits from non-depository competitors such as the
mutual fund industry, securities and brokerage firms and insurance companies.
GreenPoint Mortgage'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. However, strong competition is
emerging in the no/low doc market, bringing increased pressure on interest rates
charged and net income realized from this niche business. As demand for these
products increases and more companies begin to compete in this market niche,
investor interest for these products will grow, creating the possibility of
reduced margins and profitability from execution. In particular, FNMA and
Freddie Mac ("FHLMC") are both showing increased interest in targeting the
no-low doc market niche. Additionally, boundaries continue to erode over the
differences between No Doc and Low Doc products in the mortgage market, as well
as within the spectrum of credit risk assumed by these companies. This will
result in increased competition from companies offering alternative products to
borrowers who previously had only limited opportunities for the extension of
mortgage credit. Due to these factors, no assurance can be given that the
Company will be able to retain its market share and profitability.
GreenPoint Credit is directly influenced by consumer demand for new
financing and refinancing of manufactured and modular homes. This demand is
driven by several variables, including regional market trends, economic
conditions, individual preferences and market demographics. GreenPoint Credit's
competition is comprised of a variety of regional and national lending
institutions. Finance companies, banks and credit unions are consistently the
primary competitors. Recently, consolidation has taken place in the retail
sector, dominated mainly by vertically-integrated manufacturers. This
consolidation could affect the competitive environment.
GreenPoint Credit's major form of loan origination consists of competitive
interest rates and flexible financing programs, outstanding service to retailers
and customers, as well as timely credit reviews and decisions. Interest rates
are a key component to overall profitability.
As with traditional, site-built homes, sales of manufactured and modular
homes are subject to seasonal peaks and declines. Sales peak during the spring
and summer months, and decline during fall and winter. Home sales involving land
improvement and/or construction are particularly vulnerable in geographic areas
with inclement winters. To increase home sales during seasonal declines,
GreenPoint Credit frequently offers special incentive and/or loan programs to
retailers and customers.
The types of loans that the Company may originate are subject to federal
and state laws and regulations. Interest rates charged by GreenPoint 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.
15
<PAGE>
Market Risk Management
Interest rate risk arises in the ordinary course of the Company's
business, as the repricing characteristics of its 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 the Company's Annual Report to Stockholders for
Fiscal Year ended December 31, 1998, pages 13-16.
The Bank entered into interest rate swap contracts to manage interest rate
risk. The notional amounts of these contracts approximate $1.40 billion and $475
million at December 31, 1998 and 1997, respectively. The contracts outstanding
at December 31, 1998 have an average term of approximately 4 years. Under the
terms of the contracts outstanding at December 31, 1998, the Bank pays an
average fixed rate of 5.96% and receives an average variable rate of 5.32% on
the swaps hedging the fixed rate loan portfolio.
Liquidity Management
Liquidity management involves planning to meet anticipated funding needs
at a reasonable cost, as well as contingency plans to meet unanticipated funding
needs or a loss of funding sources. Liquidity management is governed by policies
formulated and monitored by ALCO, which take into account the marketability of
assets, the sources and stability of funding, and the level of unfunded
commitments.
Long-term liquidity needs are provided by a large core deposit base, which
is the most stable source of liquidity a bank can have, due to the long-term
relationship with depositors and the deposit insurance provided by the FDIC.
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, commercial paper and municipal obligations.
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 in accumulated other comprehensive income 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.
16
<PAGE>
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,
--------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Money market investments (1) $ 924.2 $ 924.2 $1,060.0 $1,060.0 $ 494.1 $ 494.1
======== ======== ======== ======== ======== ========
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
Agency notes/Asset-backed
securities 260.5 260.3 125.9 125.8 66.4 66.4
Mortgage-backed securities 561.0 566.4 780.6 779.6 1,881.0 1,857.9
Collateralized mortgage obligations 206.2 209.6 113.9 114.4 32.4 32.4
Trust certificates collateralized by
GNMA securities 26.6 26.5 124.5 123.6 409.8 406.5
Corporate asset-backed securities 25.0 24.9 25.0 25.0 -- --
Corporate bonds 24.3 24.2 -- -- -- --
Commercial paper 145.7 145.7 113.5 113.5 -- --
Other 80.0 80.0 30.0 30.0 63.9 63.8
-------- -------- -------- -------- -------- --------
Total securities available for sale $1,329.3 $1,337.6 $2,014.0 $2,007.7 $4,397.8 $4,355.4
======== ======== ======== ======== ======== ========
Securities held to maturity:
Tax-exempt municipals $ 0.6 $ 0.6 $ 0.6 $ 0.6 $ 0.6 $ 0.6
Financial 2.7 2.7 3.4 3.4 3.4 3.4
-------- -------- -------- -------- -------- --------
Total securities held to maturity $ 3.3 $ 3.3 $ 4.0 $ 4.0 $ 4.0 $ 4.0
======== ======== ======== ======== ======== ========
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.
17
<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, 1998. 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,
1998.
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------------------------------
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>
Money market investments (1) $ 924.2 6.16% $ -- --% $ -- --% $ -- --%
Securities available for sale:
Agency notes/Asset-
backed securities $ 150.0 5.10% $ 84.9 5.79% $ 25.6 5.18% $ -- --%
Mortgage-backed securities -- -- 60.5 5.64 29.8 6.17 470.7 6.39
Collateralized mortgage
obligations -- -- 147.5 6.12 24.7 6.18 34.0 5.98
Trust certificates
collateralized by
GNMA securities -- -- -- -- 26.6 5.84 -- --
Corporate asset- backed
securities -- -- 25.0 5.43 -- -- -- --
Corporate bonds -- -- -- -- -- -- 24.3 6.10
Commercial paper 145.7 5.69 -- -- -- -- -- --
Other (2) -- -- -- -- -- -- 80.0 4.27
-------- -------- -------- --------
Total securities
available for sale $ 295.7 5.39% $ 317.9 5.89% $ 106.7 5.85% $ 609.0 6.08%
======== ======== ======== ========
Securities held to maturity:
Tax exempt municipals $ -- -- % $ -- --% $ 0.6 7.45% $ -- --%
Financial 2.0 8.30 -- -- -- -- 0.7 8.30
-------- -------- -------- --------
Total securities
held to maturity $ 2.0 8.30% $ -- --% $ 0.6 7.45% $ 0.7 8.30%
======== ======== ======== ========
</TABLE>
Total Securities
--------------------------------------------
Average
Remaining Weighted
Years to Amortized Fair Average
Maturity Cost Value Yield
--------- --------- -------- --------
(Dollars in millions)
Money market investments (1) -- $ 924.2 $ 924.2 6.16%
Securities available for sale:
Agency notes/Asset-
backed securities 1.88 $ 260.5 $ 260.3 5.33%
Mortgage-backed securities 12.31 561.0 566.4 6.30
Collateralized mortgage
obligations 6.71 206.2 209.6 6.10
Trust certificates
collateralized by
GNMA securities 6.80 26.6 26.5 5.84
Corporate asset- backed
securities 4.40 25.0 24.9 5.43
Corporate bonds 28.56 24.3 24.2 6.10
Commercial paper 0.04 145.7 145.7 5.69
Other (2) -- 80.0 80.0 4.27
-------- --------
Total securities
available for sale 7.35 $1,329.3 $1,337.6 5.86%
======== ========
Securities held to maturity:
Tax exempt municipals 9.47 $ 0.6 $ 0.6 7.45%
Financial 7.62 2.7 2.7 8.30
-------- --------
Total securities
held to maturity 7.94 $ 3.3 $ 3.3 8.15%
======== ========
(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.
18
<PAGE>
During the year ended December 31, 1998, the Company sold available for
sale securities aggregating $1.0 billion, resulting in gross realized gains of
$3.7 million and gross realized losses of $1.1 million.
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.
Sources of Funds
General. Deposits, proceeds from loan sales and securitizations, 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, 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 Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of various types of
savings, N.O.W., 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 Bank's
deposits are obtained primarily from the areas served by its Branch Network.
Management determines the Bank's deposit rates based upon market conditions and
local competition. The Bank 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 Bank.
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 years ended December 31, 1998
and 1997 was $13.9 million and $6.4 million, respectively.
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 $18.3 million and
$10.7 million for the years ended December 31, 1998 and 1997, respectively.
At December 31, 1998, the Company had outstanding $819.4 million in
certificates of deposit in amounts of $100,000 or more, maturing as follows:
Weighted
Amount Average Rate
------ ------------
(Dollars in millions)
Maturity Period:
Three months or less ...................... $130.0 5.18%
Over three through six months ............. 164.4 5.32
Over six through twelve months ............ 436.1 5.29
Over twelve months ........................ 88.9 5.63
------
Total ............................... $819.4 5.32%
======
19
<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,
-------------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------------
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 $1,551.9 13.89% 2.17% $1,739.4 15.85% 2.43%
N.O.W. and checking 539.9 4.83 0.99 533.9 4.87 1.24
Variable rate savings 1,804.5 16.15 3.26 1,702.1 15.51 3.37
Money market 524.2 4.69 3.20 478.4 4.36 3.25
--------- ------ --------- ------
Total 4,420.5 39.56 2.55 4,453.8 40.59 2.68
--------- ------ --------- ------
Term certificates of deposit:
Certificates of deposit over $100,000 819.4 7.33 5.32 723.7 6.59 5.51
Certificates of deposit less than $100,000
with original maturities of:
Six months or less 343.7 3.08 4.97 222.5 2.03 4.44
Six to 12 months 2,074.6 18.57 4.93 1,243.9 11.33 4.84
12 to 30 months 1,722.8 15.42 5.28 2,054.9 18.73 5.64
30 to 48 months 155.3 1.39 5.79 334.3 3.05 6.25
48 to 72 months 459.1 4.11 6.02 683.9 6.23 5.51
72 to 84 months 75.8 0.68 6.28 75.3 0.69 6.40
IRA and Keoghs less than 3 years 1,101.9 9.86 4.99 1,180.7 10.76 5.21
--------- ------ --------- ------
Total term certificates of deposit 6,752.6 60.44 5.19 6,519.2 59.41 5.38
--------- ------ --------- ------
Total deposits $11,173.1 100.00% 4.14% $10,973.0 100.00% 4.28%
========= ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996
-------------------------------------
Weighted
Percent Average
of Total Nominal
Amount Deposits Rate
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Account type:
Savings and club $1,901.7 16.60% 2.77%
N.O.W. and checking 524.2 4.58 1.86
Variable rate savings 1,853.7 16.19 3.36
Money market 561.3 4.90 3.25
-------- --------
Total 4,840.9 42.27 2.88
-------- --------
Term certificates of deposit:
Certificates of deposit over $100,000 687.8 6.01 5.29
Certificates of deposit less than $100,000 with
original maturities of:
Six months or less 227.1 1.98 3.83
Six to 12 months 1,811.2 15.82 4.63
12 to 30 months 1,702.1 14.86 5.44
30 to 48 months 258.9 2.26 6.26
48 to 72 months 695.6 6.07 5.88
72 to 84 months 72.0 0.63 6.56
IRA and Keoghs less than 3 years 1,156.7 10.10 5.08
-------- --------
Total term certificates of deposit 6,611.4 57.73 5.17
-------- --------
Total deposits $11,452.3 100.00% 4.21%
======== ========
</TABLE>
20
<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, 1998
------------------------------------ --------------------------------------------------
Within One to
1998 1997 1996 One Year Three Years Thereafter Total
-------- -------- -------- -------- ----------- ---------- -----
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit
accounts:
3.99% or less $1,008.9 $1,064.4 $1,237.3 $ 913.8 $ 95.1 $ -- $1,008.9
4.00% to 4.99% 963.0 343.6 1,149.5 793.9 158.1 11.0 963.0
5.00% to 5.99% 4,234.2 4,300.9 3,166.9 3,850.6 342.0 41.6 4,234.2
6.00% to 6.99% 514.8 664.3 751.5 210.0 290.4 14.4 514.8
7.00% to 7.99% 28.9 141.2 297.2 1.2 27.7 -- 28.9
8.00% to 8.99% 2.1 3.8 8.1 1.2 0.9 -- 2.1
9.00% or greater 0.7 1.0 0.9 0.7 -- -- 0.7
-------- -------- -------- -------- -------- -------- --------
Total $6,752.6 $6,519.2 $6,611.4 $5,771.4 $ 914.2 $ 67.0 $6,752.6
======== ======== ======== ======== ======== ======== ========
</TABLE>
Subsidiary Activities
The Company has formed three subsidiaries:
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 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 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, 1998 the Bank has formed thirteen 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,
GreenPoint Mortgage 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. GreenPoint Mortgage's activities consist of the origination,
sale and servicing of mortgage loans.
GreenPoint Credit Corp. This subsidiary was incorporated on May 4, 1998
and began operations in the fourth quarter of 1998. GreenPoint Credit was formed
for the purpose of acquiring the assets of BankAmerica Housing Services, a
division of Bank of America, FSB. This acquisition was consummated on September
30, 1998. GreenPoint Credit's activities consist of the origination, sale and
servicing of manufactured housing loans. In Mississippi and Minnesota,
GreenPoint Credit conducts activities through its wholly owned subsidiaries,
GreenPoint Credit Corp. of Mississippi (incorporated on September 4, 1998), and
GreenPoint Credit Corp. of Minnesota (incorporated on September 14, 1998).
GreenPoint Agency, Inc. This subsidiary was incorporated on June 30, 1998
as an insurance agency. GreenPoint Agency acts as an agent in connection with
the sale of forced placed property insurance and standard property and casualty
insurance.
21
<PAGE>
GreenPoint Insurance Corp. This subsidiary was incorporated on September
10, 1998 as an insurance underwriting and reinsurance subsidiary. GreenPoint
Insurance's activities include the reinsurance of life and disability insurance
risks.
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. This subsidiary was dissolved on
December 9, 1998.
GreenPoint Corporate Owned 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, 1998, 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. Descriptions of the Bank's subsidiaries are set forth below:
Neerg Corp. This subsidiary was formed in January 1990 and currently holds
7 properties having an aggregate carrying value of $0.7 million and an aggregate
appraised value of $1.5 million, as of December 31, 1998, based on the Company's
most recent appraisals.
298 15th Street Realty Corp. This subsidiary was formed in January 1993
and currently holds 5 properties having an aggregate carrying value of $0.5
million and an aggregate appraised value of $1.0 million as of December 31,
1998, based on the Company's most recent appraisals.
Neerg Second Corp. This subsidiary was formed in June 1993 and currently
holds 5 properties having an aggregate carrying value of $0.5 million and an
aggregate appraised value of $1.0 million, as of December 31, 1998, based on the
Company's most recent appraisals.
Alpha REO Corporation. This subsidiary was formed in March 1994 and
currently holds 7 properties having an aggregate carrying value of $0.7 million
and an aggregate appraised value of $1.5 million, as of December 31, 1998, based
on the Company's most recent appraisals.
Beta REO Corp. This subsidiary was formed in June 1994 and currently holds
no properties.
Savings Bank Life Insurance
As an issuing company, the Company offers Savings Bank Life Insurance
("SBLI") through its SBLI department. 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.
22
<PAGE>
Personnel
As of December 31, 1998, the Company had 3,188 full-time employees and 208
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.
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, 1998 is
approximately $1.7 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 1997 and expects
to use the percentage method for 1998.
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, 1998, 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, 1998 was
approximately $303 million and $305 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".
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.
23
<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,
1998, 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 State Department of Taxation
and Finance for the tax years 1995 through 1997 and the New York City Department
of Finance for the tax years 1992, 1993 and 1996. 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, GreenPoint Mortgage and GreenPoint Credit
are 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, 1998, GreenPoint Mortgage and GreenPoint Credit are 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 following discussion sets forth certain of the material elements of
the regulatory framework applicable to GreenPoint and its subsidiaries. This
regulatory framework is intended primarily for the protection of depositors and
the federal deposit insurance funds and not for the protection of security
holders. To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to those
provisions. A change in the statutes, regulations or regulatory policies
applicable to GreenPoint or its subsidiaries may have a material effect on the
business of GreenPoint.
General. As a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), GreenPoint is subject to
examination and supervision by the FRB. Under the BHCA, bank holding companies
generally may not acquire ownership or control of more than 5% of the voting
shares or substantially all of the assets of any company, including a bank,
without the FRB's prior approval. In addition, bank holding companies generally
may engage, directly or indirectly, only in banking and such other activities as
are determined by the FRB to be closely related to banking.
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 non-bank 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, federal laws
and regulations limit the amounts of, and establish required procedures and
credit standards with respect to, loans and other extensions of credit to
certain officers, directors and principal shareholders of GreenPoint, certain of
its subsidiaries and related interests of such persons.
In addition, if GreenPoint were to acquire another bank or bank holding
company, it could become subject to the bank holding company regulations
promulgated under New York State Banking Law ("State Banking Laws"). GreenPoint
is not currently subject to the bank holding company regulations of State
Banking Laws because a company such as GreenPoint that controls only one banking
institution is not deemed to be a bank holding company under State Banking Laws.
24
<PAGE>
However, the Bank is subject to other State Banking Laws and to extensive
regulation by the Banking Department, as its chartering agency, and by the
Federal Deposit Insurance Corporation (the "FDIC"), as its deposit insurer. The
Bank is also subject to regulation by the FRB. GreenPoint and its subsidiaries
also are affected by the fiscal and monetary policies of the federal government
and the FRB, and by various other governmental requirements and regulations.
Liability for Bank Subsidiaries. Under current FRB policy, a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to maintain resources adequate to support each
such subsidiary bank. This support may be required at times when the bank
holding company may not have the resources to provide it. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank
would be assumed by the bankruptcy trustee and entitled to priority of payment.
Similarly, any depository institution insured by the FDIC, including the
Bank, can be held liable for any loss incurred, or reasonably expected to be
incurred, by the FDIC in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur in
the absence of regulatory assistance. Also, if such a default occurred with
respect to a bank, any capital loans to the bank from its parent holding company
would be subordinate in right of payment to payment of the bank's depositors and
certain of its other obligations.
Capital Requirements. GreenPoint is subject to risk-based capital
requirements and guidelines imposed by the FRB, which are substantially similar
to the capital requirements and guidelines imposed by the FDIC, the Office of
Thrift Supervision and the Office of the Comptroller of the Currency on the
depository institutions within their respective jurisdictions. For this purpose,
a depository institution's or holding company's assets and certain specified
off-balance sheet commitments are assigned to four risk categories, each
weighted differently based on the level of credit risk that is ascribed to such
assets or commitments. A depository institution's or holding company's capital,
in turn, is divided into two tiers: core ("Tier 1") capital, which includes
common equity, non-cumulative perpetual preferred stock and a limited amount of
cumulative perpetual preferred stock and related surplus (excluding auction rate
issues) and a limited amount of cumulative perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill, certain identifiable intangible assets and certain other assets; and
supplementary ("Tier 2") capital, which includes, among other items, perpetual
preferred stock not meeting the Tier 1 definition, mandatory convertible
securities, subordinated debt and allowances for loan and lease losses, subject
to certain limitations, less certain required deductions.
GreenPoint, like other bank holding companies, currently is required to
maintain Tier 1 and "total capital" (the sum of Tier 1 and Tier 2 capital) equal
to at least 4% and 8% of its total risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit), respectively. At
December 31, 1998, GreenPoint met both requirements, with Tier 1 and total
capital equal to 12.16% and 13.41% of its total risk-weighted assets.
The FRB, the FDIC and the Banking Department have adopted rules to
incorporate market and interest rate risk components into their risk-based
capital standards. Amendments to the risk-based capital requirements of the FRB
and the FDIC, incorporating market risk, became effective January 1, 1998. Under
the new market risk requirements, capital will be allocated to support the
amount of market risk related to a financial institution's ongoing trading
activities.
The FRB also requires bank holding companies to maintain a minimum
"leverage ratio" (Tier 1 capital to adjusted total assets) of 3% if the holding
company has the highest regulatory rating and meets certain other requirements,
or of 3% plus an additional cushion of at least 100 to 200 basis points if the
holding company does not meet these requirements. At December 31, 1998,
GreenPoint's leverage ratio was 7.58%.
The FRB may set capital requirements higher than the minimums noted above
for holding companies whose circumstances warrant it. For example, holding
companies experiencing or anticipating significant growth may be expected to
maintain capital positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Furthermore, the FRB has
indicated that it will consider a "tangible Tier 1 capital leverage ratio"
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
25
<PAGE>
The Bank is subject to similar risk-based and leverage capital
requirements adopted by the FDIC. The Bank was in compliance with the applicable
minimum capital requirements as of December 31, 1998. The Bank has not been
advised by any federal banking agency or by the Banking Department of any
specific minimum leverage ratio requirement applicable to it.
Failure to meet capital requirements could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described under "-
FDICIA."
FDICIA. FDICIA, among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires federal bank regulatory agencies to implement
systems for "prompt corrective action" for insured depository institutions that
do not meet minimum capital requirements, based on these categories. FDICIA
imposes progressively more restrictive constraints on operations, management and
capital distributions, depending on the category in which an institution is
classified. Unless a bank is "well capitalized," it is subject to restrictions
on its ability to offer brokered deposits and on certain other aspects of its
operations. An "undercapitalized" bank must develop a capital restoration plan
and its parent holding company must guarantee the bank's compliance with the
plan up to the lesser of 5% of the bank's assets at the time it became
undercapitalized and the amount needed to comply with the plan.
As of December 31, 1998, GreenPoint Bank was "well capitalized," based on
the "prompt corrective action" ratios and guidelines described above. It should
be noted, however, that the Bank's capital category is determined solely for the
purpose of applying the FDIC's "prompt corrective action" regulations and that
the capital category may not constitute an accurate representation of the Bank's
overall financial condition or prospects.
Dividend Restrictions. State Banking Laws impose certain restrictions on
the payment of dividends by the Bank to GreenPoint, including a provision that,
without regulatory approval, the Bank cannot declare and pay dividends in any
calendar year in excess of its net profits, as defined by the State Banking
Laws, for that year combined with its retained net profits, as defined by the
State Banking Laws, of the two preceding years, less any required transfer to
surplus. Likewise, the approval of the FDIC is required for any dividend if the
total of all dividends declared by the Bank in any calendar year would exceed
the total of its net profits, as defined by the FDIC, for such year combined
with its retained net profits, as defined by the FDIC, for the preceding two
years. In addition, GreenPoint may not pay a dividend in an amount greater than
its net profits then on hand. At December 31, 1998, $131.3 million of the total
stockholders' equity of the Bank was available for payment of dividends to
GreenPoint without approval by the applicable regulatory authority.
In addition, federal bank regulatory authorities have authority to
prohibit the Bank from engaging in an unsafe or unsound practice in conducting
its business. The payment of dividends, depending upon the financial condition
of the bank in question, could be deemed to constitute such an unsafe or unsound
practice. The ability of the Bank to pay dividends in the future is currently,
and could be further, influenced by bank regulatory policies and capital
guidelines.
Deposit Insurance Assessments. The deposits of the Bank are insured up to
regulatory limits by the FDIC and, accordingly, are subject to deposit insurance
assessments to maintain the Bank Insurance Fund (the "BIF") and the Savings
Association Insurance Fund ("SAIF") administered by the FDIC. The FDIC has
adopted regulations establishing a permanent risk-related deposit insurance
assessment system. Under this system, the FDIC places each insured bank in one
of nine risk categories based on (i) the bank's capitalization and (ii)
supervisory evaluations provided to the FDIC by the institution's primary
federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
Due to the Bank's current risk-based assessment, as of January 1, 1999,
the annual insurance premiums on bank deposits insured by the BIF (approximately
75% of the Bank's deposits) and the SAIF (approximately 25% of the Bank's
deposits) were both zero.
The Deposit Insurance Funds Act of 1996 provides for assessments to be
imposed on insured depository institutions with respect to deposits insured by
the BIF and the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of Financing Corporation ("FICO") funding. The FICO assessment rates as of
January 1, 1999 were $0.0122 per $100 annually for BIF-assessable deposits and
$0.061 per $100 annually for SAIF-assessable deposits.
26
<PAGE>
Depositor Preference Statute. Federal legislation has been enacted
providing that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of the institution by any receiver.
Brokered Deposits. Under FDIC regulations, no FDIC-insured depository
institution can accept brokered deposits unless it (i) is well capitalized, or
(ii) is adequately capitalized and receives a waiver from the FDIC. In addition,
these regulations prohibit any depository institution that is not well
capitalized from (a) paying an interest rate on deposits in excess of 75 basis
points over certain prevailing market rates or (b) offering "pass through"
deposit insurance on certain employee benefit plan accounts subject to certain
exceptions.
Interstate Banking And Branching. Under the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 ("Riegle-Neal"), subject to certain
concentration limits and other requirements, (i) bank holding companies such as
GreenPoint are permitted to acquire banks and bank holding companies located in
any state; (ii) any bank that is a subsidiary of a bank holding company is
permitted to receive deposits, renew time deposits, close loans, service loans
and receive loan payments as an agent for any other bank subsidiary of that
holding company; and (iii) banks are permitted to acquire branch offices outside
their home states by merging with out-of-state banks, purchasing branches in
other states, and establishing de novo branch offices in other states; provided
that, in the case of any such purchase or opening of individual branches, the
host state has adopted legislation "opting in" to those provisions of
Riegle-Neal; and provided that, in the case of a merger with a bank located in
another state, the host state has not adopted legislation "opting out" of that
provision of Riegle-Neal. GreenPoint could use Riegle-Neal to acquire banks in
additional states.
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, GreenPoint
Mortgage leases an operating center in Charlotte, North Carolina at 5032 Parkway
Plaza Boulevard which contains 40.6 thousand square feet. GreenPoint Mortgage
also leases 21.3 thousand square feet of commercial office space at 15720 John
Delaney Drive in Charlotte, North Carolina. The Company's servicing operations
center is located in Columbus, Georgia. In Columbus, GreenPoint Mortgage 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. Additionally, GreenPoint
Credit leases 90.0 thousand square feet of office space at 10089 Willow Creek
Road, San Diego, California. This location is the headquarters for the
manufactured housing operations.
The Bank operates its consumer banking activities out of 73 branches
located throughout the New York metropolitan area.
GreenPoint Mortgage operates its mortgage lending activities from its
Charlotte, North Carolina operating center. Hub offices are located in Arizona,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts,
Michigan, New Jersey, Pennsylvania, Texas, Virginia and Washington.
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. 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.
27
<PAGE>
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, 1998.
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, 58, 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 of the Company and the
Bank. 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, 55, joined the Company in July 1995 and serves as
President and Chief Operating Officer of the Company and the Bank. 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, 49, 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
Southeast Missouri State University (1974).
S.A. Ibrahim, 47, joined GreenPoint Bank in March 1997 and currently
serves as Executive Vice President, Risk Management of the Company and the Bank.
Mr. Ibrahim will become Chief Operating Officer of the combined mortgage
business of GreenPoint Mortgage and Headlands Mortgage upon completion of the
Headlands acquisition. 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, 53, joined the Bank in September 1995 and serves as
Executive Vice President and Chief Financial Officer. Prior to that, he served
as Executive Vice President, Finance, and Treasurer. Before 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, 52, 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.
28
<PAGE>
Ramesh Shah, 50, joined the Bank in June 1996 and serves as Executive Vice
President, Consumer Banking of the Company and the Bank. Prior to that, he
served as Executive Vice President, Marketing and Product Development. Before
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.
John W. Wheeler, 61, serves as President of GreenPoint Credit Corp. Prior
to that, he served as Chairman and President of BankAmerica Housing Services
(1986-1998) and was Executive Vice President and Director of Green Tree
Acceptance (1977-1986). Mr. Wheeler began his career in the manufactured finance
business with his own company, Mobile Marketing Corp. (1972-1977) and holds a
Bachelor of Arts degree in Marketing from Michigan State University.
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, 1999, 96,631,642 shares of common stock
were issued and outstanding, and held by approximately 4,216 holders of record.
In 1998 the Company paid a cash dividend of $0.16 per share in March, June,
September and December. In 1997 the Company paid a cash dividend of $0.125 per
share in March, June, September and December. 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 46 of the Company's 1998 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 9 and 10 in the Company's 1998 Annual Report to
Shareholders and is incorporated herein by reference.
In addition, the Company's ratios of average equity to average assets is
11.14%, 10.19%, and 10.58% for the years ended December 31, 1998, 1997 and 1996,
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 11 through 20 in the Company's 1998 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK
The above captioned information appears under "Management's Discussion and
Analysis" on pages 13 through 16 in the Company's 1998 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The above captioned information appears on pages 21 through 46 in the
Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
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 7, 1999, which was filed with the SEC on March 24, 1999, is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation included under the heading
"Executive Compensation" on pages 10 through 16 (excluding the Stock Performance
Graph on page 13) in the Company's Definitive Proxy Statement for its Annual
Meeting of Shareholders to be held on May 7, 1999, which was filed with the SEC
on March 24, 1999, 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 7, 1999, which was filed
with the SEC on March 24, 1999, 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
16 in the Company's Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 7, 1999, which was filed with the SEC on March
24, 1999, is incorporated herein by reference.
30
<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 1998 Annual Report
to Shareholders:
Pages
-----
Consolidated Statements of Financial Condition as of December 31, 1998
and 1997 21
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996 22
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996 23
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 24
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 25-26
Notes to the Consolidated Financial Statements 27
Report of Independent Accountants 47
31
<PAGE>
Exhibit
Number
- ------
2.1 Purchase of Assets and Liability Assumption Agreement by and between Home
Savings of America, FSB, and GreenPoint Bank (1)
2.2 Stock Purchase Agreement between BankAmerica Corp. and GreenPoint Bank (2)
2.3 Agreement and Plan of Merger by and among GreenPoint Financial Corp., GF
Acquisition Corp. and Headlands Mortgage Company (3)
3.1 Certificate of Incorporation of GreenPoint Financial Corp. (4)
3.2 Bylaws of GreenPoint Financial Corp. (5)
3.3 Restated Organization Certificate of GreenPoint Bank (6)
3.4 Bylaws of GreenPoint Bank (7)
10.1 Employment Agreement and Change of Control Agreement between GreenPoint
Financial Corp., GreenPoint Bank and Bharat B. Bhatt (8)
10.2 Amended Employment Agreement between GreenPoint Financial Corp.,
GreenPoint Bank and Thomas S. Johnson (9)
10.3 Change of Control Agreement between GreenPoint Financial Corp., GreenPoint
Bank and Charles P. Richardson (10)
10.4 GreenPoint Financial Corp. Amended and Restated 1994 Stock Incentive Plan
(11)
10.5 GreenPoint Financial Corp. 1994 Non-Employee Directors Stock Option Plan
(12)
10.6 GreenPoint Financial Corp. 1994 Annual Incentive Plan (13)
10.7 GreenPoint Financial Corp. 1994 Long Term Incentive Plan (14)
10.8 GreenPoint Bank Recognition and Retention Plan for Employees (15)
10.9 GreenPoint Bank Retirement Plan for Independent Directors (16)
10.10 GreenPoint Bank 1993 Directors' Deferred Fee Stock Unit Plan (17)
10.11 GreenPoint Bank Employee Protection Plan for Officers (18)
10.12 GreenPoint Bank Employee Protection Plan for Staff Members (19)
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, 1998
21.1 Subsidiaries of the Company
23.1 Consent 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 2.1 to the Company's Quarterly Report
on Form 10-Q, dated March 31, 1998
(3) Incorporated by reference to Exhibit 2.1 to Company's Registration
Statement on Form S-4, dated February 18, 1999
(4) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q, dated March 31, 1995
(5) Incorporated by reference to Exhibit 3.2 to the 1997 10-K
(6) Incorporated by reference to Exhibit 3.3 to the 1994 10-K
(7) Incorporated by reference to Exhibit 3.4 to the 1997 10-K
(8) Incorporated by reference to Exhibit 10.1 to the 1996 10-K
(9) Incorporated by reference to Exhibit 10.1 to the 1994 10-K
(10) Incorporated by reference to Exhibit 10.3 to the 1997 10-K
(11) Incorporated by reference to Exhibit 10.3 to the 1994 10-K
(12) Incorporated by reference to Exhibit 10.4 to the 1994 10-K
(13) Incorporated by reference to Exhibit 10.5 to the 1994 10-K
(14) Incorporated by reference to Exhibit 10.6 to the 1994 10-K
(15) Incorporated by reference to Exhibit 10.7 to the 1994 10-K
(16) Incorporated by reference to Exhibit 10.8 to the 1994 10-K
(17) Incorporated by reference to Exhibit 10.9 to the 1994 10-K
(18) Incorporated by reference to Exhibit 10.10 to the 1994 10-K
(19) Incorporated by reference to Exhibit 10.11 to the 1994 10-K
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.
32
<PAGE>
Reports on Form 8-K
On October 5, 1998, GreenPoint Financial Corp. (the "Company") filed a
current report on Form 8-K reporting that GreenPoint Bank, a New York chartered
savings bank and wholly-owned subsidiary of the Company (the "Bank"), completed
its acquisition of the manufactured housing loan business of BankAmerica Housing
Services, a division of Bank of America, FSB, a federal savings bank and
wholly-owned subsidiary of BankAmerica Corporation ("BankAmerica"), pursuant to
a Stock Purchase Agreement, dated as of April 11, 1998, as amended, by and
between the Bank and BankAmerica.
On December 1, 1998, GreenPoint Credit Corp. filed a current report on
Form 8-K reporting (i) the execution of an Underwriting Agreement, dated
November 17, 1998, between GreenPoint Credit Corp. and Credit Suisse First
Boston, as the representative of several Underwriters, whereby GreenPoint Credit
Corp. agreed to sell, and each Underwriter agreed to purchase, the respective
principal amounts of the Offered Certificates set forth in the Underwriting
Agreement and (ii) the sale by GreenPoint Credit Corp. on November 30, 1998 of
approximately $728 million of GreenPoint Credit Manufactured Housing Contract
Trust Pass-Through Certificates, Series 1998-1, pursuant to a Pooling and
Servicing Agreement, dated as of November 1, 1998, between GreenPoint Credit
Corp. and The First National Bank of Chicago, as the Trustee.
On December 11, 1998, GreenPoint Financial Corp. (the "Company") filed a
current report on Form 8-K reporting the execution of an Agreement and Plan of
Merger (the "Plan"), dated December 8, 1998, among the Company, GF Acquisition
Corp. ("Merger Sub"), and Headlands Mortgage Company ("Headlands"). The Plan
provides for the merger of Merger Sub with and into Headlands (the "Merger"),
with Headlands surviving the Merger and becoming a wholly owned subsidiary of
the Company.
33
<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: /s/ Thomas S. Johnson
-------------------------
Thomas S. Johnson
Chairman of the Board
and Chief Executive Officer
Dated: March 23, 1999
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 on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas S. Johnson Chairman of the Board 3/23/99
- ------------------------------- and Chief Executive Officer
Thomas S. Johnson
/s/ Bharat B. Bhatt Member of the Board, 3/23/99
- ------------------------------- President and Chief
Bharat B. Bhatt Operating Officer
/s/ Dan F. Huebner Director 3/23/99
- -------------------------------
Dan F. Huebner
Director 3/23/99
- -------------------------------
William M. Jackson
/s/ Susan J. Kropf Director 3/23/99
- -------------------------------
Susan J. Kropf
34
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert M. McLane Director 3/23/99
- -------------------------------
Robert M. McLane
/s/ Charles B. McQuade Director 3/23/99
- -------------------------------
Charles B. McQuade
/s/ Alvin N. Puryear Director 3/23/99
- -------------------------------
Alvin N. Puryear
Director 3/23/99
- -------------------------------
Robert P. Quinn
/s/ Edward C. Schmults Director 3/23/99
- -------------------------------
Edward C. Schmults
/s/ Wilfred O. Uhl Director 3/23/99
- -------------------------------
Wilfred O. Uhl
/s/ Robert F. Vizza Director 3/23/99
- -------------------------------
Robert F. Vizza
/s/ Jules Zimmerman Director 3/23/99
- -------------------------------
Jules Zimmerman
/s/ Jeffrey R. Leeds Executive Vice President 3/23/99
- ------------------------------- and Chief Financial Officer
Jeffrey R. Leeds
/s/ Mary Beth Farrell Senior Vice President 3/23/99
- ------------------------------- and Comptroller
Mary Beth Farrell
35
Statement Regarding Computation of Per Share Earnings
(In millions, except share and per share amounts)
Year Ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
Net income $ 149.5 $ 147.6 $ 132.5
Weighted average number of common shares
outstanding during each year - basic* 75.2 75.3 85.1
Weighted average number of common shares
and common stock equivalents outstanding during
each year - diluted * 77.8 79.3 87.8
------- ------- -------
Basic earnings per share * $ 1.99 $ 1.96 $ 1.56
======= ======= =======
Diluted earnings per share * $ 1.92 $ 1.86 $ 1.51
======= ======= =======
* 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.
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
--------------------------------
Dec. 31, Dec. 31, Dec. 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes $ 241.9 $ 242.0 $ 224.5
Combined fixed charges and preferred stock dividends:
Interest expense on deposits 465.5 472.7 525.7
Interest expense on long-term debt 13.9 6.4 --
Interest expense on guaranteed preferred beneficial
interest in Company's junior subordinated debentures 18.3 10.7 --
Appropriate portion (1/3) of rent expense 4.2 3.5 3.0
Preferred stock dividend requirements -- 0.4 0.3
-------- -------- --------
Total combined fixed charges and
preferred stock dividends $ 501.9 $ 493.7 $ 529.0
======== ======== ========
Earnings before income taxes and combined fixed
charges and preferred stock dividends $ 743.8 $ 735.7 $ 753.5
======== ======== ========
Ratio of earnings to combined fixed charges and
preferred stock dividends (including interest expense
on deposits) 1.48 x 1.49 x 1.42 x
========== ========== ==========
</TABLE>
[GRAPHIC OMITTED]
Headlands Mortgage
BankAmerica Housing Services
[LOGO]
GreenPoint
Financial
Building the preeminent specialty housing finance company
<PAGE>
Company Profile
GreenPoint Financial Corp. (NYSE: GPT) is a leading national specialty housing
finance company with three principal subsidiaries which together create
tremendous financial synergy. GreenPoint Mortgage, a national mortgage banking
company headquartered in Charlotte, NC, is the leading national lender in
no-documentation residential mortgages. GreenPoint Credit, headquartered in San
Diego, is the second largest lender nationally in the manufactured housing
finance industry. GreenPoint Bank, a New York State chartered savings bank, has
$11.2 billion in deposits in 73 branches serving more than 400,000 households in
the Greater New York City area.
The mix of asset and deposit businesses creates a high performing thrift
due to the high risk-adjusted yields from niche lending, and a high quality
specialty finance company because the stable deposit base enables the Company to
fund its assets without excessive reliance on the capital markets.
Our Company
We are one of the largest specialty housing finance companies nationally, and we
provide consumer banking services to hundreds of thousands of families in the
New York area.
Our Mission
By responding to our customers' financial needs with superior products and
service delivery, we will build shareholder value through high profitability and
growth while continuing to be a strong supporter of our communities.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1995 1996 1997 1998
======================================================================================
<S> <C> <C> <C> <C>
Net income $107.5 $132.5 $147.6 $149.5
Diluted earnings per share(a) 1.14 1.51 1.86 1.92
- -------------------------------------------------------------------------------------
Core cash earnings(b) 140.7 187.5 210.3 231.3
Core cash earnings per share(a)(b) 1.50 2.14 2.65 2.97
- -------------------------------------------------------------------------------------
</TABLE>
(a) The per share data have been restated to reflect the impact of a 2 for 1
split of the Company's common stock on March 4, 1998.
(b) Core cash earnings are defined as reported net income, excluding the
branch sale and asset sale gains, restructuring (recovery) charge and
non-recurring personnel expense, net of tax, plus certain non-cash
charges.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
Core Cash
Earnings Per Share
1995 ............................................... $1.50
1996 ............................................... $2.14
1997 ............................................... $2.65
1998 ............................................... $2.97
Table of Contents
Chairman's Letter 2
Financial Review 8
Financial Statements 21
Directors and Officers 48
Corporate Information 49
Core Cash Return
on Average Equity
1995 ............................................... 9.11%
1996 ............................................... 12.70%
1997 ............................................... 15.68%
1998 ............................................... 15.64%
[LOGO]
GreenPoint
Financial
Annual Report 1998
<PAGE>
Chairman's Letter
1998 was a transformational year for GreenPoint. We positioned the Company for
further growth in the future; demonstrated the tremendous strength of our
business model; and turned in another year of excellent financial results. With
the acquisition of BankAmerica Housing Services, now GreenPoint Credit Corp.,
and the agreement to acquire Headlands Mortgage Company, we moved aggressively
to execute our strategy of becoming the preeminent specialty housing finance
company in the country. The instability in the capital markets during September
and October created an environment in which our business model-a specialty
housing finance business with high risk-adjusted returns, combined with a strong
balance sheet and stable, low-cost consumer deposits-allowed us to flourish.
Equally important, we continued to produce solid earnings growth.
KEY ACQUISITIONS
The defining events for the year were clearly our two major acquisitions. Both
further our corporate strategy of becoming a market share leader in specialty
housing finance niches where we can earn high risk-adjusted returns. GreenPoint
Credit is the second largest lender in manufactured housing. Headlands Mortgage
Company, expected to be part of GreenPoint by the end of the first quarter of
1999, is the leading "Alt A" mortgage lender in the country (Alt A borrowers
have strong credit backgrounds, but need loan terms that do not meet other
agency criteria). Both acquisitions clearly complement GreenPoint Mortgage, the
leading no-documentation mortgage lender in the country.
[GRAPHIC OMITTED]
No Doc
Alt A o Growing Market Segments Mfd. Housing
o Borrowers not served by conventional lenders
o High risk-adjusted yields
o Premium pricing
o Slower prepayments than conforming loans
Bringing these three specialty finance companies together dramatically increases
our new loan origination power, and gives us product and customer diversity,
greater geographic reach, and a significantly greater product development
capability. We are creating a company that has far greater potential for growth
and greater shareholder value.
Our Businesses
GreenPoint Mortgage
# 1 National NoDoc Lender
Headlands Mortgage
# 1 National Alternative A Lender
GreenPoint Credit
# 2 National Manufactured
Housing Lender
GreenPoint Bank
# 2 New York Thrift
2
<PAGE>
VALIDATION OF GREENPOINT'S
BUSINESS MODEL
Many of our competitors in specialty housing finance rely exclusively on the
capital markets to acquire funding for the loans they make to consumers. Turmoil
in the capital markets in the Fall of 1998 made funding either significantly
more expensive or simply unobtainable for many of them. As a result, many were
forced to curtail their lending activities significantly, and some were forced
to go out of business altogether.
[GRAPHIC OMITTED]
GreenPoint's Superior Operating Platform
- --------------------------------------------------------------------------------
National Specialty Established
Housing Lender New York Consumer
Banking Franchise
- --------------------------------------------------------------------------------
Attractive yields Stable, low-cost funding
- --------------------------------------------------------------------------------
High profitability
Strength from deposits and capital
Low vulnerability to capital markets
- --------------------------------------------------------------------------------
This environment clearly conformed the validity of GreenPoint's business model:
earning high risk-adjusted returns on specialty housing finance loans, and
funding those loans with GreenPoint Bank's stable, low-cost consumer deposits.
Throughout the period of capital markets instability, we were able to continue
lending aggressively, gaining valuable market share and strengthening
relationships with our mortgage brokers and manufactured housing retailers.
The strength of our business model allows us to manage loan production most
effectively to maximize profitability. We can decide to sell or hold loans based
on an assessment of the long-term economic benefit, not the short-term
conditions of the capital markets. In addition, we have the flexibility to sell
or securitize loans when market conditions are favorable. We are not forced to
sell, regardless of market conditions, to obtain funding for current operations.
EARNING RECORD PROFITS
Even without the addition of GreenPoint Credit, we produced record profits again
in 1998. Diluted core net income per share increased 9% over 1997, and diluted
core cash earnings per share increased 12%. Core cash return on equity remained
strong at 15.6%. These results were driven by the ongoing revenue stream from
our growing NoDoc mortgage portfolio, maintaining strict credit quality
standards, strong expense control, and effective capital management.
3
<PAGE>
Profit growth would have been even greater but for two factors. First, in the
first three quarters, aggressive competition, on credit terms we were not
willing to match, impeded loan growth. Second, for accounting reasons, we did
not book a normal full quarter's revenue from GreenPoint Credit, but did have a
full quarter of that company's expenses. On an ongoing basis, GreenPoint Credit
will be strongly accretive to earnings.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
Superior Profitability
Annual
Return on Equity
----------------
1995 1996 1997 1998
---- ---- ---- ----
Core cash return on equity .......... 9.11% 12.70% 15.68% 15.64%
GAAP return on equity ............... 6.96% 8.62% 10.64% 10.46%
GreenPoint Credit had excellent loan origination volume for the fourth quarter,
and successfully securitized $728 million of manufactured housing loans that
were originated by BankAmerica Housing Services between the announcement and
completion of the acquisition. However, as required by accounting standards, the
$18.5 million net gain was included as part of the cost of the acquisition, not
as income.
ONGOING OPERATIONS
Asset quality for the NoDoc loans held in GreenPoint's portfolio improved
significantly during 1998. The ratio of non-performing loans to total loans held
for investment at December 31, 1998 was 3.03% compared to 3.97% at the end of
1997, a decline of almost 100 basis points. The improvement in this key credit
quality measure was in part due to a $70 million decrease in the absolute level
of non-performing loans from the end of 1997 to the end of 1998.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
Strong Credit Quality
Non Performing Loans
% of Total Loans Held for Investment
------------------------------------
12/31/95 ............................... 6.68
12/31/96 ............................... 4.78
12/31/97 ............................... 3.97
12/31/98 ............................... 3.03
The credit quality trends of the national expansion of our NoDoc business
continue to be good. We now have three full years of vintage data on delinquency
and defaults that compare favorably to loans made in our historic New York
market.
Expense management remained a core commitment during 1998. Exclusive of
non-recurring charges and expenses associated with the addition of GreenPoint
Credit, non-interest expense in 1998 was down 4%
4
<PAGE>
from 1997. The Company's efficiency ratio, again exclusive of GreenPoint Credit,
remained low at 41.4% in 1998 compared to 42.7% in 1997.
CAPITAL MANAGEMENT/SHAREHOLDERS' EQUITY
In July, we successfully completed an offering of 15 million shares of our
common stock at an average price of $40.125 to fund the purchase of BankAmerica
Housing Services.
Our high level of cash earnings allowed us to continue to enhance shareholder
value by repurchasing GreenPoint shares while maintaining strong capital ratios.
In total, GreenPoint repurchased 6.1 million shares at an average price of
$35.72 per share in 1998. We completed the 5% repurchase announced in January
1998, and announced another 5% repurchase in August. However, as a result of our
intention to record the Headlands Mortgage Company acquisition as a pooling
transaction, the Board of Directors terminated that repurchase program. As a
consequence, our capital ratios will rise significantly.
In addition, we increased our quarterly dividend in February 1998 by 28% to
$0.16 per share. On February 9, 1999 the Board of Directors authorized a further
37.5% increase in the quarterly dividend to $0.22 per share.
NODOC MORTGAGES
We effectively completed the national expansion of our NoDoc mortgage business
into the key markets we anticipate serving. Our future efforts will focus on
increased penetration of these markets by building relationships with new
brokers and gaining a greater share of business from existing brokers.
NoDoc loan origination volume was essentially flat during 1998 as our
competitors increased in number and were willing to offer easier terms than we
were comfortable with. However, the turmoil in the credit markets clearly took
its toll on our competition. The credit markets have partially recovered; and
while funding is again available to them, it is generally more costly. As a
result, the credit terms and pricing offered by those who remain in the market
appear to be more rational.
The liquidity crisis gave us the opportunity not only to build volume, but
strengthen relationships with brokers who value the consistency and reliability
that our business model allows us to bring to the market. We took advantage of
the opportunity, and loan application volume set records
5
<PAGE>
during the fourth quarter. We believe we built market share, and we believe we
will be able to hold that share beyond the short-term impact of the capital
markets turmoil.
MANUFACTURED HOUSING
GreenPoint Credit Corp. officially became part of the GreenPoint
organization on September 30. Almost immediately, we strengthened
our position in manufactured housing lending by purchasing the dealer
origination business of NationsCredit, a rapidly growing and potentially
formidable competitor.
In its first quarter of operation, GreenPoint Credit began to build strong
momentum. Loan originations for the fourth quarter were 25% ahead of the
comparable quarter in 1997 as BankAmerica Housing Services, and application
volume increased 44%. With manufactured housing representing one of every four
new home starts, we are very optimistic about this niche of the specialty
housing finance business.
CONSUMER BANKING
The consumer banking unit, our source of stable, low-cost funding, made
significant strides towards becoming a highly effective sales and marketing
operation during 1998. The sales culture initiative that was piloted in 1997 was
expanded to the entire branch system during the first quarter of 1998, and
resulted in dramatic increases in sales of all our products. We built on that
success with a customer segmentation system that identifies and profiles our
most profitable customers. Based on those profiles, we are creating effective
retention programs to ensure that our most valuable customers remain GreenPoint
depositors, and we are using highly targeted marketing programs to convince
similar consumers to bank with GreenPoint.
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Solid loan
growth/prudent
risk management
- --------------------------------------------------------------------------------
Accretive Maximizing Effective capital
acquisitions Shareholder management
Value
- --------------------------------------------------------------------------------
Disciplined
expense
management
and low-cost
funding
- --------------------------------------------------------------------------------
Combined with a continuing emphasis on operational efficiency, the new sales and
segmentation programs led to another strong year for the consumer banking
operation.
A LOOK AHEAD
Our model for creating value for our shareholders consists of producing solid
loan growth with prudent risk management; effective capital management;
disciplined expense management com-
6
<PAGE>
bined with low-cost funding; and accretive acquisitions. We will continue to
pursue each of these strategies aggressively in 1999. A major focus will be on
execution: building on the momentum GreenPoint Credit established in the fourth
quarter, and maximizing the synergies inherent in the integration of GreenPoint
Mortgage and Headlands Mortgage.
Overall, we are positioned for strong revenue growth in 1999, and we have the
business model and management discipline to translate that revenue growth into
bottom line profit growth.
I would like to close again this year with thanks to the outstanding employee
owners of GreenPoint. We have a terrific group of people who have not only
supported, but also driven the dramatic transformation that GreenPoint has
undergone this past year. With our acquisition of GreenPoint Credit, and the
pending acquisition of Headlands Mortgage, we only add to the extraordinary
talent that forms the basis of our success.
With your continued support, we will achieve our goals in 1999, and enhance
shareholder value for all of us.
[PHOTO OMITTED]
/s/ Thomas S. Johnson
7
<PAGE>
================================================================================
Financial Review
Table of Contents
Five Year Selected Consolidated Data 9
Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
Consolidated Financial Statements 21
Notes to the Consolidated Financial Statements 27
Report of Independent Accountants 47
8
<PAGE>
================================================================================
Selected Consolidated Financial Condition Data
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Total assets $13,970.3 $13,083.5 $13,325.6 $14,670.5 $ 6,955.0
Loans receivable held for sale 667.4 5.5 4.8 175.1 11.1
Loans receivable held for investment, net 9,273.1 8,795.6 7,294.3 5,858.6 5,594.1
Allowance for possible loan losses 113.0 109.0 105.0 105.5 103.0
Securities and trading assets 1,350.1 2,036.7 4,359.4 5,900.8 736.7
Money market investments 924.2 1,060.0 494.1 1,550.7 265.0
Goodwill 1,014.3 577.1 623.6 670.2 0.5
Deposits 11,173.1 10,973.0 11,452.3 12,898.3 5,223.5
Stockholders' equity 1,796.3 1,269.6 1,459.8 1,551.3 1,521.2
====================================================================================================================================
</TABLE>
================================================================================
Selected Consolidated Operating Data
<TABLE>
<CAPTION>
For the
Year Ended
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest income $986.8 $972.7 $974.0 $696.5 $563.8
Interest expense 503.1 497.7 527.5 345.8 226.3
Provision for possible loan losses 13.8 18.9 15.7 9.5 32.3
Non-interest income 75.1 56.2 56.9 35.8 27.1
Non-interest expense 303.1 270.3 263.2 178.6 121.4
Income taxes 92.4 94.4 92.0 90.9 98.0
Net income $149.5 $147.6 $132.5 $107.5 $112.9
====================================================================================================================================
</TABLE>
9
<PAGE>
================================================================================
Selected Consolidated Financial Ratios and Other Data
<TABLE>
<CAPTION>
At or For the
Year Ended
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1998 1997 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets(1) 1.17% 1.08% 0.91% 1.18% 1.59%
Core cash return on average assets(2) 1.74 1.60 1.34 1.55 1.76
Return on average equity(1) 10.46 10.64 8.62 6.96 7.91
Core cash return on average equity(2) 15.64 15.68 12.70 9.11 8.78
Net interest margin 3.99 3.93 3.51 4.05 4.92
Operating expense to average assets(3) 1.86 1.69 1.57 1.76 1.75
Efficiency ratio(4) 44.1 42.7 44.3 41.4 34.0
Per Share Data(5):
Basic earnings per share $ 1.99 $ 1.96 $ 1.56 $ 1.16 $ 1.12(6)
Diluted earnings per share 1.92 1.86 1.51 1.14 1.11(6)
Core cash earnings per share(2)(7) 2.97 2.65 2.14 1.50 1.24
Book value per common share 21.51 17.00 17.39 17.12 16.16
Tangible book value per common share 9.36 9.27 9.96 9.56 16.15
Dividends per share 0.64 0.50 0.40 0.40 0.30(6)
Dividend payout ratio 33.33% 26.88% 26.49% 34.93% 27.15%
Asset Quality Ratios:
Non-performing loans to loans held
for investment 3.03% 3.97% 4.78% 6.68% 6.80%
Non-performing assets to total assets 2.12 2.90 2.89 2.94 6.42
Allowance for possible loan losses to
non-performing loans 39.63 30.70 29.48 26.24 26.26
Allowance for possible loan losses
to loans held for investment 1.20 1.22 1.41 1.75 1.79
Net loan charge-off
experience to average total loans 0.11 0.18 0.25 0.22 0.56
Ratio of allowance for possible
loan losses to net charge-offs 11.53x 7.32x 6.48x 8.05x 3.24x
Capital Data:
Tier 1 Capital (to risk weighted assets) 12.16% 14.29% 15.47% 16.25% 39.61%
Tier 1 Capital (to average assets) 7.58 7.19 6.78 6.19 21.85
Purchase of treasury stock $ 219.6 $ 355.5 $ 169.5 $ 73.8 --
Other Data:
Mortgage loan originations $ 2,695.9 $ 2,848.7 $ 2,353.0 $ 1,023.5 $ 1,058.3
Full-service consumer bank offices 73 74 76 84 24
Full-time equivalent employees (FTE) 3,396 1,951 2,135 2,025 1,392
====================================================================================================================================
</TABLE>
(1) Excludes after-tax non-recurring personnel expense and after-tax gains on
branch and asset sales.
(2) Excludes after-tax non-recurring personnel expense, after-tax gains on
branch and asset sales and after-tax restructuring charge or (recovery).
(3) Operating expense excludes goodwill expense, ORE (income) or expense,
non-recurring personnel expense and restructuring charge or (recovery).
(4) 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.
(5) 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.
(6) 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.
(7) Based on the weighted average shares used to calculate earnings per share.
10
<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 in the 1998 Annual Report have been restated to
reflect the impact of the stock split.
GreenPoint Financial Corp.
GreenPoint Financial Corp. (the "Company" or "GreenPoint") is a leading national
specialty housing finance company with three principal subsidiaries. GreenPoint
Mortgage Corp. ("GreenPoint Mortgage"), a national mortgage banking company
headquartered in Charlotte, North Carolina, is the leading national lender in no
documentation ("NoDoc") residential mortgages. GreenPoint Credit Corp.
("GreenPoint Credit"), headquartered in San Diego, California, is the second
largest lender nationally in the manufactured housing finance industry.
GreenPoint Bank (the "Bank"), a New York State chartered savings bank, has $11.2
billion in deposits in 73 branches serving more than 400,000 households in the
Greater New York City area.
Overview of 1998 Financial Results
o Net income per diluted share for the year was $1.92, a 3.2% increase over
1997.
o Diluted core cash earnings per share for the year increased by 12.1% to
$2.97.
o GreenPoint entered the manufactured housing finance industry with the
acquisition of BankAmerica Housing Services (now GreenPoint Credit) on
September 30th and strengthened further its position as the second largest
originator of manufactured housing loans by acquiring the dealer
origination segment of NationsCredit's manufactured housing business on
December 7th. GreenPoint Credit originated $656 million of manufactured
housing loans in the 4th quarter.
o GreenPoint completed an offering of 15 million shares of its stock on July
29th to finance the purchase of BankAmerica Housing Services.
o GreenPoint securitized and sold $728 million of manufactured housing loans
during the 4th quarter.
o Mortgage loan originations were $2.70 billion for the year, down 5% from
$2.85 billion for 1997.
o GreenPoint continues to maintain a strong capital position with a leverage
ratio of 7.58%, a Tier 1 risk-based ratio of 12.16% and a total risk-based
ratio of 13.41% at December 31st.
o Asset quality improved substantially over 1997 as non-performing loans
decreased 20% to $285.2 million and non-performing assets decreased 22% to
$296.3 million at December 31st.
Comparison of Operating Results for the
Years Ended December 31, 1998 and 1997
Core Cash Earnings
Core cash earnings are net of non-recurring items and include certain non-cash
charges related to goodwill and the Company's ESOP. The non-cash expenses,
unlike GreenPoint's other expenses, do not reduce the Company's tangible capital
thereby enabling the Company to increase shareholder value through growth of
earning assets and increases of cash dividends.
For the Year Ended
December 31,
- --------------------------------------------------------------------------------
(In millions, except per share amounts) 1998 1997
================================================================================
Net income (excluding
non-recurring items)(1) $ 154.6 $ 144.2
Add back:
Goodwill amortization(2) 54.4 46.4
Employee stock plans expense(3) 22.3 19.7
- --------------------------------------------------------------------------------
Core cash earnings $ 231.3 $ 210.3
================================================================================
Core cash earnings per share(4) $ 2.97 $ 2.65
================================================================================
(1) Non-recurring items include branch sales, asset sales, restructuring
charge and non-recurring personnel expense.
(2) Goodwill amortization relates to the 1995 and 1998 acquisitions. The
projected annual expense will be approximately $79.0 million for 1999
through 2010 and $32.8 million for 2011 through 2013.
(3) Includes ESOP amortization expense of $20.9 million for 1998 and $17.1
million for 1997, and stock plans share amortization expense of $1.4
million for 1998 and $2.6 million for 1997. ESOP amortization expense is
scheduled to occur through the year 2018 and will vary from year to year
based on changes in the average annual market price of GreenPoint'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 $1.3 million.
(4) 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 $6.8 million, or
1.4%, to $488.9 million for 1998 from $482.1 million for 1997. The increase
reflects a rise in the average yield on interest-earning assets due to a
reduction in the lower yielding securities portfolio to fund growth in the
higher yielding loan portfolio, partially offset by a higher average cost of
funds due to GreenPoint's use of longer term funding sources. The average yield
on interest-earning assets was 8.10% for 1998 versus 7.99% for 1997 and the
average cost of funds was 4.43% for 1998 versus 4.36% for 1997. The net interest
margin increased slightly to 3.99% for 1998 from 3.93% for 1997.
Interest income on mortgages held for investment increased by $70.7
million, or 9.7%, to $799.6 million for 1998 from $728.9 million for 1997. The
increase reflects average mortgage portfolio growth of $912.1 million in 1998
11
<PAGE>
partially offset by an 11 basis point decline in the average yield on the
portfolio. The decline in the average yield on mortgages reflects a generally
low interest rate environment in 1998 which reduced the yield on new
originations and prompted higher prepayment rates than in past years.
Interest income on other loans rose by $15.3 million to $17.6 million for
1998 from $2.3 million for 1997 due entirely to the acquisition and origination
of GreenPoint Credit's manufactured home loans.
Interest income on securities and money market investments declined by a
combined $77.5 million, or 32.5%, to $160.9 million for 1998 from $238.4 million
for 1997 as GreenPoint reduced these investments to fund loan portfolio growth.
The combined average balance of securities and money market investments dropped
by $1.2 billion during 1998.
The average cost of funds increased by 7 basis points to 4.43% for 1998
from 4.36% for 1997. The rise is due entirely to the issuance of long term debt
and guaranteed preferred beneficial interest in Company's junior subordinated
debentures, in mid-1997 as an alternative funding source to deposits. The
combined average balance of long term debt and guaranteed preferred beneficial
interest in Company's junior subordinated debentures increased by $191.7 million
during 1998 reflecting a full year impact of the 1997 issuances.
GreenPoint maintained an average cost of deposits of 4.29% for 1998
compared with 4.28% for 1997.
Provision for Possible Loan Losses
The provision for possible loan losses decreased by 27.0% to $13.8 million for
1998 from $18.9 million for 1997. The decrease is the result of improved asset
quality in 1998 versus 1997. Continued good economic conditions in the New York
City area during 1998 helped to reduce net charge-offs to $9.8 million in 1998
from $14.9 million in 1997. The 1998 net charge-offs include $1.3 million from
GreenPoint Credit's operations. The provisions for both 1998 and 1997 include
$4.0 million net additions to the allowance for possible loan losses.
Non-Interest Income
Non-interest income increased by $18.9 million, or 33.6%, to $75.1 million for
1998 from $56.2 million for 1997. The 1997 figure includes a $2.4 million
non-recurring gain on the sale of assets and $5.9 million non-recurring gains on
branch sales.
Mortgage loan-related fee income increased by $2.9 million, or 18.5%, to
$18.6 million for 1998 from $15.7 million for 1997 primarily due to higher fee
income recognized on cancelled loan applications and commitments.
Loan servicing fees totaled $26.1 million for 1998 compared to $6.9
million for 1997. The $19.2 million increase is the result of the additional
$21.7 million of net manufactured housing loan servicing income in 1998 offset
by a $2.5 million decrease in net mortgage loan servicing income.
Banking services fees and commissions rose by $4.2 million, or 19.2%, to
$26.1 million for 1998 from $21.9 million for 1997. The increase is primarily
the result of several successful initiatives implemented by GreenPoint to
generate additional fee income through the consumer branch network. Sales of
annuities and mutual funds, a program introduced in March 1996, accounted for
$2.0 million of the increase over 1997. $5.0 million was earned on total mutual
fund and annuity sales of $239.1 million in 1998 compared to $3.0 million on
total mutual fund and annuity sales of $144.5 million in 1997. In November 1997,
GreenPoint began surcharging non-depositors who use the Bank's ATM's. ATM
surcharges totaled $2.0 million for 1998 compared to $0.3 million for 1997.
The Company securitized and sold $728 million of manufactured housing
loans in November 1998. These loans were acquired by the Company as part of the
GreenPoint Credit purchase and were recorded at their fair market value in
accordance with generally accepted accounting principles. Therefore, the Company
did not recognize a gain on the sale through current income.
Non-Interest Expense
Total non-interest expense includes operating expenses of GreenPoint Credit
totaling $37.5 million in the fourth quarter of 1998.
GreenPoint Credit Operating Expenses
- --------------------------------------------------------------------------------
(In millions) 1998
================================================================================
Salaries and benefits $ 15.8
Net expense of premises and equipment 2.6
Other administrative expenses 11.0
Goodwill amortization 8.1
- --------------------------------------------------------------------------------
Total $ 37.5
================================================================================
In addition, an $8.3 million non-recurring personnel expense was incurred in
1998 relating to the retirement of senior executives. In 1997, the Company
recognized a $2.5 million non-recurring restructuring charge related to the
transfer of mortgage servicing from New York to Columbus, Georgia.
Excluding the GreenPoint Credit operating expenses and the 1997 and 1998
non-recurring charges, total non-interest expense decreased by $10.5 million, or
3.9%. Emphasis on tight expense controls resulted in reductions in virtually all
operating expense categories in 1998 compared with 1997. Salaries and benefits
expense fell by $4.0 million, or 4.3%; net expense of premises and equipment
fell by $0.9 million, or 1.9%; and other administrative expense fell by $3.7
million, or 6.2%, due primarily to lower advertising expenses. Other real estate
owned operating income, net, rose by $4.2 million to $6.0 million for 1998 from
$1.8 million for 1997. The improvement is primarily the result of the strong
real estate market in the New York City area in 1998 that helped GreenPoint cut
the number of properties owned at December 31, 1998 by more than 50% from
December 31, 1997.
12
<PAGE>
Employee stock ownership and stock plans expense increased by $2.6
million, or 13.2%, due to the higher average price of GreenPoint's stock during
1998 versus 1997.
Income Tax Expense
Income tax expense decreased by $2.0 million, or 2.1%, to $92.4 million for 1998
from $94.4 million for 1997. The decrease is due to a drop in the Company's
effective tax rate to 38.2% for 1998 from 39.0% for 1997.
Financial Condition
Total assets increased by $886.8 million, or 6.8%, to $13.97 billion at December
31, 1998 from $13.08 billion at December 31, 1997. The increase primarily
reflects assets associated with the acquisition of GreenPoint Credit which were
financed by the issuance of 15 million shares of common stock. In addition, the
increase reflects the acquisition of new deposits.
Risk Management
Market Risk Management
Overview
The Company's 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 loans do not match those of its 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
lending 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.
13
<PAGE>
The following table presents the Company's interest rate sensitivity gap
position as of December 31, 1998:
Interest Rate Sensitivity Gap Analysis
<TABLE>
<CAPTION>
At December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
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 9 Years 9 Years Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Total loans, net $ 3,744.8 $ 1,975.4 $ 1,361.7 $ 1,597.7 $ 1,260.9 $ 9,940.5
Money market investments(1) 924.2 -- -- -- -- 924.2
Securities held to maturity 2.0 -- -- -- 1.3 3.3
Securities available for sale 759.4 279.3 153.3 105.5 40.1 1,337.6
Interest only securities 9.2 -- -- -- -- 9.2
Other interest-earning assets 118.3 -- -- -- -- 118.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 5,557.9 2,254.7 1,515.0 1,703.2 1,302.3 12,333.1
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 156.0 -- -- -- -- 156.0
Servicing assets 1.4 3.1 3.8 9.9 101.7 119.9
Goodwill 79.6 159.1 159.1 318.2 298.3 1,014.3
Other non-earning assets 347.0 -- -- -- -- 347.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 6,141.9 $ 2,416.9 $ 1,677.9 $ 2,031.3 $ 1,702.3 $13,970.3
- ------------------------------------------------------------------------------------------------------------------------------------
Term certificates of deposit $ 5,764.3 $ 797.7 $ 186.6 $ 4.0 $ -- $ 6,752.6
Core deposits 1,179.0 1,948.3 1,116.9 304.4 -- 4,548.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 6,943.3 2,746.0 1,303.5 308.4 -- 11,301.2
- ------------------------------------------------------------------------------------------------------------------------------------
Securities sold under
agreements to repurchase -- 100.0 -- -- -- 100.0
Long term debt -- -- 199.9 -- -- 199.9
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures -- -- -- -- 199.7 199.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,943.3 2,846.0 1,503.4 308.4 199.7 11,800.8
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 373.2 -- -- -- -- 373.2
Stockholders' equity -- -- -- -- 1,796.3 1,796.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 7,316.5 $ 2,846.0 $ 1,503.4 $ 308.4 $ 1,996.0 $13,970.3
- ------------------------------------------------------------------------------------------------------------------------------------
Off balance sheet
financial instruments 1,100.0 -- (1,100.0) -- -- --
====================================================================================================================================
Interest rate sensitivity gap $ (74.6) $ (429.1) $ (925.5) $ 1,722.9 $ (293.7)
====================================================================================================================================
Cumulative interest rate
sensitivity gap $ (74.6) $ (503.7) $(1,429.2) $ 293.7
====================================================================================================================================
Cumulative interest rate
sensitivity gap as a percentage
of total assets at
December 31, 1998 (0.53%) (3.61%) (10.23%) 2.10%
====================================================================================================================================
</TABLE>
(1) Consists of interest-bearing deposits in other banks, federal funds sold
and securities purchased under agreements to resell.
As of December 31, 1998, the cumulative volume of liabilities maturing or
repricing within one year exceeded assets by $74.6 million, or 0.5% of assets.
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
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
14
<PAGE>
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.
The most crucial management assumptions concern prepayments on the
Company's mortgage loan portfolio and the pricing of consumer deposits in
various interest rate environments. As interest rates decline, mortgage
prepayments tend to increase, reducing loan portfolio growth and lowering the
portfolio's average yield. Rates on non-maturity deposits rise and fall with the
general level of interest rates, but tend to move less than proportionately.
Rates offered on consumer certificates of deposits tend to move in close concert
with market rates, though history suggests they increase less rapidly when
market rates rise. Analysis shows that the Company's deposit volumes are
relatively insensitive to interest rate movements within the range encompassed
in the scenarios.
At December 31, 1998, based on this model, the Company's potential
earnings at risk to a gradual, parallel 200 basis point decline in market
interest rates over the next twelve months on instruments held for other than
trading purposes was a decline of approximately 9.6% of projected 1999 net
income. Conversely, a gradual 200 basis point increase in interest rates would
result in net income being higher by 5.5% than would be the case if rates remain
constant. 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.
The sensitivities reported above do not correspond to those appearing in
previous disclosures due to significant enhancements made to the earnings
sensitivity model. Most importantly, recent experience with nation-wide No Doc
mortgage loans has allowed the Company to refine its estimates of changes to
prepayment rates as a result of interest rate movements. Based on the current
model, at December 31, 1997, earnings sensitivities to falling and rising
interest rates of 200 basis points were a net income reduction of 4.9% and an
increase of net income of 1.0%, respectively.
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 businesses.
During 1998, the Company entered the manufactured housing finance
business, introducing additional market risk. The Company acquired servicing
assets as part of the GreenPoint Credit acquisition and holds retained interests
in the manufactured housing securitization completed in late 1998.
The value of the Company's servicing assets and retained interests from
securitization are directly affected by the level of prepayments associated with
the underlying loans. However, manufactured housing contracts historically have
exhibited far less prepayment sensitivity to changing interest rate levels than
do residential mortgage loans. Much of this reduced prepayment sensitivity can
be attributed to lower borrower equity against which to refinance, and smaller
loan sizes which reduce the incentive to refinance. Thus, in management's
judgment, there is little earnings sensitivity solely attributable to changes in
general market interest rates.
Recently, prepayment rates have shown modest increases, which management
ascribes to a far more competitive environment in manufactured housing lending.
With the turmoil in the capital markets last fall, competition has moderated.
The Company's carrying values on its servicing asset and its residual interest
in its securitization reflect these higher prepayment rates. Exposure to further
increases of 10% and 20% in prepayments speeds, whatever the cause, is 2.6% and
4.9%, respectively, of the combined servicing assets and residual interests.
Liquidity Risk Management
The Company's primary sources of funds are deposits, proceeds from loans sales
and securitizations 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 $1.1 billion at December 31, 1998 compared to $1.2 billion at December
31, 1997.
The Company had outstanding mortgage loan commitments of $534.1 million at
December 31, 1998. The Company also had outstanding commitments to originate
manufactured housing loans of $135.5 million, as adjusted for historical
estimates of fallout. 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
15
<PAGE>
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, 1998, the Company and the Bank exceeded these levels and expect to
be in excess of the minimum ratios required of well-capitalized institutions in
the future.
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) 1998 1997
================================================================================
<S> <C> <C>
Tier 1 Capital:
Common stockholders' equity $1,910.9 $1,391.5
Unallocated ESOP shares (110.1) (114.9)
Unearned stock plans shares (4.5) (7.0)
Guaranteed preferred interest
in Company's junior
subordinated debentures 199.7 199.7
Less: Goodwill (1,014.3) (577.1)
Accumulated other comprehensive income, net of tax (4.7) 3.6
Servicing assets fair value limitation (12.0) --
- --------------------------------------------------------------------------------
Tier 1 Capital 965.0 895.8
- --------------------------------------------------------------------------------
Tier 2 Capital:
Qualifying allowance
for possible loan losses 99.4 78.3
- --------------------------------------------------------------------------------
Tier 2 Capital 99.4 78.3
- --------------------------------------------------------------------------------
Total qualifying capital $1,064.4 $ 974.1
- --------------------------------------------------------------------------------
Risk-weighted assets $7,937.2 $6,266.1
================================================================================
</TABLE>
GreenPoint remains committed to maintaining its capital at levels sufficient to
provide for the continued growth of the Company through prudent investments and
acquisitions while also providing shareholder value. The Company manages its
capital based on its near and long term needs. GreenPoint's total stockholders'
equity increased by $526.7 million to $1.80 billion at December 31, 1998 from
$1.27 billion at December 31, 1997. The increase is primarily the result of the
issuance of 15 million shares of common stock for net proceeds of $583.1 million
to fund the GreenPoint Credit acquisition and retained 1998 net income (net
income less dividends declared) of $103.0 million. These amounts were partially
offset by the $219.6 million cost of the Company's common stock repurchase
program.
As a result of the Company's intention to record the Headlands Mortgage
Co. acquisition as a pooling transaction, GreenPoint's Board of Directors
terminated the common stock repurchase program.
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.
GreenPoint Mortgage lends funds primarily based on the borrower's level of
equity in the property securing the loan. GreenPoint Mortgage originates no
documentation loans with loan to value ratios less than or equal to 75% for the
portfolio. Loans with loan to value ratios in excess of 75% are originated
primarily for sale in the secondary market without recourse. 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.
GreenPoint Credit lends funds primarily based on the credit worthiness of
the borrower. Sophisticated custom scoring models are used to determine the
borrower's ability to repay the GreenPoint loan. Additional security is provided
by the housing collateral being financed. These loans are securitized and sold
to investors in the secondary market.
GreenPoint's loan origination activity is geographically diversified
throughout the U.S. The Company tracks economic and housing market trends to
identify areas for expansion and as an early warning mechanism. The Company also
closely monitors trends in delinquent and non-performing loans through cycles in
the economy and in the real estate market. These economic and performance trends
are analyzed in the ongoing fine-tuning of lending practices. The Company has an
independent, executive-level risk management function. Along with monitoring
trends and developing lending policies, the risk management function builds
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.
Collection activities for GreenPoint Mortgage are centralized in a servicing
unit in Columbus, Georgia with strong expertise in no documentation mortgages.
GreenPoint Credit's collection activities are decentralized among its 45
regional offices that can quickly repossess and liquidate collateral, thereby
minimizing the loss severity.
The Company 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.
16
<PAGE>
Allowance for Possible Loan Losses
The allowance for possible loan losses was $113.0 million at December 31, 1998
compared to $109.0 million at December 31, 1997. The $4.0 million increase in
the allowance was made in recognition of growth in the loan portfolio and the
seasoning of the portfolio of loans secured by properties located outside of New
York State. GreenPoint began originating loans outside of New York State in
1995. At December 31, 1998, approximately 31% of the Company's mortgage loan
portfolio was secured by such properties.
Non-Performing Assets
Non-performing assets consist of non-performing loans and other real estate
owned. Total non-performing assets were $296.3 million at December 31, 1998
compared with $379.1 million at December 31, 1997. GreenPoint attempts to
convert these assets to interest-earning assets as quickly as possible, while
minimizing potential losses on the conversion. A strong real estate market
during 1998 in the New York City area, where most of the Company's
non-performing assets are located, facilitated the disposition of such assets.
The tables in Notes 6 and 8 to the consolidated financial statements present
further information about GreenPoint's non-performing assets.
Impact of Recent Accounting Pronouncements
On June 15, 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
and Hedging Activities ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS
133 requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded in each period
in current earnings or comprehensive income, depending on whether the derivative
is designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Company is in the process of assessing the impact
of the adoption of SFAS 133 on the Company's earnings and financial position.
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 disruption 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 is working with each of
these third parties 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 materially adverse effect on the Company. To the
extent that the Company does not receive adequate response from its suppliers
and service providers, it will develop contingency plans intended to mitigate
the possible disruption of critical business operations. These contingency plans
will be completed no later than March 31, 1999. The Company will utilize both
internal and external resources for the Year 2000 project.
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.
17
<PAGE>
Comparison of Operating Results for the
Years Ended December 31, 1997 and 1996
General
Net income for 1997 was $147.6 million, or $1.86 per diluted share, a 11.4%
increase over the $132.5 million, or $1.51 per diluted share, earned in 1996.
Core cash earnings rose to $210.3 million, or $2.65 per diluted share, in
1997 compared to $187.5 million, or $2.14 per diluted share, in the prior year.
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.
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 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.
18
<PAGE>
Average Consolidated Balance Sheet, Interest and Rates
<TABLE>
<CAPTION>
(Taxable-Equivalent Interest and Rates, in millions)(1) Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
Yield/ Yield/
Balance Interest Cost Balance Interest Cost
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Assets:
Mortgage loans held
for investment(2) $ 9,079.1 $799.6 8.81% $ 8,167.0 $728.9 8.92%
Other loans(2) 203.1 17.6 8.69 28.9 2.3 7.94
Money market
investments(3) 956.2 52.7 5.52 740.3 41.4 5.59
Securities(4) 1,823.5 108.2 5.91 3,212.9 197.0 6.13
Trading assets 3.4 0.2 5.49 3.9 0.2 5.93
Other interest-earning assets 177.5 13.7 7.72 110.9 10.0 9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 12,242.8 992.0 8.10 12,263.9 979.8 7.99
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest earning
assets(5) 1,031.7 904.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 13,274.5 $ 13,168.8
====================================================================================================================================
Liabilities and
Stockholders' Equity:
Savings $ 1,638.8 39.3 2.40% $1,830.1 46.7 2.55%
N.O.W 323.7 3.8 1.18 330.5 5.3 1.61
Money market and variable
rate savings 2,203.4 72.7 3.30 2,273.7 76.5 3.36
Term certificates of deposit 6,543.0 348.2 5.32 6,512.8 343.1 5.26
Mortgagors' escrow 144.6 1.5 1.02 98.3 1.1 1.09
Securities sold under
agreements to repurchase 106.5 5.3 4.99 170.9 7.8 4.58
Trading liabilities 1.8 0.1 5.26 1.9 0.1 5.89
Long term debt 199.8 13.9 6.94 92.4 6.4 6.92
Guaranteed preferred
beneficial interest in
Company's junior
subordinated debentures 199.7 18.3 9.16 115.4 10.7 9.29
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 11,361.3 503.1 4.43 11,426.0 497.7 4.36
Other liabilities(6) 434.2 397.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,795.5 11,823.7
Preferred shares of
subsidiary -- 3.4
Stockholders' equity 1,479.0 1,341.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities &
stockholders' equity $ 13,274.5 $ 13,168.8
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/interest
rate spread(7) $488.9 3.67% $482.1 3.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/
net interest margin(8) $ 881.5 3.99% $ 837.9 3.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning
assets to interest-
bearing liabilities 1.08x 1.07x
====================================================================================================================================
<CAPTION>
(Taxable-Equivalent Interest and Rates, in millions)(1) Year Ended December 31,
- --------------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------------
Average
Yield/
Balance Interest Cost
======================================================================================
<S> <C> <C> <C>
Assets:
Mortgage loans held
for investment(2) $ 6,531.0 $591.7 9.06%
Other loans(2) 31.7 2.6 8.12
Money market
investments(3) 1,261.0 70.0 5.54
Securities(4) 5,101.4 316.9 6.22
Trading assets -- -- --
Other interest-earning assets -- -- --
- --------------------------------------------------------------------------------------
Total interest-earning
assets 12,925.1 981.2 7.59
- --------------------------------------------------------------------------------------
Non-interest earning
assets(5) 1,031.0
- --------------------------------------------------------------------------------------
Total assets $13,956.1
======================================================================================
Liabilities and
Stockholders' Equity:
Savings $ 1,976.5 55.2 2.79%
N.O.W 333.9 6.1 1.83
Money market and variable
rate savings 2,541.9 85.6 3.37
Term certificates of deposit 7,126.6 377.8 5.30
Mortgagors' escrow 80.9 1.0 1.26
Securities sold under
agreements to repurchase 47.9 1.8 3.88
Trading liabilities -- -- --
Long term debt -- -- --
Guaranteed preferred
beneficial interest in
Company's junior
subordinated debentures -- -- --
- --------------------------------------------------------------------------------------
Total interest-bearing
liabilities 12,107.7 527.5 4.36
Other liabilities(6) 371.5
- --------------------------------------------------------------------------------------
Total liabilities 12,479.2
Preferred shares of
subsidiary 0.9
Stockholders' equity 1,476.0
- --------------------------------------------------------------------------------------
Total liabilities &
stockholders' equity $13,956.1
- --------------------------------------------------------------------------------------
Net interest income/interest
rate spread(7) $453.7 3.23%
- --------------------------------------------------------------------------------------
Net interest-earning assets/
net interest margin(8) $ 817.4 3.51%
- --------------------------------------------------------------------------------------
Ratio of interest-earning
assets to interest-
bearing liabilities 1.07x
======================================================================================
</TABLE>
(1) The Company's incremental tax rate used to adjust tax-exempt interest to a
taxable-equivalent basis was 45.5%, 44.2% and 44.6% for the years ended
December 31, 1998, 1997 and 1996.
(2) In computing the average balances and average yield on loans, non-accruing
loans 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, servicing assets,
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.
19
<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, 1998 Year Ended December 31, 1997
Compared to Compared to
Year Ended December 31, 1997 Year Ended December 31, 1996
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>
Mortgage loans held for investment(1) $ 80.4 $ (9.7) $ 70.7 $146.2 $ (9.0) $137.2
Other loans(1) 15.3 -- 15.3 (0.2) (0.1) (0.3)
Money market investments(2) 11.8 (0.5) 11.3 (29.1) 0.5 (28.6)
Securities (82.4) (6.4) (88.8) (114.2) (5.7) (119.9)
Trading assets -- -- -- 0.2 -- 0.2
Other interest-earning assets 5.4 (1.7) 3.7 10.0 -- 10.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest earned on assets 30.5 (18.3) 12.2 12.9 (14.3) (1.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Savings (4.6) (2.8) (7.4) (4.0) (4.5) (8.5)
N.O.W (0.1) (1.4) (1.5) (0.1) (0.7) (0.8)
Money market and variable
rate savings (2.0) (1.8) (3.8) (9.0) (0.1) (9.1)
Term certificates of deposit 2.6 2.5 5.1 (31.3) (3.4) (34.7)
Mortgagors' escrow 0.4 -- 0.4 0.2 (0.1) 0.1
Securities sold under agreements
to repurchase (3.2) 0.7 (2.5) 5.6 0.4 6.0
Trading liabilities -- -- -- 0.1 -- 0.1
Long term debt 7.5 -- 7.5 6.4 -- 6.4
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures 7.8 (0.2) 7.6 10.7 -- 10.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest paid on liabilities 8.4 (3.0) 5.4 (21.4) (8.4) (29.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 22.1 $(15.3) $ 6.8 $ 34.3 $ (5.9) $ 28.4
====================================================================================================================================
</TABLE>
(1) In computing the volume and rate components of net interest income for
loans, non-accrual loans have been included.
(2) Includes interest-bearing deposits in other banks, federal funds sold and
securities purchased under agreements to resell.
20
<PAGE>
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except share amounts) 1998 1997
====================================================================================================================================
<S> <C> <C>
Assets:
Cash and due from banks $ 156.0 $ 93.2
Money market investments:
Interest-bearing deposits in other banks 7.3 11.4
Federal funds sold and securities purchased under agreements to resell 916.9 1,048.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 1,080.2 1,153.2
- ------------------------------------------------------------------------------------------------------------------------------------
Loans receivable held for sale 667.4 5.5
Securities available for sale 1,337.6 2,007.7
Interest only securities 9.2 --
Securities held to maturity (fair value of $3.3 and $4.0, respectively) 3.3 4.0
Trading assets -- 25.0
Loans receivable held for investment (net of allowance for possible loan
losses of $113.0 in 1998 and $109.0 in 1997) 9,273.1 8,795.6
Other interest-earning assets 118.3 117.0
Accrued interest receivable, net 83.3 81.2
Banking premises and equipment, net 122.6 118.8
Servicing assets 119.9 5.8
Deferred income taxes, net 54.6 71.4
Goodwill (net of accumulated amortization of $160.7 in 1998 and $106.3 in 1997) 1,014.3 577.1
Other assets 86.5 121.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $13,970.3 $13,083.5
====================================================================================================================================
Liabilities and Stockholders' Equity:
Liabilities:
Deposits:
N.O.W. and checking $ 539.9 $ 533.9
Savings 1,551.8 1,739.4
Variable rate savings 1,804.5 1,702.1
Money market 524.3 478.4
Term certificates of deposit 6,752.6 6,519.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 11,173.1 10,973.0
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgagors' escrow 128.1 117.8
Securities sold under agreements to repurchase 100.0 106.1
Trading liabilities -- 10.6
Long term debt 199.9 199.8
Guaranteed preferred beneficial interest in Company's
junior subordinated debentures 199.7 199.7
Accrued income taxes payable 56.9 67.7
Other liabilities 316.3 139.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 12,174.0 11,813.9
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (NOTE 17)
Stockholders' Equity:
Preferred stock ($0.01 par value; 50,000,000 shares authorized; none issued) -- --
Common stock ($0.01 par value; 220,000,000 shares authorized;
110,261,164 shares issued) 1.1 1.1
Additional paid-in capital 1,185.4 830.4
Unallocated Employee Stock Ownership Plan (ESOP) shares (110.1) (114.9)
Unearned stock plans shares (4.5) (7.0)
Retained earnings 1,240.4 1,142.4
Accumulated other comprehensive income, net 4.7 (3.6)
Treasury stock, at cost (15,618,745 shares and 25,620,850 shares, respectively) (520.7) (578.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,796.3 1,269.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,970.3 $13,083.5
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
21
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C>
Interest income:
Mortgage loans held for investment $ 799.6 $ 728.9 $ 591.7
Money market investments 52.7 41.3 68.0
Securities 106.5 193.6 311.7
Other 28.0 8.9 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 986.8 972.7 974.0
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 465.5 472.7 525.7
Trading liabilities 0.1 0.1 --
Securities sold under agreements to repurchase 5.3 7.8 1.8
Long-term debt 32.2 17.1 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 503.1 497.7 527.5
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 483.7 475.0 446.5
Provision for possible loan losses (13.8) (18.9) (15.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 469.9 456.1 430.8
Non-interest income:
Income from fees and commissions:
Mortgage loan operations fee income 18.6 15.7 14.6
Loan servicing fees 26.1 6.9 8.3
Banking services fees and commissions 26.1 21.9 17.4
Other fee income 1.2 1.7 3.9
Net gain on securities 2.6 2.0 0.9
Net gain (loss) on sales of loans 0.5 (0.3) 2.9
Net gain on sale of assets -- 2.4 --
Gain on sale of branches -- 5.9 8.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 75.1 56.2 56.9
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and benefits 105.5 93.7 86.8
Employee Stock Ownership and
stock plans expense 22.3 19.7 14.7
Net expense of premises and equipment 49.0 47.3 46.6
Federal deposit insurance premiums 2.6 2.8 5.2
Other administrative expenses 67.0 59.7 65.8
Other real estate owned operating income (6.0) (1.8) (0.8)
Goodwill amortization 54.4 46.4 46.5
Restructuring charge (recovery) -- 2.5 (1.6)
Non-recurring personnel expense 8.3 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 303.1 270.3 263.2
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 241.9 242.0 224.5
Income taxes 92.4 94.4 92.0
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 149.5 $ 147.6 $ 132.5
====================================================================================================================================
Basic earnings per share $ 1.99 $ 1.96 $ 1.56
====================================================================================================================================
Diluted earnings per share $ 1.92 $ 1.86 $ 1.51
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
22
<PAGE>
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C>
Net income $ 149.5 $ 147.6 $ 132.5
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 17.5 38.0 (68.9)
Less: reclassification adjustment for gains
included in net income (2.6) (2.0) (0.9)
Minimum pension liability adjustment (0.4) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax 14.5 36.0 (69.8)
Income tax expense related to items of other
comprehensive income (6.2) (16.3) 31.6
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax 8.3 19.7 (38.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of tax $ 157.8 $ 167.3 $ 94.3
====================================================================================================================================
</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) 1998 1997 1996
====================================================================================================================================
<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 830.4 809.6 800.8
Reissuance of treasury stock 321.1 -- --
Issuance of common stock -- 0.8 3.7
Amortization of ESOP shares committed to be released 16.1 12.4 4.5
Amortization of stock plans shares 1.0 0.5 0.6
Tax benefit for vested stock plans shares 16.8 7.1 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,185.4 830.4 809.6
- ------------------------------------------------------------------------------------------------------------------------------------
Unallocated ESOP shares
Balance at beginning of year (114.9) (119.6) (124.0)
Amortization of ESOP shares committed to be released 4.8 4.7 4.4
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (110.1) (114.9) (119.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned stock plans shares
Balance at beginning of year (7.0) (8.3) (9.8)
Issuance of common stock to stock plans -- (0.8) (3.7)
Amortization of stock plans shares 2.5 2.1 5.2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (4.5) (7.0) (8.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year 1,142.4 1,038.0 942.1
Net income 149.5 147.6 132.5
Dividends paid (46.5) (37.7) (34.1)
Reissuance of treasury stock (5.0) (5.5) (2.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,240.4 1,142.4 1,038.0
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income, net
Balance at beginning of year (3.6) (23.3) 14.9
Net change in accumulated other comprehensive income, net 8.3 19.7 (38.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 4.7 (3.6) (23.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock
Balance at beginning of year (578.8) (237.7) (73.8)
Reissuance of treasury stock 277.7 14.4 5.6
Purchase of treasury stock (219.6) (355.5) (169.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (520.7) (578.8) (237.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $1,796.3 $1,269.6 $1,459.8
====================================================================================================================================
</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) 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 149.5 $ 147.6 $ 132.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 13.8 18.9 15.7
Depreciation and amortization of premises and equipment 17.9 16.5 16.1
Goodwill amortization 54.4 46.4 46.5
Accretion of discount on securities, net of premium amortization (9.2) (5.2) (71.0)
Net change in trading assets 25.0 (25.0) --
Net change in trading liabilities (10.6) 10.6 --
ESOP and stock plans expense 22.3 19.7 14.7
Non-recurring personnel expense 8.3 -- --
Net change in loans held for sale 89.3 (0.7) 170.3
Capitalization of servicing assets (15.0) -- (1.4)
Servicing asset amortization 9.2 0.8 0.8
Net change in interest only securities (8.8) -- --
Net gain on sales of other real estate owned (8.1) (7.3) (6.6)
Deferred income taxes 10.5 (7.4) 21.5
(Increase) decrease in other assets (24.3) 15.8 26.1
Increase (decrease) in other liabilities 82.2 (69.9) 50.1
Other, net 0.6 13.2 21.4
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 407.0 174.0 436.7
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Loan originations, net of principal repayments (396.6) (1,522.3) (1,447.4)
Proceeds from sales of other real estate owned 27.3 20.5 12.0
Purchases of securities available for sale (4,821.4) (1,935.1) (6,363.9)
Purchases of securities held to maturity (0.6) (0.3) (1.1)
Proceeds from maturities of securities available for sale 4,239.9 1,933.0 4,398.5
Proceeds from sales of securities available for sale 1,039.0 2,065.1 3,233.8
Investment in corporate officer life insurance policy -- (102.8) --
Net cash used in acquisition (1,376.2) -- --
Principal repayments on securities 290.2 260.1 263.2
Purchases of premises and equipment (13.0) (9.9) (30.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,011.4) 708.3 64.5
====================================================================================================================================
</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) 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C>
Cash flows from financing activities:
Net deposits (withdrawals) from depositors' accounts 199.6 (348.9) (1,293.3)
Cash paid on transfer of deposit liabilities -- (124.8) (143.8)
Payments for cash dividends (46.5) (37.7) (34.1)
Proceeds from common stock offering 583.1 -- --
Purchase of treasury stock (219.6) (355.5) (169.5)
Securities sold under agreements to repurchase (6.1) 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 10.3 50.9 8.0
Other, net 10.6 5.3 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 531.4 (305.1) (1,629.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (73.0) 577.2 (1,128.4)
Cash and cash equivalents at beginning of year 1,153.2 576.0 1,704.4
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $1,080.2 $1,153.2 $ 576.0
- ------------------------------------------------------------------------------------------------------------------------------------
Non-cash activities:
Additions to other real estate owned, net $ 15.8 $ 28.3 $ 28.6
Loans to facilitate sales of other real estate $ 8.2 $ 18.7 $ 22.5
Unsettled trades $ -- $ 68.1 $ 89.5
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 83.0 $ 75.0 $ 26.9
Interest paid $ 493.2 $ 488.9 $ 521.7
====================================================================================================================================
<CAPTION>
GreenPoint purchased the manufactured housing lending business of BAHS and also acquired the dealer origination segment of
NationsCredit's manufactured housing business. In conjunction with these acquisitions, liabilities were assumed as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired $1,000.5
Excess of cost over fair value of net assets acquired 485.6
Cash paid (1,376.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $109.9
====================================================================================================================================
</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" or "GreenPoint") 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 is a leading
national specialty housing finance company with three principal subsidiaries.
GreenPoint Mortgage Corp. ("GreenPoint Mortgage"), a national mortgage banking
company headquartered in Charlotte, North Carolina, is the leading national
lender in no documentation ("No Doc") residential mortgages. GreenPoint Credit
Corp. ("GreenPoint Credit"), headquartered in San Diego, California, is the
second largest lender nationally in the manufactured housing finance industry.
The Bank, a New York state chartered savings bank, has $11.2 billion in deposits
in 73 branches serving more than 400,000 households in the Greater New York City
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.
(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") 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 in
accumulated other comprehensive income, 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) Interest Only Securities
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 requires recording,
based on fair value, the right to future interest to be collected on the
underlying financial contracts of each securitization over the sum of the
interest to be paid to the security classes sold, contractually specified
servicing fees and credit losses as an interest only security.
The Company determines fair value by calculating the net present value of
the net future interest to be collected, using assumptions of prepayments,
defaults and discount rates that the Company believes market participants would
use for similar securities. Interest only securities are amortized using the
interest method.
The Company classifies its interest only securities as available for sale
and carries these securities at fair value. Unrealized gains and losses are
reported, net of applicable taxes, in accumulated other comprehensive income, as
a separate component of stockholders' equity.
(e) 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
27
<PAGE>
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.
(f) 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.
(g) Loans Receivable Held for Sale
Loans receivable held for sale are carried at the lower of cost or estimated
fair 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 fair value in the aggregate.
(h) Servicing Assets
Servicing assets are carried at the lower of allocated cost or fair value and
are amortized in proportion to and over the period of net servicing income.
The Company stratifies its servicing assets based on the risk
characteristics of the underlying loan pools. Servicing assets are evaluated for
impairment based on the risk characteristics of these pools to determine whether
any valuation allowances are required. A valuation allowance is recognized
through a charge to current earnings for servicing assets that have an amortized
balance in excess of the current fair value.
The fair value of the servicing assets is determined by calculating the
net present value of estimated future servicing cash flows, using assumptions of
prepayments, defaults, servicing costs and discount rates that the Company
believes market participants would use for similar assets.
(i) Goodwill
Goodwill arising from the 1995 acquisition of the New York branches of Home
Savings of America and the 1998 acquisition of the manufactured housing lending
business of BankAmerica Housing Services ("BAHS") is being amortized using the
straight-line method over 15 years. The goodwill associated with the 1995
BarclaysAmerican/ Mortgage acquisition is being amortized using the
straight-line method over 5 years. These intangible assets are evaluated for
recoverability by management on a periodic basis.
(j) 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.
(k) 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, in accumulated other comprehensive income, 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.
28
<PAGE>
(l) 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.
(m) 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 and Trust
("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
123"). SFAS 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.
(n) 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 existing 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.
(o) 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 calculation.
(p) 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 April 30, 1997, the Company purchased the Columbus, Georgia 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.
On September 30, 1998, the Company purchased the manufactured housing
lending business of BAHS, a division of Bank of America, FSB, for a cash premium
of $605 million. The purchase includes BAHS' loan origination and servicing
platforms, its servicing portfolio of $11.2 billion and related revenue stream,
and $766.4 million of loans held for sale. The acquisition was treated as a
purchase for accounting and financial reporting purposes, resulting in $478.6
million of tax-deductible goodwill, which will be amortized over 15 years. The
acquisition was financed through available capital and the proceeds of an
offering of GreenPoint common stock.
On December 7, 1998, the Company acquired the dealer origination segment
of NationsCredit's manufactured housing business. The purchase provides the
Company with access to NationsCredit's dealer business throughout the United
States.
On December 9, 1998, the Company announced a definitive agreement to
acquire Headlands Mortgage Company in a stock transaction valued at
approximately $473 million. The acquisition will be accounted for as a tax-free
pooling of interests, with 0.62 shares of the Company's stock being exchanged
for each share of Headlands stock. The acquisition is expected to be completed
by the end of the first quarter of 1999.
29
<PAGE>
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, 1998 was $16.4
million. The average amount of those reserve deposits was approximately $24.5
million for the year ended December 31, 1998.
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, 1998 and 1997, were $1.62 billion and $0.84
billion, respectively. The average amounts of these agreements outstanding
during the years ended December 31, 1998 and 1997, were $617.7 million and
$335.5 million, respectively.
During 1998 and 1997, 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.
NOTE 5 Securities
Securities Available for Sale
The amortized cost and estimated fair value of securities available for sale at
December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale December 31, 1998
====================================================================================================================================
<S> <C> <C> <C> <C>
U.S. Government and Federal Agency Obligations:
Agency notes/Asset-backed securities $ 260.5 $ 0.1 $ (0.3) $ 260.3
Mortgage-backed securities 561.0 5.5 (0.1) 566.4
Collateralized mortgage obligations 206.2 3.5 (0.1) 209.6
Trust certificates collateralized by GNMA securities 26.6 -- (0.1) 26.5
Corporate asset-backed securities 25.0 -- (0.1) 24.9
Corporate bonds 24.3 -- (0.1) 24.2
Commercial paper 145.7 -- -- 145.7
Other 80.0 -- -- 80.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $1,329.3 $ 9.1 $ (0.8) $1,337.6
====================================================================================================================================
</TABLE>
<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>
During the year ended December 31, 1998, the Company sold available for
sale securities aggregating $1.0 billion, resulting in gross realized gains of
$3.7 million and gross realized losses of $1.1 million.
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.
30
<PAGE>
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 3.1 years. The amortized cost and estimated fair value of
securities at December 31, 1998 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, 1998
====================================================================================================================================
<S> <C> <C> <C> <C>
Due in one year or less $ 295.7 $ 295.6 $ 2.0 $ 2.0
Due after one year through five years 317.9 321.2 -- --
Due after five years through ten years 106.7 106.8 0.6 0.6
Due after ten years 609.0 614.0 0.7 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities $1,329.3 $1,337.6 $ 3.3 $ 3.3
====================================================================================================================================
</TABLE>
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, 1998, the Company had no
securities on loan to securities dealers. At December 31, 1997, there were $0.7
billion 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,
1998, 1997 and 1996 was $0.3 million, $1.1 million, and $2.0 million,
respectively. The maximum amount of securities loaned on any day during the
years ended December 31, 1998 and 1997 was $1.2 billion and $1.9 billion,
respectively.
NOTE 6 Loans Receivable Held for Investment
The Company's loans receivable held for investment balances are summarized as
follows:
December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997
================================================================================
Conventional first mortgage loans:
Residential one- to four-family $8,002.0 $7,660.7
Residential multi-family 593.3 620.0
Commercial property 573.4 536.5
Second mortgage and home equity loans 104.4 88.5
Other 127.2 30.1
- --------------------------------------------------------------------------------
Total loans receivable held
for investment 9,400.3 8,935.8
Net deferred loan origination fees
and unearned discount (14.2) (31.2)
Allowance for possible loan losses (113.0) (109.0)
- --------------------------------------------------------------------------------
Loans receivable held for
investment, net $9,273.1 $8,795.6
================================================================================
Non-Accrual Loans
The outstanding balances of non-accrual loans as of December 31, 1998 and 1997
are as follows:
December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997
================================================================================
Mortgage loans secured by:
Residential one- to four-family $ 226.0 $ 271.0
Residential multi-family 33.9 46.0
Commercial property 25.2 38.0
Other loans 0.1 0.1
- --------------------------------------------------------------------------------
Total $ 285.2 $ 355.1
================================================================================
The effect of non-accrual loans on interest income is as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Interest income:
As originally contracted $ 37.0 $ 45.3 $ 45.1
As recognized (30.7) (29.5) (22.9)
- --------------------------------------------------------------------------------
Reduction of interest income $ 6.3 $ 15.8 $ 22.2
================================================================================
Allowance for Possible Loan Losses
Activity in the allowance for possible loan losses is summarized as follows:
At or for the Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Balance at beginning of year $ 109.0 $ 105.0 $ 105.5
Provisions charged to
income 13.8 18.9 15.7
Charge-offs (10.6) (16.0) (17.5)
Recoveries 0.8 1.1 1.3
- --------------------------------------------------------------------------------
Balance at end of year $ 113.0 $ 109.0 $ 105.0
================================================================================
Geographic Concentration
As of December 31, 1998, 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%.
31
<PAGE>
NOTE 7 Servicing Assets
The Company recognizes servicing assets for any retained servicing rights upon
the securitization or sale of loans. During 1998, the Company sold $728.0
million of manufactured housing loans in one securitization transaction
resulting in retained servicing rights of $15.0 million and acquired $108.3
million of servicing assets in conjunction with the purchase of BAHS.
The initial valuation and subsequent fair value of servicing assets is
determined by calculating the net present value of estimated future servicing
cash flows using assumptions of prepayments, defaults, servicing costs and
discount rates that the Company believes market participants would use for
similar assets. Servicing assets are evaluated for impairment (book value in
excess of fair value) quarterly based on the primary risk characteristics of
product and rate type (fixed or variable) relating to the underlying financial
assets. Fair value of servicing assets approximated the carrying amount and no
valuation for impairment was necessary for the years ended December 31, 1998 and
1997, respectively.
The activity in servicing assets and significant assumptions used to determine
fair value are summarized as follows:
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Manufactured Manufactured
(In millions) Housing Mortgage Housing Mortgage
====================================================================================================================================
<S> <C> <C> <C> <C>
Activity:
Balance at beginning of year $ -- $ 5.8 $-- $ 6.6
Purchased 108.3 -- -- --
Additions 15.0 -- -- --
Amortization (8.2) (1.0) -- (0.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $115.1 $ 4.8 $-- $ 5.8
====================================================================================================================================
Significant fair value assumptions:
Discount rate 14% 11% -- 11%
Weighted average annual prepayment rate 12%(1) 30% -- 15%
Weighted average annual default rate 4% -- -- --
====================================================================================================================================
</TABLE>
(1) Excludes weighted average annual default rate.
The Company services loans on behalf of customers. In such capacity, certain
monies are collected and placed in segregated trust accounts, which totaled
$294.8 million and $26.1 million at December 31, 1998 and 1997, respectively.
These accounts and corresponding liabilities are not included in the
accompanying statements of financial condition.
NOTE 8 Other Real Estate Owned
The following is a summary of ORE owned by the Company:
December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997
================================================================================
Property type:
Residential one- to four-family $ 7.8 $ 18.4
Residential multi-family 1.7 2.6
Commercial 2.0 3.9
Allowance for declines in value (0.3) (0.9)
- --------------------------------------------------------------------------------
Other real estate owned, net $ 11.2 $ 24.0
================================================================================
Activity in the allowance for declines in value for ORE is summarized as
follows:
At or for the Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Balance at beginning of year $ 0.9 $ 1.3 $ 2.2
Provisions charged to income 0.1 0.8 0.9
Charge-offs (0.7) (1.2) (1.8)
- --------------------------------------------------------------------------------
Balance at end of year $ 0.3 $ 0.9 $ 1.3
================================================================================
The following is a summary of ORE income activity:
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Operating expense, net of
rental and other income $ 2.0 $ 4.7 $ 4.9
Provision for decline in
value of ORE 0.1 0.8 0.9
Net gain on sales of
ORE properties (8.1) (7.3) (6.6)
- --------------------------------------------------------------------------------
Net ORE operating income $ (6.0) $ (1.8) $ (0.8)
================================================================================
32
<PAGE>
During the years ended December 31, 1998, 1997 and 1996, the Company acquired
through foreclosure or deed in lieu of foreclosure, loans with book values of
$16.6 million, $32.2 million and $33.1 million, respectively. Charges to the
allowance for possible loan losses, reducing the carrying value of ORE
properties to their estimated fair values, amounted to $2.0 million, $4.2
million and $4.5 million during the years ended December 31, 1998, 1997 and
1996, respectively. Sales of ORE properties during these respective periods
totaled $27.4 million, $32.6 million and $29.3 million.
NOTE 9 Deposits
The contractual maturities of term certificates of deposit are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of
(In millions) Amount Term Deposits Amount Term Deposits
===================================================================================================================================
<S> <C> <C> <C> <C>
Due within six months $1,899.4 28.13% $2,030.1 31.14%
Due within six to twelve months 3,864.9 57.24 2,719.7 41.72
Due within one to two years 632.6 9.37 1,205.1 18.48
Due within two to three years 165.1 2.44 325.0 4.98
Due within three to four years 123.3 1.82 108.6 1.67
Due within four to five years 63.3 0.94 112.6 1.73
Due beyond five years 4.0 0.06 18.1 0.28
- -----------------------------------------------------------------------------------------------------------------------------------
Total $6,752.6 100.00% $6,519.2 100.00%
===================================================================================================================================
</TABLE>
Included in term certificates of deposit are certificates in denominations of
$100,000 or more at December 31, 1998 and 1997, aggregating $819.4 million and
$723.7 million, respectively.
Interest expense on deposits is summarized as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Account type:
N.O.W. $ 3.8 $ 5.3 $ 6.1
Savings 39.3 46.7 55.2
Variable rate savings 57.2 59.9 66.1
Money market 15.5 16.6 19.5
Term certificates of deposit 348.2 343.1 377.8
- --------------------------------------------------------------------------------
Total $ 464.0 $ 471.6 $ 524.7
================================================================================
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 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 for the year ended December 31, 1997.
Interest expense on Capital Securities was $18.3 million and $10.7 million
for the years ended December 31, 1998 and 1997, respectively.
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 are used by the Company for general corporate
and banking purposes in the ordinary course of business.
Long term debt interest expense for the years ended December 31, 1998 and
1997 was $13.9 million and $6.4 million, respectively.
33
<PAGE>
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
write-downs.
NOTE 13 Non-Recurring Personnel Expense
In the first quarter of 1998, the Company recognized a non-recurring charge of
$8.3 million in personnel expense related to the retirement of senior
executives.
NOTE 14 Pension Plan and Other Employee Benefits
The following is a summary of the Company's pension and postretirement benefits:
Pension Postretirement
Benefits Benefits
December 31, December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1998 1997
================================================================================
Change in Benefit
Obligation:
Benefit obligation at
beginning of year $39.1 $33.9 $14.7 $13.9
Service cost 1.9 1.7 0.4 1.1
Interest cost 2.5 2.7 0.6 0.9
Amendments(1) -- -- (3.5) --
Benefit payments (4.3) (3.0) (0.6) (0.9)
Actuarial loss (gain) 2.9 3.8 (1.6) (0.3)
- --------------------------------------------------------------------------------
Benefit obligation at
end of year $42.1 $39.1 $10.0 $14.7
================================================================================
(1) A plan amendment was made at January 1, 1998. The net periodic
postretirement benefit cost was calculated after this amendment.
Pension Postretirement
Benefits Benefits
December 31, December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1998 1997
================================================================================
Change in Plan Assets:
Fair value of plan assets at
beginning of year $ 49.1 $ 43.4 $-- $--
Actual return on plan assets (0.3) 8.5 -- --
Employer contribution 0.1 0.1 0.6 0.9
Benefits paid (4.3) (2.9) (0.6) (0.9)
- --------------------------------------------------------------------------------
Fair value of plan assets
at end of year $ 44.6 $ 49.1 $-- $--
- --------------------------------------------------------------------------------
Reconciliation of
Funded Status:
Funded status $ 2.5 $ 10.1 $ (10.0) $ (14.7)
Unrecognized actuarial gain (0.2) (7.9) (2.0) (0.5)
Unrecognized prior
service cost (1.1) (1.1) (3.5) (0.3)
Unrecognized transition asset (0.5) (0.9) -- --
- --------------------------------------------------------------------------------
Net amount recognized at
end of year $ 0.7 $ 0.2 $ (15.5) $ (15.5)
- --------------------------------------------------------------------------------
Amounts Recognized in the
Statement of Financial
Condition Consist of:
Prepaid benefit cost $ 2.9 $ 1.8 $-- $--
Accrued benefit liability (3.5) (2.7) (15.5) (15.5)
Intangible asset 0.9 1.1 -- --
Accumulated other
comprehensive income 0.4 -- -- --
- --------------------------------------------------------------------------------
Net amount recognized
at end of year $ 0.7 $ 0.2 $ (15.5) $ (15.5)
================================================================================
Pension Postretirement
Benefits Benefits
Year Ended Year Ended
- --------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
================================================================================
Weighted
Average
Assumptions:
Discount rate 6.50% 7.00% 7.50% 6.50% 7.00% 7.50%
Expected return
on plan assets 9.00% 9.00% 8.00% N/A N/A N/A
Rate of
compensation
increase 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
================================================================================
For measurement purposes, a 7.00% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999. The rate was assumed to
decrease to 5.00% for 2000 and remain at that level thereafter.
34
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
Year Ended December 31, Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost:
Service cost $ 1.9 $ 1.7 $ 2.4 $ 0.5 $ 1.1 $ 1.2
Interest cost 2.5 2.6 2.5 0.6 0.8 0.9
Expected return on plan assets (4.3) (3.4) (3.0) -- -- --
Amortization of prior service cost -- -- 0.1 (0.3) -- --
Amortization of transition asset (0.4) (0.4) (0.4) -- -- --
Recognized actuarial gain (0.3) (0.1) -- (0.1) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (0.6) $ 0.4 $ 1.6 $ 0.7 $ 1.9 $ 2.1
====================================================================================================================================
</TABLE>
The aggregate projected benefit obligation and accumulated benefit obligation
for pension plans with accumulated benefit obligations in excess of plan assets
were $4.2 million and $3.5 million, respectively, as of December 31, 1998 and
$3.7 million and $2.7 million, respectively, as of December 31, 1997. There were
no plan assets for these plans as of December 31, 1998 and 1997.
Assumed health care trend rates have a significant effect on the amounts
reported for the health care benefits. A one percentage point change in assumed
health care cost trend rates would have the following effects.
1-Percentage 1-Percentage
(In millions) Point Increase Point Decrease
================================================================================
Effect of total of service and
interest cost components -- --
Effect on postretirement
benefit obligation 0.6 (0.5)
================================================================================
Supplemental Executive Retirement Plan
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 Internal Revenue Code of 1986,
as amended ("the Code"). For the years ended December 31, 1998, 1997 and 1996,
the SERP expense was $0.9 million, $(0.2) million and $0.4 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 12% 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 the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Code. 401(k) Savings Plan
expenses for matching contributions were approximately $1.9 million, $1.3
million and $0.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Employers' 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, 1998 and
1997, the Company's postemployment benefits liability was approximately $0.4
million and $0.4 million, respectively.
NOTE 15 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, 1998 is
approximately $1.7 million.
At December 31, 1998, 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.
35
<PAGE>
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, 1998, the Bank maintained state and city tax bad debt
reserves in excess of the federal reserve of approximately $303 million and $305
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, 1998 and 1997 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,
1998, 1997 and 1996, are summarized as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Current:
Federal $ 63.6 $ 85.3 $ 60.3
State and local 18.2 16.6 10.2
- --------------------------------------------------------------------------------
Total current 81.8 101.9 70.5
- --------------------------------------------------------------------------------
Deferred:
Federal 6.0 (6.1) 11.4
State and local 4.6 (1.4) 10.1
- --------------------------------------------------------------------------------
Total deferred 10.6 (7.5) 21.5
- --------------------------------------------------------------------------------
Total $ 92.4 $ 94.4 $ 92.0
================================================================================
In addition to the income tax expense attributable to operations, deferred
income tax expense (benefit) in the amount of $6.2 million, $16.3 million and
($31.6) million was separately allocated to stockholders' equity to recognize
the related tax effect of the change in the net unrealized gain or loss on
securities available for sale and certain employee postemployment programs for
the years ended December 31, 1998, 1997 and 1996, 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) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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% $84.7 35.00% $78.6 35.00%
State and local taxes, net of federal
income tax benefit 11.8 4.88 11.7 4.83 13.2 5.89
Fair market value over cost of
Employee Stock Ownership Plan 5.6 2.32 4.3 1.78 1.9 0.85
Other (9.7) (4.00) (6.3) (2.60) (1.7) (0.76)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income taxes $92.4 38.20% $94.4 39.01% $92.0 40.98%
====================================================================================================================================
</TABLE>
36
<PAGE>
The balances of the net deferred tax asset at December 31, 1998 and 1997 were
comprised as follows:
December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997
================================================================================
Deferred Tax Assets:
Allowance for possible loan losses $ 48.3 $ 48.0
Interest income on non-accrual loans 7.8 6.9
Capitalized cost of acquisition,
other real estate 2.5 4.3
Other real estate, valuation allowance
for market decline 0.4 0.8
Postretirement and post-
employment benefits 9.8 10.4
Unrealized loss on securities
available for sale -- 2.7
Servicing 3.7 --
Other 9.3 11.7
- --------------------------------------------------------------------------------
$ 81.8 $ 84.8
================================================================================
Deferred Tax Liabilities:
Premises and equipment $ (3.4) $ (2.1)
Servicing assets -- (1.9)
Unrealized gain on securities
available for sale (3.5) --
Deferred loan fees (20.3) (9.4)
- --------------------------------------------------------------------------------
(27.2) (13.4)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 54.6 $ 71.4
================================================================================
NOTE 16 Derivative Financial Instruments
The Bank enters into interest rate swap contracts in managing its interest rate
risk associated with its fixed-rate mortgage and variable rate securities in its
investment portfolio. The notional amount of these contracts approximates $1.40
billion and $475 million at December 31, 1998 and 1997, respectively. As of
December 31, 1998, the outstanding contracts have an average term of
approximately 4 years. Under the terms of the contracts for 1998, the Bank pays
an average fixed rate of 5.96% and receives an average variable rate of 5.32% on
the swaps hedging the fixed rate loan 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 17 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. Outside
counsel has advised the Bank that because discovery on these claims is in the
relatively early stages, 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.
Loan Commitments
At December 31, 1998 and 1997, the Company had outstanding commitments to
originate mortgage loans totaling approximately $534.1 million and $438.9
million, respectively. The commitments to originate mortgage loans at December
31, 1998 included $353.2 million of commitments to originate fixed rate mortgage
loans and $180.9 million of commitments to originate adjustable rate mortgage
loans. At December 31, 1998, the Company had outstanding commitments to
originate manufactured housing loans totaling $135.5 million, based on
historical estimates of fallout.
Recourse Obligations
The Company has issued a corporate guarantee with respect to $728 million of
manufactured housing loans securitized and sold during 1998. The maximum amount
of recourse exposure that the Company is subject to under the guarantee is $84.3
million at December 31, 1998. The Company estimates that the total amount of any
payments made under the guarantee will be significantly less than the maximum
recourse exposure.
37
<PAGE>
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,
1998, 1997 and 1996 amounted to $12.5 million, $10.6 million and $9.1 million,
respectively.
The projected minimum rental payments under the terms of the
noncancelable leases, exclusive of taxes and escalation charges, at December 31,
1998 are summarized as follows:
Year Ended
(In millions) December 31, Amount
================================================================================
1999 $18.8
2000 17.1
2001 15.5
2002 13.4
2003 11.7
thereafter 61.8
- --------------------------------------------------------------------------------
Total $138.3
================================================================================
Minimum rental income under noncancelable sublease agreements aggregate $22.6
million.
NOTE 18 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, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(In millions) Values Fair Values Values Fair Values
====================================================================================================================================
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 156.0 $ 156.0 $ 93.2 $ 93.2
Interest-bearing deposits in other banks 7.3 7.3 11.4 11.4
Federal funds sold and securities
purchased under agreements to resell 916.9 916.9 1,048.6 1,048.6
Securities:
Securities available for sale 1,337.6 1,337.6 2,007.7 2,007.7
Interest only securities 9.2 9.2 -- --
Securities held to maturity 3.3 3.3 4.0 4.0
Trading assets -- -- 25.0 25.0
Loans receivable held for sale 667.4 680.5 5.5 5.5
Loans receivable held for investment 9,273.1 9,562.0 8,795.6 9,023.1
Other interest-earning assets 118.3 118.3 117.0 117.0
Liabilities:
Deposits:
Deposits due on demand and/or with
no specified maturities 4,420.5 4,420.5 4,453.8 4,453.8
Term certificates of deposit 6,752.6 6,827.5 6,519.2 6,582.9
Accrued Interest:
Receivable 83.3 83.3 81.2 81.2
Payable 25.0 25.0 15.1 15.1
Securities sold under agreements to repurchase 100.0 100.0 106.1 106.1
Trading liabilities -- -- 10.6 10.6
Long term debt 199.9 204.8 199.8 202.5
Guaranteed preferred beneficial interest in Company's
junior subordinated debentures 199.7 210.8 199.7 220.4
Off-Balance Sheet:
Commitments to originate loans -- -- -- --
Interest rate swaps -- (28.2) -- (3.4)
====================================================================================================================================
38
<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.
Interest Only Securities
The fair value of interest only securities is determined by calculating the net
present value of estimated future interest to be collected on the underlying
financial contracts of each securitization over the sum of the interest to be
paid to the security classes sold, contractually specified servicing fees and
credit losses, using assumptions of prepayments, defaults and discount rates
that the Company believes market participants would use for similar securities.
Loans Receivable Held for Sale
The fair values of manufactured housing loans held for sale are estimated using
a discounted cash flow model that estimates future cash flows associated with
the securitization of these loans. The cash flow model incorporates current
market indications of securitization structure and pricing, and assumptions of
interest rates, prepayment rates and default rates that management believes
market participants would use for similar assets.
Loans Receivable Held for Investment
Fair value of the Company's mortgage loan portfolio is based on comprehensive
portfolio valuation analyses performed as of December 31, 1998 and 1997 by an
independent pricing firm, engaged specifically for this purpose by the Company.
The remaining categories of loans, manufactured housing loans, home equity
loans, student loans and home improvement loans, were deemed to have estimated
fair 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 Loans
Loan commitments issued and outstanding as of December 31, 1998 and 1997 contain
rates and terms similar to the rates and terms of commitments issued by the
Company at December 31, 1998 and 1997. 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.
39
<PAGE>
NOTE 19 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, 1998, that the Company and
the Bank meet all capital adequacy requirements to which it is subject.
FDICIA, among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires federal bank regulatory agencies to implement
systems for "prompt corrective action" for insured depository institutions that
do not meet minimum capital requirements based on these categories. As of
December 31, 1998, the Bank was well capitalized based on the prompt corrective
action guidelines.
For Capital
Actual Adequacy Purposes
- --------------------------------------------------------------------------------
(In millions) Amount Ratio Amount Ratio
================================================================================
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets):
Company $1,064.4 13.41% $ 635.0 8.00%
Bank 897.7 11.34 633.5 8.00
Tier 1 Capital (to Risk
Weighted Assets):
Company $ 965.0 12.16% $ 317.5 4.00%
Bank 798.6 10.08 316.8 4.00
Tier 1 Capital (to Average Assets):
Company $ 965.0 7.58% $ 509.4 4.00%
Bank 798.6 6.32 505.2 4.00
================================================================================
For Capital
Actual Adequacy Purposes
- --------------------------------------------------------------------------------
(In millions) Amount Ratio Amount Ratio
================================================================================
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
================================================================================
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. Applicable federal and state
laws impose limitations on the payment of dividends. Under such limitations,
dividend payments by the Bank 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 1998 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, 1998 was $59.9 million.
40
<PAGE>
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 20 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, 1998 and 1997 was $126.4 million and
$128.4 million, respectively, and the interest rate was 6.00% at both dates.
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,
1998, 3,246,348 shares have been allocated to participants' accounts. There are
13,221,256 unallocated shares with a value of $464.4 million, based upon the
December 31, 1998 closing price of $35.13 per share.
The Company recognized $19.0 million, $15.8 million and $8.2 million of
compensation expense relating to the ESOP for the years ended December 31, 1998,
1997 and 1996, 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, 1998, 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, 1998, 1997 and 1996, the Company
recognized $0.4 million, $1.7 million and $5.1 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 and NSOs is at least
100% of the fair market value of the stock on the grant date.
As of December 31, 1998, 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, 1998, 1997 and 1996, the Company
recognized $1.0 million, $0.9 million and $0.7 million of compensation expense
relating to the Stock Incentive Plan.
41
<PAGE>
The following table presents a summary of the aggregate stock option
transactions for the years ended December 31, 1998, 1997 and 1996:
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Stock Exercise of Stock Exercise of Stock Exercise
Options Price Options Price Options Price
====================================================================================================================================
Stock options outstanding,
beginning of year 5,511,536 $14.82 5,364,786 $10.49 5,475,124 $ 9.66
Granted 1,585,500 33.57 1,289,000 27.79 544,000 15.84
Exercised (1,125,775) 10.44 (1,032,198) 8.96 (534,034) 7.69
Canceled (98,289) 18.44 (110,052) 10.76 (120,304) 9.01
- ------------------------------------------------------------------------------------------------------------------------------------
Stock options outstanding, end of year 5,872,972 $20.66 5,511,536 $14.82 5,364,786 $10.49
====================================================================================================================================
Options exercisable at year-end 2,018,374 1,394,400 964,620
Weighted-average fair value of
options granted during the year $ 8.44 $ 6.98 $ 4.24
====================================================================================================================================
</TABLE>
The range of exercise prices on options outstanding for the years ended December
31, 1998, 1997, and 1996 were $7.50 to $34.97, $7.50 to $34.35 and $7.50 to
$24.13, respectively. The weighted average remaining contractual life for
options outstanding at December 31, 1998 is 7.39 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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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 1,178,192 $ 11.81 1,254,000 $ 11.01 1,242,000 $ 10.98
Granted 48,000 40.19 52,000 28.88 12,000 14.25
Exercised (77,808) 11.01 (127,808) 10.94 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NSOs outstanding, end of year 1,148,384 $ 13.05 1,178,192 $ 11.81 1,254,000 $ 11.01
====================================================================================================================================
Options exercisable at year-end 509,469 300,172 204,990
Weighted-average fair value of options
granted during the year $ 9.89 $ 7.49 $ 2.10
====================================================================================================================================
</TABLE>
42
<PAGE>
The range of exercise prices on options outstanding for the years ended December
31, 1998, 1997 and 1996 were $10.94 to $40.19, $10.94 to $28.78 and $10.94 to
$14.25, respectively. The weighted average remaining contractual life for
options outstanding at December 31, 1998 is 6.32 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 1998,
1997 and 1996:
Year Ended December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
================================================================================
Dividend yield 1.90% 1.80% 2.60%
Expected volatility 25.43% 24.05% 22.70%
Risk-free interest rate 5.14% 6.34% 6.54%
Expected option lives 4.82 years 4.00 years 5.65 years
================================================================================
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 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) 1998 1997 1996
=======================================================================================
<S> <C> <C> <C>
Net income As reported $149.5 $147.6 $132.5
Pro forma $143.3 $143.8 $130.7
Diluted earnings
per share As reported $ 1.92 $ 1.86 $ 1.51
Pro forma $ 1.84 $ 1.81 $ 1.49
=======================================================================================
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures are not
indicative of the effects on reported net income for future years because SFAS
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.
NOTE 21 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) 1998 1997
- --------------------------------------------------------------------------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $149.5 75,238,000 $1.99 $147.6 75,333,000 $1.96
Effect of dilutive securities:
Stock options -- 2,583,000 -- 3,998,000
- --------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
common stockholders
plus assumed
conversions $149.5 77,821,000 $1.92 $147.6 79,331,000 $1.86
========================================================================================================
<CAPTION>
1996
Per
Income Shares Share
(Numerator) (Denominator) Amount
================================================================================
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $132.5 85,145,000 $1.56
Effect of dilutive securities:
Stock options -- 2,672,000
- --------------------------------------------------------------------------------
Diluted EPS
Income available to
common stockholders
plus assumed
conversions $132.5 87,817,000 $1.51
================================================================================
</TABLE>
NOTE 22 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, 1998, the Bank has contributed $24.9 million, or 49.8%, of its
funding commitment to the Foundation.
NOTE 23 Business Segments
The Company consists of three domestic business segments offering unique
products and services. The Mortgage Banking segment specializes in limited
documentation mortgage loan products which are primarily obtained from the
Company's network of registered mortgage brokers. The Company has historically
funded its mortgage portfolio with consumer deposits raised through its Consumer
Banking operations. The Consumer Banking segment consists of 73 full service
banking offices offering a variety of financial services to the Greater New York
City area. The Manufactured Housing segment primarily originates, securitizes
and services manufactured housing loans.
43
<PAGE>
The accounting policies of the segments are the same as those described in
NOTE 1 "Summary of Significant Accounting Policies." The Company evaluates the
performance of its business segments based on income before income taxes.
Expenses under the direct control of each business segment and the expense of
premises and equipment incurred to support business operations are allocated
accordingly, by segment. The expenses relating to the executive, strategic
planning, information systems personnel, finance, audit and human resources
functions of the Company are not allocated to individual operating segments. The
Company purchased the Manufactured Housing business segment on September 30,
1998, therefore, financial information pertaining to this segment represents
results from fourth quarter operations only.
The following table sets forth information by business segment:
<TABLE>
<CAPTION>
Manufactured Segment Consolidated
(in millions) Mortgage Consumer Housing Totals Other(1) Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Net interest income $ 248.1 $ 216.4 $ 5.8 $ 470.3 $ 13.4 $ 483.7
Income from fees and commissions 19.4 25.5 -- 44.9 1.0 45.9
Loan servicing fees 4.4 -- 21.7 26.1 -- 26.1
Depreciation and amortization 3.9 52.0 8.3 64.2 8.0 72.2
Segment income (loss) before taxes 205.3 111.8 (11.3)(2) 305.8 (63.9) 241.9
Other significant non cash items:
ESOP and stock plans expense 7.3 7.9 -- 15.2 7.1 22.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,271.9 $11,199.2 $ 1,406.2 $21,877.3 $(7,907.0)(3) $13,970.3
====================================================================================================================================
Year ended December 31, 1997
Net interest income $ 227.4 $ 207.8 $ -- $ 435.2 $ 39.8 $ 475.0
Income from fees and commissions 17.0 20.8 -- 37.8 1.5 39.3
Loan servicing fees 6.9 -- -- 6.9 -- 6.9
Depreciation and amortization 4.3 54.2 -- 58.5 4.5 63.0
Segment income (loss) before taxes 167.8 100.1 -- 267.9 (25.9) 242.0
Other significant non cash items:
ESOP and stock plans expense 6.7 7.4 -- 14.1 5.6 19.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 8,867.6 $11,149.0 $ -- $20,016.6 $(6,933.1)(3) $13,083.5
====================================================================================================================================
Year ended December 31, 1996
Net interest income $ 206.8 $ 146.8 $ -- $ 353.6 $ 92.9 $ 446.5
Income from fees and commissions 17.0 17.4 -- 34.4 1.5 35.9
Loan servicing fees 8.3 -- -- 8.3 -- 8.3
Depreciation and amortization 4.2 54.0 -- 58.2 4.4 62.6
Segment income before taxes 157.1 37.1 -- 194.2 30.3 224.5
Other significant non cash items:
ESOP and stock plans expense 3.9 1.7 -- 5.6 9.1 14.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,367.0 $11,862.7 $ -- $19,229.7 $(5,904.1)(3) $13,325.6
====================================================================================================================================
</TABLE>
(1) Represents unallocated corporate amounts.
(2) The Company did not recognize an $18.5 million gain on the sale of $728
million of manufactured housing loans securitized and sold in November
1998. These loans were acquired by the Company as part of the GreenPoint
Credit purchase and recorded at their fair market value.
(3) For the purpose of internal management reporting, the Company records
intersegment funds transfers and eliminates these transfers on a
consolidated basis for GAAP reporting. Intersegment assets and liabilities
eliminated for consolidation purposes were $10.6 billion, $10.5 billion
and $11.1 billion for the years ended 1998, 1997 and 1996, respectively.
Net interest income corresponding to the assumed funds transfers is
allocated accordingly.
NOTE 24 Condensed Parent Company Financial Statements
The following condensed statements of financial condition at December 31, 1998
and 1997 and condensed statements of income and cash flows for the years ended
December 31, 1998, 1997 and 1996 for GreenPoint Financial Corp. (parent company
only) reflect the Company's investment in its wholly-owned subsidiaries using
the equity method of accounting.
44
<PAGE>
Parent Company Only-Condensed Statements of Financial Condition
December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997
================================================================================
Assets:
Cash and due from banks $ 4.7 $ 2.1
Money market investments 82.5 --
Due from subsidiaries 73.0 --
Other assets 3.5 8.6
Investment in subsidiaries 1,841.3 1,466.4
- --------------------------------------------------------------------------------
Total assets $2,005.0 $1,477.1
================================================================================
Liabilities and Stockholders' Equity:
Liabilities:
Due to subsidiaries $ 6.2 $ 6.2
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures 199.7 199.7
Accrued income taxes payable 1.1 0.1
Accrued interest payable 1.5 1.5
Other liabilities 0.2 --
- --------------------------------------------------------------------------------
Total liabilities 208.7 207.5
- --------------------------------------------------------------------------------
Stockholders' equity 1,796.3 1,269.6
- --------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $2,005.0 $1,477.1
================================================================================
Parent Company Only-
Condensed Statements of Income
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Dividends from
GreenPoint Bank $ 140.8 $ 185.2 $ 207.9
- --------------------------------------------------------------------------------
Interest Income:
Line of credit-subsidiary 4.7 0.4 --
Money market investments 2.6 1.3 0.4
Securities -- 0.8 --
- --------------------------------------------------------------------------------
Total interest income 7.3 2.5 0.4
================================================================================
Interest Expense:
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures 18.2 10.7 --
- --------------------------------------------------------------------------------
Total interest expense 18.2 10.7 --
- --------------------------------------------------------------------------------
Net interest income (10.9) (8.2) 0.4
- --------------------------------------------------------------------------------
Administrative expenses 0.5 0.4 0.5
- --------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed earnings
(loss) of subsidiaries 129.4 176.6 207.8
Income taxes (4.8) (3.6) --
- --------------------------------------------------------------------------------
Income before equity in
undistributed earnings (loss)
of subsidiaries 134.2 180.2 207.8
- --------------------------------------------------------------------------------
Equity in undistributed earnings
(loss) of subsidiaries 15.3 (32.6) (75.3)
- --------------------------------------------------------------------------------
Net income $ 149.5 $ 147.6 $ 132.5
================================================================================
Parent Company Only-Condensed Statements of Cash Flows
Year Ended December 31,
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
================================================================================
Operating Activities:
Net income $ 149.5 $ 147.6 $ 132.5
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
(earnings) loss of
subsidiaries (15.3) 32.6 75.3
Net change in other liabilities 1.2 1.5 (1.0)
Net change in other assets 5.1 (8.1) (0.5)
Other, net -- (0.7) --
- --------------------------------------------------------------------------------
Net cash provided by
operating activities 140.5 172.9 206.3
================================================================================
Investing Activities:
Purchases of securities -- (432.5) --
Maturities of securities -- 433.3 --
Payments for investments
in and advances to
subsidiaries (1,065.8) (278.7) --
Repayment of investments
in and advances to
subsidiaries 682.8 278.7 --
Other, net -- -- 0.2
- --------------------------------------------------------------------------------
Net cash (used in) provided
by investing activities (383.0) 0.8 0.2
================================================================================
Financing Activities:
Guaranteed preferred
beneficial interest in
Company's junior
subordinated debentures -- 199.7 --
Proceeds from issuance
of common stock 593.7 8.8 3.1
Purchase of treasury stock (219.6) (355.5) (169.5)
Dividends paid (46.5) (37.7) (34.1)
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 327.6 (184.7) (200.5)
- --------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 85.1 (11.0) 6.0
Cash and cash equivalents
at beginning of period 2.1 13.1 7.1
- --------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 87.2 $ 2.1 $ 13.1
================================================================================
In connection with the BAHS acquisition in September 1998, the Company made a
$310 million capital contribution to the Bank consisting of cash.
45
<PAGE>
Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 248.1 $ 248.9 $ 244.7 $ 245.1 $ 245.1 $ 248.0 $ 241.3 $ 238.3
Interest expense 126.1 125.5 125.8 125.7 128.5 130.3 121.0 117.9
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 122.0 123.4 118.9 119.4 116.6 117.7 120.3 120.4
Provision for possible
loan losses (3.9) (2.7) (3.2) (4.0) (4.1) (5.4) (4.4) (5.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible
loan losses 118.1 120.7 115.7 115.4 112.5 112.3 115.9 115.4
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest income 36.1 13.3 12.9 12.8 13.2 12.4 11.4 19.2
Non-interest expense 100.7 63.6 64.8 74.0 66.8 66.8 68.5 68.2
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 53.5 70.4 63.8 54.2 58.9 57.9 58.8 66.4
Income taxes 20.5 26.9 24.4 20.6 22.2 21.8 23.7 26.7
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 33.0 $ 43.5 $ 39.4 $ 33.6 $ 36.7 $ 36.1 $ 35.1 $ 39.7
====================================================================================================================================
Basic earnings per share $ 0.41 $ 0.55 $ 0.56 $ 0.47 $ 0.52 $ 0.50 $ 0.45 $ 0.49
====================================================================================================================================
Diluted earnings per share $ 0.40 $ 0.54 $ 0.54 $ 0.45 $ 0.49 $ 0.47 $ 0.43 $ 0.47
====================================================================================================================================
Stock price per common share
High $ 39.25 $ 42.63 $ 42.06 $ 37.31 $ 36.28 $ 33.00 $ 33.28 $ 31.69
Low $ 25.38 $ 25.19 $ 36.19 $ 32.69 $ 31.13 $ 29.34 $ 25.88 $ 22.81
Closing $ 35.13 $ 31.88 $ 37.63 $ 35.94 $ 36.28 $ 31.69 $ 33.28 $ 25.75
====================================================================================================================================
</TABLE>
46
<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, comprehensive income, changes
in stockholders' equity, and cash flows present fairly, in all material
respects, the financial position of GreenPoint Financial Corp. and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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/ PricewaterhouseCoopers LLP
New York, New York
January 21, 1999
47
<PAGE>
Directors and Officers
Board of Directors
Bharat B. Bhatt
President and
Chief Operating Officer
Dan F. Huebner
Retired Vice Chairman
and Director of
Grumman Corporation
William M. Jackson
Partner in the law firm of Satterlee,
Stephens, Burke & Burke, L.L.P.
Thomas S. Johnson
Chairman and
Chief Executive Officer
Susan J. Kropf
Executive Vice President/
President, North America and
Director Avon Products, Inc.
Robert M. McLane
Retired Senior Vice President
of Marsh & McLennan, Inc.
Charles B. McQuade
President and
Chief Executive Officer
of the Securities Industry
Automation Corporation
Alvin N. Puryear
Professor of Management at
Bernard M. Baruch College of the
City University of New York
Robert P. Quinn
Retired General Partner and
Managing Director of
Salomon Brothers Inc.
Edward C. Schmults
Retired Senior Vice President
and General Counsel of
GTE Corporation
Wilfred O. Uhl
Retired President of the
Long Island Lighting Company
Robert F. Vizza
Retired President and
Chief Executive Officer,
of St. Francis Mercy Corporation
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 and
Chief Financial Officer
Charles P. Richardson
Executive Vice President,
Corporate Development
Ramesh N. Shah
Executive Vice President,
Consumer Banking
John Wheeler
President,
GreenPoint Credit
Howard C. Bluver
Senior Vice President and
General Counsel
GreenPoint Foundation
Board of Directors
The Reverend Dr. Calvin O. Butts III
The Abyssinian Baptist Church
The Most Reverend Joseph M. Sullivan
Brooklyn Catholic Charities
48
<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
PricewaterhouseCoopers 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
EXHIBIT 21.1
Subsidiary Activities
The Company has formed three subsidiaries:
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 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 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, 1998 the Bank has formed thirteen 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,
GreenPoint Mortgage 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. GreenPoint Mortgage's activities consist of the origination,
sale and servicing of mortgage loans.
GreenPoint Credit Corp. This subsidiary was incorporated on May 4, 1998
and began operations in the fourth quarter of 1998. GreenPoint Credit was formed
for the purpose of acquiring the assets of BankAmerica Housing Services, a
division of Bank of America, FSB. This acquisition was consummated on September
30, 1998. GreenPoint Credit's activities consist of the origination, sale and
servicing of manufactured housing loans. In Mississippi and Minnesota,
GreenPoint Credit conducts activities through its wholly owned subsidiaries,
GreenPoint Credit Corp. of Mississippi (incorporated on September 4, 1998), and
GreenPoint Credit Corp. of Minnesota (incorporated on September 14, 1998).
GreenPoint Agency, Inc. This subsidiary was incorporated on June 30, 1998
as an insurance agency. GreenPoint Agency acts as an agent in connection with
the sale of forced placed property insurance and standard property and casualty
insurance.
GreenPoint Insurance Corp. This subsidiary was incorporated on September
10, 1998 as an insurance underwriting and reinsurance subsidiary. GreenPoint
Insurance's activities include the reinsurance of life and disability insurance
risks.
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.
<PAGE>
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. This subsidiary was dissolved on
December 9, 1998.
GreenPoint Corporate Owned 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, 1998, 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. Descriptions of the Bank's subsidiaries are set forth below:
Neerg Corp. This subsidiary was formed in January 1990 and currently holds
7 properties having an aggregate carrying value of $0.7 million and an aggregate
appraised value of $1.5 million, as of December 31, 1998, based on the Company's
most recent appraisals.
298 15th Street Realty Corp. This subsidiary was formed in January 1993
and currently holds 5 properties having an aggregate carrying value of $0.5
million and an aggregate appraised value of $1.0 million as of December 31,
1998, based on the Company's most recent appraisals.
Neerg Second Corp. This subsidiary was formed in June 1993 and currently
holds 5 properties having an aggregate carrying value of $0.5 million and an
aggregate appraised value of $1.0 million, as of December 31, 1998, based on the
Company's most recent appraisals.
Alpha REO Corporation. This subsidiary was formed in March 1994 and
currently holds 7 properties having an aggregate carrying value of $0.7 million
and an aggregate appraised value of $1.5 million, as of December 31, 1998, based
on the Company's most recent appraisals.
Beta REO Corp. This subsidiary was formed in June 1994 and currently holds
no properties.
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-74556, 33-87756, 33-87760 and 33-45917) and in
the Registration Statement on Form S-4 (No. 333-72577), of our report dated
January 21, 1999, appearing on page 47 of the 1998 Annual Report to Shareholders
of GreenPoint Financial Corp., which is incorporated by reference in GreenPoint
Financial Corp.'s Annual Report on Form 10-K for the year ended December 31,
1998.
PricewaterhouseCoopers LLP
March 29, 1999
New York, New York
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 154
<INT-BEARING-DEPOSITS> 9
<FED-FUNDS-SOLD> 917
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,347
<INVESTMENTS-CARRYING> 3
<INVESTMENTS-MARKET> 3
<LOANS> 10,053
<ALLOWANCE> (113)
<TOTAL-ASSETS> 13,970
<DEPOSITS> 11,173
<SHORT-TERM> 100
<LIABILITIES-OTHER> 501
<LONG-TERM> 400
0
0
<COMMON> 1
<OTHER-SE> 1,795
<TOTAL-LIABILITIES-AND-EQUITY> 13,970
<INTEREST-LOAN> 817
<INTEREST-INVEST> 160
<INTEREST-OTHER> 10
<INTEREST-TOTAL> 987
<INTEREST-DEPOSIT> 466
<INTEREST-EXPENSE> 503
<INTEREST-INCOME-NET> 484
<LOAN-LOSSES> (14)
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 303
<INCOME-PRETAX> 242
<INCOME-PRE-EXTRAORDINARY> 150
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.92
<YIELD-ACTUAL> 3.99
<LOANS-NON> 285
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (109)
<CHARGE-OFFS> (11)
<RECOVERIES> 1
<ALLOWANCE-CLOSE> (113)
<ALLOWANCE-DOMESTIC> (113)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
