UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
-----------------------------
For the Quarter Ended
September 30, 2000
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
0-22516
-------
Securities and Exchange Commission File Number
GreenPoint Financial Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1379001
-------- ----------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
90 Park Avenue, New York, New York 10016
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 834-1000 Not Applicable
-------------- --------------
(Registrant's telephone number, (Former name, former address and former
including area code) fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
|X| Yes |_| No
As of November 3, 2000 there were 101,010,458 shares of common stock
outstanding.
<PAGE>
GreenPoint Financial Corp.
FORM 10-Q
For the Quarter Ended
September 30, 2000
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
(unaudited) as of September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (unaudited) for the
quarters and nine month periods ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income (unaudited)
for the quarters and nine month periods ended
September 30, 2000 and 1999 5
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) for the nine month periods ended
September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows (unaudited) for the nine
month periods ended September 30, 2000 and 1999 7
Notes to the Unaudited Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 36
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 42
Item 6 - Exhibits and Reports on Form 8-K 43
2
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
Cash and due from banks $ 172,623 $ 179,462
Money market investments 620,473 1,052,840
Loans receivable held for sale 1,867,476 1,208,080
Securities available for sale 2,184,697 1,974,747
Federal Home Loan Bank of New York stock 96,284 91,791
Retained interests in securitizations 150,204 124,556
Securities held to maturity (fair value of $2,368 and $1,985, respectively) 2,358 1,974
Loans receivable held for investment:
Mortgage loans 8,148,666 8,648,765
Other loans 601,518 659,356
Deferred loan fees and unearned discount (7,683) (14,954)
Allowance for possible loan losses (113,000) (113,000)
------------ ------------
Loans receivable held for investment, net 8,629,501 9,180,167
------------ ------------
Other interest-earning assets 126,301 123,350
Servicing assets 216,412 180,629
Accrued interest receivable, net 84,784 72,173
Banking premises and equipment, net 129,364 129,006
Deferred income taxes, net -- 49,705
Goodwill 882,355 941,727
Other assets 162,393 90,870
------------ ------------
Total assets $ 15,325,225 $ 15,401,077
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
N.O.W. and checking $ 553,430 $ 540,406
Savings 1,247,538 1,369,852
Variable rate savings 1,917,608 1,981,441
Money market 488,881 459,577
Term certificates of deposit 7,100,013 7,208,850
------------ ------------
Total deposits 11,307,470 11,560,126
------------ ------------
Mortgagors' escrow 113,098 95,505
Securities sold under agreements to repurchase 150,299 260
Federal Home Loan Bank of New York advances 850,000 675,000
Long term debt 139,689 199,906
Guaranteed preferred beneficial interest in Company's junior subordinated debentures 199,748 199,740
Other liabilities 488,969 683,878
------------ ------------
Total liabilities 13,249,273 13,414,415
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($0.01 par value; 50,000,000 shares authorized; none issued) -- --
Common stock ($0.01 par value; 220,000,000 shares authorized; 110,261,164 shares
issued) 1,103 1,103
Additional paid-in capital 860,914 857,824
Unallocated Employee Stock Ownership Plan (ESOP) shares (101,232) (105,097)
Unearned stock plans shares (2,138) (3,288)
Retained earnings 1,530,605 1,408,219
Accumulated other comprehensive income, net 5,768 (11,834)
Treasury stock, at cost (8,910,310 and 6,058,244 shares, respectively) (219,068) (160,265)
------------ ------------
Total stockholders' equity 2,075,952 1,986,662
------------ ------------
Total liabilities and stockholders' equity $ 15,325,225 $ 15,401,077
============ ============
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
3
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans held for investment $ 178,549 $ 194,171 $ 549,443 $ 586,299
Securities 37,714 17,976 111,363 55,137
Loans held for sale 50,838 39,348 125,498 106,363
Money market investments 4,247 12,591 22,105 31,933
Other 26,764 12,767 77,845 28,854
--------- --------- --------- ---------
Total interest income 298,112 276,853 886,254 808,586
--------- --------- --------- ---------
Interest expense:
Deposits 129,599 121,613 379,659 356,044
Notes payable 15,318 5,003 39,624 13,109
Long-term debt 7,205 8,042 23,108 24,127
Securities sold under agreements to repurchase 3,264 2,798 11,145 12,448
Trading liabilities 99 111 213 144
--------- --------- --------- ---------
Total interest expense 155,485 137,567 453,749 405,872
--------- --------- --------- ---------
Net interest income 142,627 139,286 432,505 402,714
Provision for possible loan losses (9,085) (1,448) (24,519) (5,902)
--------- --------- --------- ---------
Net interest income after provision for possible loan losses 133,542 137,838 407,986 396,812
--------- --------- --------- ---------
Non-interest income:
Income from fees and commissions:
Loan servicing fees 33,727 23,971 102,009 73,438
Banking services fees and commissions 9,767 8,123 28,311 22,671
Other 4,221 4,941 9,846 10,898
Net gain on sale of loans 81,862 57,819 189,536 175,307
Net gain (loss) on sale of securities 1,587 (2) 3,428 1,016
Change in valuation of retained interests (20,510) -- (39,631) --
--------- --------- --------- ---------
Total non-interest income 110,654 94,852 293,499 283,330
--------- --------- --------- ---------
Non-interest expense:
Salaries and benefits 53,877 53,230 157,691 159,311
Employee Stock Ownership and stock plans expense 4,918 4,813 12,174 15,544
Net expense of premises and equipment 19,150 19,501 59,000 56,407
Advertising 2,219 1,607 4,772 5,662
Federal deposit insurance premiums 596 681 1,829 1,990
Other administrative expenses 27,548 28,267 84,507 100,985
Other real estate owned operating income, net (307) (444) (1,462) (3,316)
Goodwill amortization 19,587 19,892 59,372 59,740
Charitable and educational foundation -- 1,875 -- 5,625
Restructuring charge and non-recurring personnel expense 4,918 -- 4,918 6,000
--------- --------- --------- ---------
Total non-interest expense 132,506 129,422 382,801 407,948
--------- --------- --------- ---------
Income before income taxes 111,690 103,268 318,684 272,194
Income taxes 44,676 41,565 128,455 115,567
--------- --------- --------- ---------
Net income $ 67,014 $ 61,703 $ 190,229 $ 156,627
========= ========= ========= =========
Basic earnings per share $ 0.75 $ 0.64 $ 2.10 $ 1.64
========= ========= ========= =========
Diluted earnings per share $ 0.74 $ 0.63 $ 2.07 $ 1.61
========= ========= ========= =========
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
4
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Net income $ 67,014 $ 61,703 $ 190,229 $ 156,627
--------- --------- --------- ---------
Other comprehensive income, before tax: Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during
period 29,241 (3,258) 33,517 (23,402)
Less: reclassification adjustment for gain (loss)
included in net income 1,587 (2) 3,428 1,016
--------- --------- --------- ---------
Other comprehensive income, before tax 27,654 (3,256) 30,089 (24,418)
Income tax (expense) benefit related to items of other
comprehensive income (11,877) 1,519 (12,487) 10,484
--------- --------- --------- ---------
Other comprehensive income, net of tax 15,777 (1,737) 17,602 (13,934)
--------- --------- --------- ---------
Total comprehensive income, net of tax $ 82,791 $ 59,966 $ 207,831 $ 142,693
========= ========= ========= =========
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
5
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
(In thousands)
<S> <C> <C>
Common stock
Balance at beginning of period $ 1,103 $ 1,103
----------- -----------
Balance at end of period 1,103 1,103
----------- -----------
Additional paid-in capital
Balance at beginning of period 857,824 1,278,795
Reissuance of treasury stock (6,049) (438,611)
Amortization of ESOP shares committed to be released 6,409 10,805
Amortization of stock plans shares 750 108
Tax benefit for vested stock plans shares 1,980 3,652
----------- -----------
Balance at end of period 860,914 854,749
----------- -----------
Unallocated ESOP shares
Balance at beginning of period (105,097) (110,101)
Amortization of ESOP shares committed to be released 3,865 3,753
----------- -----------
Balance at end of period (101,232) (106,348)
----------- -----------
Unearned stock plans shares
Balance at beginning of period (3,288) (4,459)
Amortization of stock plans shares 1,150 880
----------- -----------
Balance at end of period (2,138) (3,579)
----------- -----------
Retained earnings
Balance at beginning of period 1,408,219 1,273,264
Net income 190,229 156,627
Dividends declared (67,843) (59,996)
----------- -----------
Balance at end of period 1,530,605 1,369,895
----------- -----------
Accumulated other comprehensive income, net
Balance at beginning of period (11,834) 4,699
Net change in accumulated other comprehensive income, net 17,602 (13,934)
----------- -----------
Balance at end of period 5,768 (9,235)
----------- -----------
Treasury stock, at cost
Balance at beginning of period (160,265) (520,725)
Reissuance of treasury stock 9,380 498,400
Purchase of treasury stock (68,183) --
----------- -----------
Balance at end of period (219,068) (22,325)
----------- -----------
Total stockholders' equity $ 2,075,952 $ 2,084,260
=========== ===========
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
6
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 190,229 $ 156,627
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Provision for possible loan losses 24,519 5,902
Depreciation and amortization of premises and equipment 23,875 23,352
Goodwill amortization 59,372 59,740
Accretion of discount on securities, net of premium amortization (3,120) (4,137)
Net change in retained interests in securitizations (14,279) (2,508)
ESOP and stock plans expense 12,174 15,544
Gain on securities transactions (3,428) (1,016)
Net change in loans held for sale (659,396) 353,029
Net gain on sales of other real estate owned (2,243) (4,604)
Capitalization of servicing assets (69,760) (48,298)
Amortization of servicing assets 33,977 38,280
Deferred income taxes 72,332 20,515
Increase in other assets (29,589) (4,580)
(Decrease) increase in other liabilities (270,058) (6,982)
Other, net (17,980) 9,046
----------- -----------
Net cash (used in) provided by operating activities (653,375) 609,910
----------- -----------
Cash flows from investing activities:
Principal repayments, net of loan originations 518,741 (267,940)
Proceeds from sales of other real estate owned 11,913 15,936
Purchases of securities available for sale (1,478,642) (1,760,107)
Purchases of securities held to maturity (421) --
Proceeds from maturities of securities available for sale 590,800 1,891,220
Proceeds from sales of securities available for sale 526,030 1,016
Principal repayments on securities 176,666 166,309
Purchase of Federal Home Loan Bank stock (4,493) (91,791)
Purchases of premises and equipment (24,233) (21,324)
----------- -----------
Net cash provided by (used in) investing activities 316,361 (66,681)
----------- -----------
Cash flows from financing activities:
Net (withdrawals) deposits from depositors' accounts (253,063) 495,019
Borrowing on notes payable -- 3,230,845
Payments on notes payable -- (3,792,468)
Proceeds from Federal Home Loan Bank advances 625,000 675,000
Payments on Federal Home Loan Bank advances (450,000) --
Payments for cash dividends (67,821) (59,996)
Stock offering -- 47,351
Exercise of stock options 3,331 12,438
Purchase of treasury stock (68,183) --
Retirement of long term debt (59,088) --
Securities sold under agreements to repurchase 150,039 (283,901)
Net increase (decrease) in mortgagors' escrow 17,593 (8,712)
----------- -----------
Net cash (used in) provided by financing activities (102,192) 315,576
----------- -----------
Net (decrease) increase in cash and cash equivalents (439,206) 858,805
Cash and cash equivalents at beginning of period 1,232,302 1,088,372
----------- -----------
Cash and cash equivalents at end of period $ 793,096 $ 1,947,177
=========== ===========
Non-cash activities:
Additions to other real estate owned, net $ (11,734) $ (5,874)
=========== ===========
Unsettled trades $ (357) $ --
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 68,460 $ 123,206
=========== ===========
Interest paid $ 394,196 $ 356,524
=========== ===========
</TABLE>
(See accompanying notes to the unaudited consolidated financial statements)
7
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited consolidated financial statements of GreenPoint Financial Corp.
and Subsidiaries ("GreenPoint" or the "Company") are prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the Company's interim financial
condition as of the dates indicated and the results of operations for the
periods presented have been included. Certain reclassifications have been made
to the prior period financial statements to conform to the current year
presentation. The results of operations for the interim periods shown are not
necessarily indicative of results that may be expected for the entire year.
The unaudited consolidated interim financial statements presented should be read
in conjunction with the consolidated financial statements and notes included in
the Company's Annual Report to shareholders for the year ended December 31,
1999.
Accounting for Loan Sales
The Company sells loans both in the whole loan market as well as through various
securitization vehicles.
When the Company sells mortgages or manufactured housing loans on a whole loan
basis, in some cases it retains the servicing rights related to the loans. In
instances where the Company does not retain the servicing rights to the loans,
the gain or loss on the sale is equal to the difference between the proceeds
received and the book basis of the loans sold. In instances where the Company
does retain the servicing rights, the gain or loss also depends in part on the
fair value attributed to the servicing rights.
When the Company securitizes manufactured housing loans and mortgages it may
retain servicing rights and one or more retained interests. In addition, the
Company may sell loans under recourse arrangements, which may be in the form of
a corporate guarantee issued by GreenPoint Bank (the "Bank") and backed by a
letter of credit or a credit default swap. In calculating the gain or loss on
the sale, the Company allocates the cost basis of the loans sold between the
assets sold, and the retained interests and servicing rights based on their
relative fair values at the date of sale. The liabilities associated with these
guarantees are reported as a component of other liabilities. A gain or loss is
recognized as the difference between the cash proceeds from the sale and the
allocated cost basis of the assets sold, less the estimated fair value of the
corporate guarantee.
8
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retained Interests in Securitizations
Retained interests in securitizations include interest-only strips, subordinated
certificates and transferor interests, including overcollateralization accounts.
Retained interests in securitizations are amortized using the interest method.
The Company classifies its retained interests in securitizations as available
for sale and carries these securities at fair value. If a decline in fair value
of retained interests is deemed to be other than temporary, the change in
valuation is recognized in the consolidated statement of income and is
classified as a change in valuation of retained interests. Unrealized gains and
losses are reported, net of applicable taxes, in accumulated other comprehensive
income, as a separate component of stockholders' equity.
To obtain fair values, quoted market prices are used if available. Because
market quotes are generally not available for retained interests, the Company
generally estimates fair value based upon the present value of estimated future
cash flows using assumptions of prepayments, defaults, loss severity rates,
interest rate spreads, and discount rates that the Company believes market
participants would use for similar assets and liabilities.
Servicing Assets
Servicing assets are carried at the lower of 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 and the assets are evaluated for impairment based on
the risk characteristics. 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 servicing assets is determined by calculating the present
value of estimated future net servicing cash flows, using assumptions of
prepayments, defaults, servicing costs and discount rates that the Company
believes market participants would use for similar assets.
2. Stock Incentive Plan
For the nine months ended September 30, 2000, the Company granted options to
purchase 2,037,700 shares of the Company's common stock to certain officers, at
an average exercise price of $21.37. These awards vest over two to three years
on the anniversary dates of the awards.
9
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Loans Receivable 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>
September 30, December 31,
2000 1999
----------- -----------
(In thousands)
<S> <C> <C>
Loans receivable held for sale:
Residential mortgage loans $ 1,346,857 $ 766,582
Home equity lines of credit 159,073 47,551
Manufactured housing loans 185,446 265,772
Manufactured housing land/home loans 167,269 130,553
Guaranteed student loans 2,104 2,450
Deferred loan origination fees and unearned discount 6,727 (4,828)
----------- -----------
Loans receivable held for sale $ 1,867,476 $ 1,208,080
=========== ===========
</TABLE>
10
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Retained Interests in Securitizations and Servicing Assets
Securitizations
During the quarters ended September 30, 2000 and 1999, GreenPoint sold $680.0
million and $100.0 million of manufactured housing loans in securitization
transactions for gains of $30.5 million and $4.7 million, respectively.
GreenPoint receives annual servicing fees approximating 1.0% for manufactured
housing loans and rights to future cash flows arising after the investors in the
securitization trusts receive the return for which they are contracted.
During the quarters ended September 30, 2000 and 1999, GreenPoint sold $350.0
million and $270.8 million of home equity lines of credit and second mortgages
in securitization transactions for gains of $9.7 million and $5.8 million,
respectively. The draws on previously securitized home equity lines of credit
and sales of additional mortgage loans into securitization trusts totaled $58.3
million and $13.8 million resulting in gains of $3.0 million and $1.5 million
during the quarters ended September 30, 2000 and 1999, respectively. GreenPoint
receives annual servicing fees approximating 0.5% of the principal balances for
these mortgage loans and rights to future cash flows arising after the investors
in the securitization trusts receive the return for which they are contracted.
Whole Loan Sales
During the quarters ended September 30, 2000 and 1999, GreenPoint sold as whole
loans certain mortgage loans with principal balances of $2.2 billion and $2.1
billion, respectively, for pre-tax gains of $38.6 million and $37.0 million,
respectively. GreenPoint retained servicing rights and provided limited recourse
on some of the mortgage loans sold.
During the quarter ended September 30, 1999, GreenPoint sold as whole loans
certain manufactured housing land/home loans with principal balances outstanding
of $191.4 million for a gain of $8.9 million. GreenPoint retained servicing on
those loans but did not retain any other interests in those loans.
Recourse Arrangements
GreenPoint has established liabilities for limited recourse provided on mortgage
loans and recourse provided on manufactured housing loans that have been
securitized or sold. The investors and the securitization trusts have no
recourse to GreenPoint's other assets for failure of debtors to pay when due,
except for the interest-only strip related to both mortgage and manufactured
housing securitizations and the liability under the corporate guarantee related
to the manufactured housing securitizations.
11
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
GreenPoint has loans sold with recourse with the following principal balances,
maximum recourse exposures and recorded liabilities:
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------
Maximum
Principal Recourse Recorded
Balance Exposure Liability
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Manufactured housing securitizations $4,723,733 $ 794,754 $ 44,712
Manufactured housing sales 337,973 337,973 10,279
Mortgage securitizations (1) 1,543,100 55,904 --
Mortgage sales (2) 1,198,994 1,175,014 1,044
<CAPTION>
December 31, 1999
------------------------------------------
Maximum
Principal Recourse Recorded
Balance Exposure Liability
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Manufactured housing securitizations $2,982,043 $ 442,547 $ 21,566
Manufactured housing sales 350,230 350,230 10,729
Mortgage securitizations (1) 1,142,573 20,924 --
Mortgage sales (2) 468,184 458,820 292
</TABLE>
(1) The net present value of expected cash outflows on the mortgage
securitization recourse arrangements is reflected in the valuation of the
mortgage retained interests.
(2) The recourse arrangements under the mortgage sale transactions represent a
risk sharing arrangement in which GreenPoint has transferred the first 2%
of losses to the purchaser.
At September 30, 2000, GreenPoint has provided representations and warranties on
mortgage and manufactured housing loans with remaining principal balances of
$5.8 billion and $338.0 million, respectively. GreenPoint has established a
liability related to representations and warranties for mortgage loans of $6.6
million at September 30, 2000.
Change in Valuation of Retained Interests
On a quarterly basis, GreenPoint reviews retained interests for impairment based
on management's best estimate of the fair value of future cash flows associated
with the retained interest. During the quarter ended September 30, 2000,
GreenPoint recorded a $2.1 million charge to adjust its manufactured housing
interest-only strip to fair value. The charge was primarily related to the
effect of the increased loss severity assumption on one securitization
transaction entered into in the year ended December 31, 1999.
12
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On a quarterly basis, GreenPoint reviews the adequacy of the value of the
recorded liability based on management's best estimate of the fair value of
future cash flows associated with the corporate guarantee. During the quarter
ended September 30, 2000, GreenPoint recorded an $18.4 million charge to adjust
its corporate guarantee liability. The charge was primarily related to the
effect of increased loss severity assumptions on all manufactured housing
securitizations entered into prior to December 31, 1999.
Retained Interests in Securitizations
The portfolio of retained interests in securitizations is summarized as follows:
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------
Manufactured
Housing Mortgage (1) Total
------------ ------------ --------
(In thousands)
<S> <C> <C> <C>
Subordinated certificates $ -- $ 5,214 $ 5,214
Interest-only strip 36,698 55,904 92,602
Transferor interest (2) -- 52,388 52,388
-------- -------- --------
$ 36,698 $113,506 $150,204
======== ======== ========
<CAPTION>
December 31, 1999
------------------------------------------
Manufactured
Housing Mortgage (1) Total
------------ ------------ --------
(In thousands)
<S> <C> <C> <C>
Subordinated certificates $ 40,441 $ 5,111 $ 45,552
Interest-only strip 12,229 20,924 33,153
Transferor interest (2) -- 45,851 45,851
-------- -------- --------
$ 52,670 $ 71,886 $124,556
======== ======== ========
</TABLE>
(1) Retained interests are from home equity, first and second mortgage
securitizations.
(2) Includes overcollateralization accounts.
The significant assumptions used in estimating the fair value of retained
interests capitalized during the quarter ended September 30, 2000 and the
assumptions used in estimating the fair value of the entire portfolio of
retained interests at September 30, 2000 were as follows:
<TABLE>
<CAPTION>
Quarter Ended
September 30, 2000 September 30, 2000
----------------------- -------------------------
Manufactured Manufactured
Housing Mortgage Housing Mortgage
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Weighted average prepayment rate (1) 12.3 % 45.1 % 12.7 % 42.6 %
Weighted average life (in years) 5.0 1.5 4.8 1.5
Weighted average default rate 3.0 % 0.5 % 3.2 % 0.8 %
Loss severity rate 61.5 % 100.0 % 61.2 % 100.0 %
Asset cash flows discounted at 14.0 % 13.5 % 14.0 % 12.9 %
Liability cash flows discounted at 7.5 % -- 6.2 % --
</TABLE>
(1) Excludes weighted average default rate.
13
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Servicing Assets
On a quarterly basis, GreenPoint reviews capitalized servicing rights for
impairment. This review is performed based on risk strata, which are determined
on a disaggregated basis given the predominant risk characteristics of the
underlying loans. For manufactured housing loans, the predominant risk
characteristics are loan type and interest rate type. For mortgage loans, the
predominant risk characteristics are loan type and interest rate. At September
30, 2000 and December 31, 1999, there were no valuation allowances on any of the
servicing rights risk strata.
Servicing assets relating to the entire servicing portfolio are summarized as
follows:
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Manufactured housing $139,958 $126,325
Mortgage 76,454 54,304
-------- --------
$216,412 $180,629
======== ========
During the quarter ended September 30, 2000, GreenPoint capitalized servicing
rights of $13.2 million and $13.4 million for mortgage and manufactured housing
loans, respectively. The significant assumptions used in estimating the fair
value of the servicing assets capitalized during the quarter ended September 30,
2000 and the assumptions used in estimating the fair value of the entire
servicing asset portfolio at September 30, 2000 were as follows:
<TABLE>
<CAPTION>
Quarter Ended
September 30, 2000 September 30, 2000
------------------------------------- -------------------------------------
Manufactured Manufactured
Housing Mortgage Housing Mortgage
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Weighted average prepayment rate (1) 12.3 % 31.6 % 12.7 % 19.0 %
Weighted average life (in years) 5.0 3.7 4.4 5.3
Weighted average default rate 3.0 % 1.4 % 3.7 % 3.7 %
Cash flows discounted at 14.0 % 10.1 % 14.0 % 9.8 %
</TABLE>
(1) Excludes weighted average default rate.
14
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Business Segments
The Company consists of three domestic business segments offering unique
products and services. The Mortgage Banking segment is in the business of
originating, selling, securitizing and servicing residential mortgage loans. 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.
The accounting policies of the segments are the same as 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.
<TABLE>
<CAPTION>
Quarter Ended September 30, 2000
---------------------------------------------------------------------------------------------
Manufactured Segment Consolidated
Mortgage Consumer Housing Totals Other (1) Totals
------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 58,941 $ 59,821 $ 11,626 $ 130,388 $ 12,239 $ 142,627
Income from fees and
commissions 1,048 9,949 3,089 14,086 (98) 13,988
Loan servicing fees 5,625 -- 28,102 33,727 -- 33,727
Net gain on sales of loans 51,321 2 30,539 81,862 -- 81,862
Change in valuation of
retained interests -- -- (20,510) (20,510) -- (20,510)
Depreciation and amortization 3,489 12,310 9,227 25,026 2,328 27,354
Segment income (loss) before
taxes 83,568 36,234 (4,187) 115,615 (3,925) 111,690
Other significant non-cash
items:
ESOP and stock plans expense 1,741 997 1,712 4,450 468 4,918
Total assets $ 9,954,721 $ 11,773,420 $ 1,574,447 $ 23,302,588 $ (7,977,363)(2) $ 15,325,225
<CAPTION>
Quarter Ended September 30, 1999
---------------------------------------------------------------------------------------------
Manufactured Segment Consolidated
Mortgage Consumer Housing Totals Other (1) Totals
------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 64,438 $ 52,204 $ 7,079 $ 123,721 $ 15,565 $ 139,286
Income from fees and
commissions 3,521 8,123 1,657 13,301 (237) 13,064
Loan servicing fees 6,264 -- 17,707 23,971 -- 23,971
Net gain on sales of loans 44,225 10 13,584 57,819 -- 57,819
Change in valuation of
retained interests -- -- -- -- -- --
Depreciation and amortization 4,036 12,395 8,959 25,390 2,845 28,235
Segment income (loss) before
taxes 75,948 27,924 (3,142) 100,730 2,538 103,268
Other significant non-cash
items:
ESOP and stock plans expense 1,059 1,203 1,804 4,066 747 4,813
Total assets $ 9,822,877 $ 12,182,745 $ 1,770,748 $ 23,776,370 $ (8,291,154)(2) $ 15,485,216
</TABLE>
(1) Represents unallocated corporate amounts.
(2) 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 $8.0 billion and $8.3 billion
for the quarters ended September 30, 2000 and 1999, respectively. Net
interest income corresponding to the assumed funds transfers is allocated
accordingly.
15
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
---------------------------------------------------------------------------------------------
Manufactured Segment Consolidated
Mortgage Consumer Housing Totals Other (1) Totals
------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 177,485 $ 175,913 $ 33,506 $ 386,904 $ 45,601 $ 432,505
Income from fees and
commissions 995 28,873 7,367 37,235 922 38,157
Loan servicing fees 15,681 -- 86,328 102,009 -- 102,009
Net gain on sales of loans 118,602 38 70,896 189,536 -- 189,536
Change in valuation of
retained interests -- -- (39,631) (39,631) -- (39,631)
Depreciation and amortization 11,131 37,094 27,198 75,423 7,824 83,247
Segment income (loss) before
taxes 221,318 105,218 567 327,103 (8,419) 318,684
Other significant non-cash
items:
ESOP and stock plans expense 5,227 3,017 5,227 13,471 (1,297) 12,174
Total assets $ 9,954,721 $ 11,773,420 $ 1,574,447 $ 23,302,588 $ (7,977,363)(2) $ 15,325,225
<CAPTION>
Nine Months Ended September 30, 1999
---------------------------------------------------------------------------------------------
Manufactured Segment Consolidated
Mortgage Consumer Housing Totals Other (1) Totals
------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 198,615 $ 153,830 $ 19,917 $ 372,362 $ 30,352 $ 402,714
Income from fees and
commissions 5,126 22,664 5,342 33,132 437 33,569
Loan servicing fees 12,979 -- 60,459 73,438 -- 73,438
Net gain on sales of loans 121,806 62 53,439 175,307 -- 175,307
Change in valuation of
retained interests -- -- -- -- -- --
Depreciation and amortization 10,682 37,079 26,930 74,691 8,401 83,092
Segment income (loss) before
taxes 208,372 79,662 18,594 306,628 (34,434) 272,194
Other significant non-cash
items:
ESOP and stock plans expense 3,387 3,575 5,855 12,817 2,727 15,544
Total assets $ 9,822,877 $ 12,182,745 $ 1,770,748 $ 23,776,370 $ (8,291,154)(2) $ 15,485,216
</TABLE>
(1) Represents unallocated corporate amounts.
(2) 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 $8.0 billion and $8.3 billion
for the nine months ended September 30, 2000 and 1999, respectively. Net
interest income corresponding to the assumed funds transfers is allocated
accordingly.
16
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. 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 Derivative
and Hedging Activities ("SFAS 133"), subsequently amended by Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities (an amendment of FASB Statement No.
133). As amended, SFAS 133 is effective for all fiscal years beginning after
June 15, 2000 (January 1, 2001 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 currently determining the impact of recent
Derivative Implementation Group and FASB rulings relating to the proper
accounting for mortgage and manufactured housing pipeline loans under SFAS 133.
As a result, management is in the process of assessing the impact of the
adoption of SFAS 133 on the Company's earnings and financial position.
On September 29, 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, a replacement of SFAS 125 ("SFAS 140"). This
statement revises the standards of accounting for securitizations and other
transfers of financial assets and collateral established by SFAS 125 and
requires certain additional disclosures, but carries over most of SFAS 125's
provisions without reconsideration. SFAS 140 will be effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. Disclosures about securitization and collateral accepted need
not be reported for periods ending before December 15, 2000, for comparative
financial statement presentations. SFAS 140 is to be applied prospectively with
certain exceptions. Management of the Company anticipates that the adoption of
SFAS 140 will not have a significant effect on the Company's earnings or
financial position.
7. Stock Repurchase Program
In March 2000, the Company's Board of Directors authorized a new share
repurchase program of up to 5%, or approximately 5.2 million, of its outstanding
shares. The repurchase will be at the Company's discretion, based on ongoing
assessments of the capital needs of the business and the market valuation of its
stock.
As of September 30, 2000, the Company repurchased 3,174,500 shares under this
program, at a cost of approximately $68.2 million. The repurchased shares are
being held in treasury.
17
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Restructuring Reserve and Non-recurring Personnel Expense
For the quarter ended September 30, 2000, the Company recorded a restructuring
charge of $4.9 million relating to estimated severance expense and the cost of
exiting certain facilities, primarily at GreenPoint Credit. The restructuring
initiatives include expenses associated with aligning the size and organization
of GreenPoint Credit with lower originations expected as a result of lower
industry volume and more selective underwriting. The number of regional offices
was reduced to 25 from 45, and the workforce was cut by approximately 25%.
The Company recorded a $6.0 million restructuring charge in the first quarter of
1999 pertaining to the integration of Headlands Mortgage Company and GreenPoint
Mortgage Corp. The restructuring charge included accruals related to the
estimated severance expenses to be incurred. During the first quarter of 2000,
the Company reevaluated the remaining restructuring liability of $2.6 million.
Most of the actions under this plan are completed or near completion and
resulted in expenses being less than originally anticipated. As a result, the
Company recognized a restructuring credit of $1.4 million during the first
quarter of 2000.
For the quarter ended March 31, 2000 the Company recorded a new restructuring
charge of $1.4 million that will be utilized to absorb severance expenses
pertaining to further integration of GreenPoint Mortgage Funding Corp. and
GreenPoint Credit, LLC.
9. Subsequent Event
On October 4, 2000, the Bank issued $150 million of 9.25% Subordinated Bank
Notes (the "Notes") under an existing bank note program filed with the
Securities and Exchange Commission in 1997. The Notes are due October 1, 2010.
The Notes were priced at 99.822% to yield 9.278% to maturity. Interest is
payable semiannually on April 1 and October 1 commencing April 1, 2001. Net
proceeds to the Bank of $148.8 million will be used for general corporate and
banking purposes in the ordinary course of its business. The Notes qualify as
Tier 2 or supplemental capital of the Bank under capital guidelines established
by the FDIC, subject to applicable limitations.
18
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2000 2000 2000 1999 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Performance Ratios (Annualized)
Core cash earnings return on
average assets (1) 2.45 % 2.28 % 2.14 % 2.16 % 2.28 %
Core cash earnings return on
average equity (1) 18.62 17.74 16.33 16.34 16.98
Core cash earnings return on
tangible equity (1) 33.08 31.96 30.14 30.47 32.04
Core return on average assets (1) 1.81 1.68 1.53 1.53 1.63
Core return on average equity (1) 13.79 13.03 11.63 11.57 12.12
Net interest margin 4.17 4.19 4.21 4.02 4.13
Net interest spread during
period 3.71 3.77 3.80 3.63 3.75
Operating expense to average assets (2) 2.81 2.75 2.76 2.71 2.90
Efficiency ratio (3) 42.8 44.2 45.4 45.2 47.0
Average interest-earning assets
to average interest-bearing
liabilities 1.10 x 1.10 x 1.10 x 1.09 x 1.10 x
Regulatory Capital Ratios:
Company:
Leverage capital 9.55 % 9.14 % 9.17 % 8.73 % 9.36 %
Risk-based capital:
Tier I 9.69 9.61 10.29 10.62 12.44
Total 10.48 10.42 11.18 11.58 13.50
Bank:
Leverage capital 9.49 8.91 9.09 8.41 8.26
Risk-based capital:
Tier I 9.63 9.35 10.19 10.22 10.92
Total 10.42 10.16 11.08 11.17 11.97
Per Share Data:
Core cash earnings (1)* $ 1.04 $ 0.97 $ 0.88 $ 0.87 $ 0.88
Common book value** 22.91 22.38 21.87 21.40 21.26
Tangible common book value** 13.17 12.46 11.88 11.26 11.45
Shares used in calculations - (In thousands):
* Average 91,061 91,612 92,479 94,960 98,112
** Period - end 90,596 90,936 92,310 92,830 98,035
Total 101,351 102,294 103,832 104,203 109,469
Asset Quality Ratios:
Non-performing loans to total
loans held for investment 2.21 % 2.21 % 2.16 % 2.36 % 2.43 %
Non-performing assets to total
assets 1.32 1.32 1.39 1.47 1.55
Allowance for possible loan losses
to:
Non-performing loans 58.31 57.28 56.40 51.47 48.13
Total loans held for investment 1.29 1.27 1.22 1.21 1.17
Earnings to combined fixed charges
and preferred stock dividends (4):
Excluding interest on deposits 13.55 x 12.46 x 11.11 x 10.76 x 11.33 x
Including interest on deposits 1.80 x 1.80 x 1.73 x 1.73 x 1.78 x
<CAPTION>
Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
2000 1999
----------- -----------
<S> <C> <C>
Performance Ratios (Annualized)
Core cash earnings return on
average assets (1) 2.29 % 2.27 %
Core cash earnings return on
average equity (1) 17.57 16.99
Core cash earnings return on
tangible equity (1) 31.75 33.45
Core return on average assets (1) 1.67 1.60
Core return on average equity (1) 12.82 11.96
Net interest margin 4.19 4.02
Net interest spread during
period 3.76 3.67
Operating expense to average assets (2) 2.77 2.89
Efficiency ratio (3) 44.1 47.2
Average interest-earning assets
to average interest-bearing
liabilities 1.10 x 1.09 x
Regulatory Capital Ratios:
Company:
Leverage capital
Risk-based capital:
Tier I
Total
Bank:
Leverage capital
Risk-based capital:
Tier I
Total
Per Share Data:
Core cash earnings (1)* $ 2.89 $ 2.61
Common book value** N/A N/A
Tangible common book value** N/A N/A
Shares used in calculations - (In thousands):
* Average 91,715 97,564
** Period - end -- --
Total -- --
Asset Quality Ratios:
Non-performing loans to total
loans held for investment
Non-performing assets to total
assets
Allowance for possible loan losses
to:
Non-performing loans
Total loans held for investment
Earnings to combined fixed charges
and preferred stock dividends (4):
Excluding interest on deposits 12.34 x 10.10 x
Including interest on deposits 1.78 x 1.71 x
</TABLE>
(1) Excludes Headlands acquisition expense, restructuring charge and
non-recurring personnel expense, one-time charitable foundation expense
and gain on sale of a lease.
(2) Excludes goodwill expense, ORE income, Headlands acquisition expense,
restructuring charge and non-recurring personnel expense and one-time
charitable foundation expense.
(3) The efficiency ratio is calculated by dividing operating expense by the
sum of net interest income and non-interest income, excluding pre-tax gain
on sale of a lease.
(4) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividend requirements, earnings represent net income
plus applicable income taxes, fixed charges and preferred stock dividend
requirements of a consolidated subsidiary. Fixed charges represent
interest expense on long-term debt and one-third (the portion deemed to be
representative of the interest factor) of rents.
19
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
1. General
GreenPoint Financial Corp. (the "Company" or "GreenPoint") is a leading national
specialty housing finance company with three principal businesses. GreenPoint
Mortgage Funding, Inc. ("GPM"), a national mortgage banking company
headquartered in Larkspur, California, is the leading national lender in no
documentation ("NoDoc") and alternative A ("Alt A") residential mortgages.
GreenPoint Credit, LLC ("GPC"), headquartered in San Diego, California, is the
nation's second largest lender and servicer of manufactured housing loans.
GreenPoint Bank (the "Bank"), a New York State chartered savings bank, has $11
billion in deposits in 73 branches serving more than 400,000 households in the
Greater New York City area.
Forward Looking Statements
This Quarterly Report on Form 10-Q 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 (on
both a GAAP and cash basis); revenue growth; origination volume in both the
Company's mortgage and manufactured housing finance businesses; tangible capital
generation; market share; expense levels; and other business operations and
strategies. For these statements, GreenPoint claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 to the extent provided by applicable law.
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 acquisitions
and related integration activities; prevailing economic conditions; changes in
interest rates, loan demand, real estate values, and competition, which can
materially affect origination levels in the Company's mortgage and manufactured
housing finance businesses; the level of defaults, losses and prepayments on
loans made by the Company, whether held in portfolio or sold in the secondary
markets; changes in accounting principles, policies, and guidelines; adverse
changes or conditions in capital or financial markets, which could adversely
affect the ability of the Company to sell or securitize mortgage and
manufactured housing originations on a timely basis or at prices which are
acceptable to the Company; 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 report, 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.
20
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item - 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
The Company regularly explores opportunities for acquisitions of and holds
discussions with financial institutions and related businesses, and also
regularly explores opportunities for acquisitions of liabilities and assets of
financial institutions and other financial services providers. The Company
routinely analyzes its lines of business and from time to time may increase,
decrease or terminate one or more activities.
2. Operating Results
The third quarter's results include the following:
o Net income was $67.0 million, an increase of 9% over the third quarter of
1999. Net income per diluted share was $0.74 for the quarter, an increase
of 17% over the third quarter of 1999.
o Core cash earnings were $94.5 million, an increase of 9% over the third
quarter of 1999. Core cash earnings per diluted share were $1.04, an
increase of 18% over the same quarter a year ago.
o A $4.9 million restructuring charge at GreenPoint Credit aligning the size
and organization of GreenPoint Credit with lower expected originations.
o Total loan originations for the third quarter of 2000 were $3.4 billion,
an increase of 7% from the third quarter of 1999, and an increase of 2%
compared to the prior quarter. Mortgage originations for the same period
were $2.9 billion, an increase of 21% from the third quarter of 1999, and
an increase of 10% from the second quarter of 2000. Manufactured housing
loan originations were $491 million, a decrease of 27% from the second
quarter of 2000 and 36% from a year ago.
o GPC recorded a gain of $30.5 million from a securitization of $680.0
million of fixed and variable rate manufactured housing loans.
o GPM sold certain whole loan mortgages of $2.2 billion, recording a gain of
$38.6 million. GPM also sold $350.0 million of home equity lines of credit
and second mortgages in one securitization transaction for a gain of $9.7
million. Draws on previously securitized home equity lines of credit
totaling $58.3 million resulted in a gain of $3.0 million.
o A $20.5 million charge was recorded in connection with the valuation of
retained interests in manufactured housing securitizations due to trends
in loss severity during the quarter.
o Asset quality in the mortgage loan portfolio improved further over 1999.
Non-performing loans decreased 12% to $193.8 million, and total
non-performing assets decreased 11% to $202.8 million at September 30,
2000.
The September 30, 1999 year to date results include the recognition of
non-recurring expenses of $27.6 million related to the acquisition of Headlands
Mortgage Company ("Headlands") and include a one-time restructuring charge
related to severance.
21
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Core Cash Earnings
Core cash earnings are net of non-recurring items and exclude certain non-cash
charges related to goodwill and the Employee Stock Ownership Plan ("ESOP"). The
non-cash expenses, unlike other expenses incurred by the Company, do not reduce
GreenPoint's tangible capital thereby enabling the Company to increase
shareholder value through the growth of earning assets, increases in cash
dividends and additional repurchases of the Company's stock.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------------------------- --------------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2000 2000 1999 2000 1999
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net income $ 67,014 $ 65,344 $ 61,703 $190,229 $156,627
Non-recurring items, net of tax (1) 2,951 -- -- 2,951 22,503
-------- -------- -------- -------- --------
Core net income 69,965 65,344 61,703 193,180 179,130
Add back:
Goodwill amortization 19,587 19,893 19,892 59,372 59,740
Employee Stock Ownership and stock
plans expense 4,918 3,740 4,813 12,174 15,544
-------- -------- -------- -------- --------
Core cash earnings $ 94,470 $ 88,977 $ 86,408 $264,726 $254,414
======== ======== ======== ======== ========
Core cash earnings per share (2) $ 1.04 $ 0.97 $ 0.88 $ 2.89 $ 2.61
======== ======== ======== ======== ========
</TABLE>
(1) Non-recurring items include Headlands acquisition expense and
restructuring charges.
(2) Based on the weighted average shares used to calculate diluted earnings
per share.
22
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Net Interest Income
Net interest income on a tax-equivalent basis increased by $4.9 million, or 3%,
for the third quarter of 2000, and by $33.5 million, or 8%, in the first nine
months of 2000, versus the comparable periods in 1999. The improvement in both
periods was due to an increase in interest earning assets, a change in the mix
of those assets and an increase in the net interest margin from 4.13% to 4.17%
in the quarterly comparison and 4.02% to 4.19% in the nine months.
Average earning assets increased by $346.7 million and $542.9 million in the
quarter and nine months ended September 30, 2000, respectively. Growth in loans
held for sale, due to higher origination volume, and investment securities,
including money market, more than offset declines in loans held for investment.
The shift in the composition of average earning assets, and the general rise in
the level of market rates combined to increase the yield on average earning
assets by 45 and 46 basis points compared with the year ago quarter and nine
month period.
The cost of interest-bearing liabilities rose by 49 and 37 basis points,
respectively, reflecting higher rates for both deposits and other borrowings.
The net interest margin for both the quarter and nine months benefited from
higher net free funds when compared with the corresponding 1999 periods.
23
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Average Balance Sheets and Interest Yield/Cost
The following table sets forth certain information relating to the Company's
average statements of financial condition (unaudited) and statements of income
(unaudited) for the quarters ended September 30, 2000 and 1999, and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such annualized yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from average daily balances. Average
balances and yields include non-accrual loans. The yields and costs include fees
that are considered adjustments to yields. Interest and yields are presented on
a taxable-equivalent yield basis.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------
September 30, 2000 September 30, 1999
----------------------------------------- -----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------------- ------------- --------- --------------- ------------- ---------
(Taxable-equivalent interest and rates, in thousands) (1)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans held for investment (2) $ 8,218,953 $ 178,549 8.69 % $ 9,093,129 $ 194,171 8.54 %
Other loans (2) 604,698 14,995 9.92 407,178 9,795 9.62
Loans held for sale 2,191,963 50,838 9.28 1,813,161 38,847 8.57
Trading assets -- -- -- 19,735 277 5.57
Money market investments (3) 254,765 4,249 6.63 962,622 12,605 5.20
Securities (4) 2,286,561 41,076 7.18 1,139,487 18,234 6.38
Other interest-earning assets 455,915 10,966 9.57 230,814 3,919 6.74
--------------- ------------- --------------- -------------
Total interest-earning assets 14,012,855 300,673 8.58 13,666,126 277,848 8.13
------------- -------------
Non-interest earning assets (5) 1,408,490 1,502,302
--------------- ---------------
Total assets $ 15,421,345 $ 15,168,428
=============== ===============
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings $ 1,272,553 6,750 2.11 $ 1,452,803 8,064 2.20
N.O.W. 280,356 692 0.98 304,187 750 0.98
Money market and variable rate savings 2,410,892 20,696 3.42 2,449,190 20,409 3.31
Term certificates of deposit 7,098,118 100,980 5.66 7,158,035 91,964 5.10
Mortgagors' escrow 110,949 482 1.73 113,382 426 1.49
Trading liabilities 6,787 99 5.80 8,431 111 5.22
Notes payable and other borrowings 986,708 15,889 6.38 375,616 5,003 5.27
Securities sold under
agreements to repurchase 179,571 2,691 5.86 216,055 2,798 5.14
Long term debt 150,536 2,631 6.99 199,890 3,468 6.94
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures 199,746 4,575 9.16 199,736 4,574 9.16
--------------- ------------- --------------- -------------
Total interest-bearing liabilities 12,696,216 155,485 4.87 12,477,325 137,567 4.38
------------- -------------
Other liabilities (6) 695,666 655,202
--------------- ---------------
Total liabilities 13,391,882 13,132,527
Stockholders' equity 2,029,463 2,035,901
--------------- ---------------
Total liabilities and stockholders'
equity $ 15,421,345 $ 15,168,428
=============== ===============
Net interest income/interest rate spread
(7) $ 145,188 3.71 % $ 140,281 3.75 %
============= ========= ============= =========
Net interest-earning assets/net interest
margin (8) $ 1,316,639 4.17 % $ 1,188,801 4.13 %
=============== ========= =============== =========
Ratio of interest-earning assets to
interest-earning liabilities 1.10 x 1.10 x
=============== ===============
</TABLE>
(1) Net interest income is calculated on a taxable-equivalent basis.
(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, servicing assets,
deferred tax assets, accrued interest receivable, and other miscellaneous
non-interest earning assets.
(6) Includes accrued interest payable, accounts payable 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.
24
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Average Balance Sheets and Interest Yield/Cost
The following table sets forth certain information relating to the Company's
average statements of financial condition (unaudited) and statements of income
(unaudited) for the nine months ended September 30, 2000 and 1999, and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such annualized yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from average daily balances. Average
balances and yields include non-accrual loans. The yields and costs include fees
that are considered adjustments to yields. Interest and yields are presented on
a taxable-equivalent yield basis.
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------------------------------------------------
September 30, 2000 September 30, 1999
----------------------------------------- -----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------------- ------------- --------- --------------- ------------- ---------
(Taxable-equivalent interest and rates, in thousands) (1)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans held for investment (2) $ 8,446,885 $ 549,443 8.67 % $ 9,179,966 $ 586,299 8.52 %
Other loans (2) 620,275 46,798 10.06 214,286 14,483 9.01
Loans held for sale 1,846,674 125,498 9.06 1,621,427 105,680 8.69
Money market investments (3) 473,586 22,102 6.23 853,548 31,955 5.01
Securities (4) 2,192,177 117,619 7.15 1,217,132 55,942 6.13
Trading assets -- -- -- 7,099 295 5.54
Other interest-earning assets 390,789 31,609 10.80 334,062 17,084 6.84
--------------- ------------- --------------- -------------
Total interest-earning assets 13,970,386 893,069 8.52 13,427,520 811,738 8.06
------------- -------------
Non-interest earning assets (5) 1,419,884 1,537,599
--------------- ---------------
Total assets $ 15,390,270 $ 14,965,119
=============== ===============
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings $ 1,319,295 21,011 2.13 $ 1,492,848 24,598 2.20
N.O.W. 290,021 2,133 0.98 313,072 2,290 0.98
Money market and variable rate savings 2,425,116 61,315 3.38 2,406,040 59,257 3.29
Term certificates of deposit 7,113,028 293,823 5.52 7,016,344 268,713 5.12
Mortgagors' escrow 109,809 1,380 1.68 117,689 1,186 1.35
Trading liabilities 4,805 212 5.89 3,569 144 5.39
Notes payable and other borrowings 850,045 40,935 6.39 342,902 13,109 5.05
Securities sold under
agreements to repurchase 223,717 9,830 5.77 255,575 12,448 6.51
Long term debt 179,834 9,385 6.96 199,881 10,404 6.94
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures 199,744 13,725 9.16 199,734 13,723 9.16
--------------- ------------- --------------- -------------
Total interest-bearing liabilities 12,715,414 453,749 4.76 12,347,654 405,872 4.39
------------- -------------
Other liabilities (6) 666,071 620,830
--------------- ---------------
Total liabilities 13,381,485 12,968,484
Stockholders' equity 2,008,785 1,996,635
--------------- ---------------
Total liabilities and stockholders'
equity $ 15,390,270 $ 14,965,119
=============== ===============
Net interest income/interest rate
spread (7) $ 439,320 3.76 % $ 405,866 3.67 %
============= ========= ============= =========
Net interest-earning assets/net interest
margin (8) $ 1,254,972 4.19 % $ 1,079,866 4.02 %
=============== ========= =============== =========
Ratio of interest-earning assets to
interest-earning liabilities 1.10 x 1.09 x
=============== ===============
</TABLE>
(1) Net interest income is calculated on a taxable-equivalent basis.
(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, servicing assets,
deferred tax assets, accrued interest receivable, and other miscellaneous
non-interest earning assets.
(6) Includes accrued interest payable, accounts payable 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.
25
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Rate/Volume Analysis
The following table presents the effects of changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities on
the Company's interest income on a tax equivalent basis and interest expense
during the periods indicated. Information is provided in each category on
changes (i) attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
volume and rate.
<TABLE>
<CAPTION>
Quarter Ended September 30, 2000 Nine Months Ended September 30, 2000
Compared to Compared to
Quarter Ended September 30, 1999 Nine Months Ended September 30, 1999
Increase/(Decrease) Increase/(Decrease)
-----------------------------------------------------------------------------------
Due to Due to
-------------------------- ---------------------------
Average Average Net Average Average Net
Volume Rate Change Volume Rate Change
------------ ------------ ------------ ------------ ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans held for
investment (1) $ (18,941) $ 3,319 $ (15,622) $ (47,523) $ 10,667 $ (36,856)
Other loans (1) 4,889 311 5,200 30,446 1,869 32,315
Loans held for sale 8,596 3,395 11,991 15,161 4,657 19,818
Money market investments (2) (11,118) 2,762 (8,356) (16,482) 6,629 (9,853)
Securities 20,362 2,480 22,842 51,019 10,658 61,677
Trading assets (277) -- (277) (295) -- (295)
Other interest-earning assets 4,936 2,111 7,047 3,282 11,243 14,525
------------ ------------ ------------ ------------ ------------- ------------
Total interest earned on assets 8,447 14,378 22,825 35,608 45,723 81,331
------------ ------------ ------------ ------------ ------------- ------------
Interest-bearing liabilities:
Savings (968) (346) (1,314) (2,785) (802) (3,587)
N.O.W. (59) 1 (58) (170) 13 (157)
Money market and variable rate
savings (322) 609 287 473 1,585 2,058
Term certificate of deposit (776) 9,792 9,016 3,746 21,364 25,110
Mortgagors' escrow (9) 65 56 (83) 277 194
Trading liabilities (23) 11 (12) 54 14 68
Notes payable and other
borrowings 9,646 1,240 10,886 23,670 4,156 27,826
Securities sold under agreements
to repurchase (511) 404 (107) (1,467) (1,151) (2,618)
Long term debt (863) 26 (837) (1,046) 27 (1,019)
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures -- 1 1 1 1 2
------------ ------------ ------------ ------------ ------------- ------------
Total interest paid on
liabilities 6,115 11,803 17,918 22,393 25,484 47,877
------------ ------------ ------------ ------------ ------------- ------------
Net change in net interest income $ 2,332 $ 2,575 $ 4,907 $ 13,215 $ 20,239 $ 33,454
============ ============ ============ ============ ============= ============
</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.
26
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Provision for Possible Loan Losses
The provision for loan losses was $9.1 million for the third quarter of 2000 and
$24.5 million for the first nine months of 2000, up from $1.4 million and $5.9
million, respectively, for the comparable 1999 periods. The increase is
primarily attributable to charge-offs on the $604 million of manufactured
housing loans that were retained during the third quarter of 1999. Charge-offs
for the quarter and nine months ended September 30, 2000 on the residential
mortgage portfolio were essentially unchanged versus a year ago. The provision
equaled net charge-offs for all periods.
Non-Interest Income
The following table summarizes the components of non-interest income:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Income from fees and commissions:
Loan servicing fees $ 33,727 $ 23,971 $ 102,009 $ 73,438
Banking services fees and commissions 9,767 8,123 28,311 22,671
Other 4,221 4,941 9,846 10,898
--------- --------- --------- ---------
Total income from fees and commissions 47,715 37,035 140,166 107,007
Net gain on sales of mortgage loans 51,323 44,235 118,640 121,868
Net gain on sales of manufactured housing assets 30,539 13,584 70,896 53,439
Net gain (loss) on sale of securities 1,587 (2) 3,428 1,016
Change in valuation of retained interests (20,510) -- (39,631) --
--------- --------- --------- ---------
Total non-interest income $ 110,654 $ 94,852 $ 293,499 $ 283,330
========= ========= ========= =========
</TABLE>
Non-interest income was $110.7 million in the third quarter, up from $94.9
million in the comparable quarter a year ago and was $293.5 million for the nine
months ended September 30, 2000, up from $283.3 million in the same period a
year ago. The results for both the quarter and year to date periods reflect
higher gain on sale of loans and an adjustment to the valuation of retained
interests, both of which are described in further detail in the following
narrative.
Income from fees and commissions was $47.7 million in the third quarter, up from
$37.0 million in the comparable quarter a year ago due to higher loan servicing
fees resulting from the large manufactured housing servicing portfolio. For the
nine months ended September 30, 2000, fee and commission income increased $33
million due to higher servicing fees and an increase in banking services fees
and commissions.
27
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Non-Interest Income (continued)
Gain on sale of loans:
The following table is a summary of loans sold and average margins for the
reported periods:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Loans Sold and Average Margins:
Whole loan - Mortgage:
Sales $ 2,161,416 $ 2,134,821 $ 5,087,640 $ 6,702,497
Gain on sale $ 38,590 $ 36,990 $ 92,163 $ 114,391
Average margin 1.79 % 1.73 % 1.81 % 1.71 %
Whole loan - Manufactured Housing:
Sales --- $ 191,413 --- $ 191,413
Gain on sale --- $ 8,887 --- $ 8,887
Average margin --- 4.64 % --- 4.64 %
Securitizations - Mortgage:
Sales $ 408,270 $ 284,632 $ 856,526 $ 400,419
Gain on sale $ 12,733 $ 7,245 $ 26,477 $ 7,477
Average margin 3.12 % 2.55 % 3.09 % 1.87 %
Securitizations - Manufactured Housing:
Sales $ 680,000 $ 99,985 $ 1,989,263 $ 1,730,985
Gain on sale $ 30,539 $ 4,697 $ 70,896 $ 44,552
Average margin 4.49 % 4.70 % 3.56 % 2.57 %
</TABLE>
Gain on sale of mortgage loans increased for the quarter, principally due to a
higher volume of loans sold along with better market pricing. Gain on sale of
mortgage loans for the nine month period was down $3.2 million versus a year
ago, principally due to lower origination volume during the first six months of
2000, as a result of the higher interest rate environment. The increase in gain
on sale of manufactured housing assets for the quarter and nine months ended
September 30, 2000, was attributable to a higher volume of loans sold, a more
efficient funding structure and an improved credit profile in the third quarter
securitization.
28
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Non-Interest Income (continued)
Valuation of retained interests:
The change in valuation of retained interests was $20.5 million for the quarter
ended September 30, 2000 and $39.6 million for the nine months ended September
30, 2000. There was no valuation adjustment in either of the corresponding 1999
periods. The valuation represents management's best estimate of the current
value of future cash flows associated with retained interests.
In the third quarter of 2000, the ongoing inventory correction in the
manufactured housing industry placed further pressure on prices of new and used
units, leading to lower recoveries on repossessed units. Accordingly,
assumptions for loss severity were increased on all securitizations completed
through the end of 1999. The increased severity assumptions allow for additional
weakening of recoveries over the next several months.
For the nine month period, the change in valuation of retained interests of
$39.6 million was a result of the change in severity assumptions discussed in
the previous paragraph along with changes in the interest rate environment that
occurred during the second quarter of 2000. Of the total second quarter
adjustment of $15.8 million, $11.1 million was related to the effect of interest
rate changes on variable rate securitizations and $4.7 million was the result of
changes in loss severity assumptions.
29
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Non-Interest Expense
The following is a summary of the components of non-interest expense:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Salaries and benefits $ 53,877 $ 53,230 $ 157,691 $ 157,374
Employee Stock Ownership and stock plans expense 4,918 4,813 12,174 15,544
Net expense of premises and equipment 19,150 19,501 59,000 56,407
Advertising 2,219 1,607 4,772 5,662
Federal deposit insurance premiums 596 681 1,829 1,990
Other administrative expenses 27,548 28,267 84,507 81,317
Other real estate owned operating income, net (307) (444) (1,462) (3,316)
Goodwill amortization 19,587 19,892 59,372 59,740
Charitable and educational foundation -- 1,875 -- 5,625
--------- --------- --------- ---------
Total non-interest expense before non-recurring
expenses 127,588 129,422 377,883 380,343
Headlands acquisition expense -- -- -- 21,605
Restructuring charge and non-recurring personnel
expense 4,918 -- 4,918 6,000
--------- --------- --------- ---------
Total non-interest expense $ 132,506 $ 129,422 $ 382,801 $ 407,948
========= ========= ========= =========
</TABLE>
Total non-interest expense was $132.5 million for the third quarter, an increase
of 2% over the same period a year ago. The quarter and nine months ended
September 30, 2000 included a $4.9 million restructuring charge and the nine
months ended September 30, 1999 included non-recurring expenses of $27.6 million
relating to the acquisition of Headlands. Excluding the non-recurring charges,
non-interest expense was essentially unchanged for both the quarter and year to
date periods, reflecting the Company's continued emphasis on tight expense
controls.
The non-recurring expenses for the quarter and nine months ended September 30,
2000 relate to a restructuring charge associated with aligning the size and
organization of GreenPoint Credit with lower industry volume and more selective
underwriting. The charges incurred include $2.6 million in severance expense for
reducing the workforce by 400 and $2.3 million in premises and equipment
expenses as a result of condensing the number of regional offices from 45 to 25.
The non-recurring acquisition expenses incurred in the first quarter of 1999
included $10.2 million in transaction fees, $1.9 million in stock option
acceleration expense, a $2.5 million increase in the recourse reserve for sold
loans, and a $5.0 million contingent liability reserve. The charges also
included $2.0 million in relocation expense and $6.0 million in restructuring
charges for severance expense related to the integration of Headlands and
GreenPoint Mortgage.
30
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Income Tax Expense
Total income tax expense increased $3.1 million, or 7%, to $44.7 million for the
third quarter of 2000 and by $12.9 million, or 11%, to $128.5 million in the
first nine months of 2000. The effective tax rate declined from 40.25% in the
1999 quarter to 40% in the 2000 quarter and from 42.5% to 40.3% in the
comparable nine month periods. The relatively high effective tax rate reported
in 1999 was due to non-recurring charges, which included expenses of
approximately $14.1 million for which no tax benefit was recognized.
Loan Originations
The following table summarizes loan origination activity for each of the
reported periods:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(In millions)
<S> <C> <C> <C> <C>
Comparative Loan Volumes
Mortgage:
Total applications received $ 6,189 $ 4,427 $ 16,360 $ 15,614
============= ============= ============= =============
Total loans originated:
Specialty products (1) $ 1,631 $ 1,405 $ 4,137 $ 4,801
Home equity / Seconds 570 368 1,704 910
Agency / Jumbo 658 592 1,601 2,829
------------- ------------- ------------- -------------
$ 2,859 $ 2,365 $ 7,442 $ 8,540
============= ============= ============= =============
(1) Specialty products include: Alt A, No Doc and A minus programs.
Pipeline $ 3,177 $ 1,810 $ 3,177 $ 1,810
============= ============= ============= =============
Loans held for sale $ 1,520 $ 785 $ 1,520 $ 785
============= ============= ============= =============
Note: The pipeline represents applications in process and approved loan commitments.
Manufactured Housing:
Total loans originated $ 491 $ 766 $ 1,897 $ 2,320
============= ============= ============= =============
Loans held for sale $ 348 $ 435 $ 348 $ 435
============= ============= ============= =============
</TABLE>
Total loan originations during the quarter for the mortgage and manufactured
housing businesses were $3.4 billion, up from $3.1 billion during the third
quarter of 1999. Continued strength in specialty mortgage originations offset
the decline in manufactured housing originations resulting from lower industry
volumes, tightened underwriting standards and risk based pricing initiatives.
For the nine month periods, total originations declined from $10.9 billion to
$9.3 billion due to the impact of rising interest rates on residential mortgage
volumes and the aforementioned trends in the manufactured housing business.
31
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Non-Performing Assets:
During the nine months ended September 30, 2000, non-performing assets decreased
by 11%. The ratio of non-performing loans to mortgage loans held for investment
fell to 2.21% at September 30, 2000 from 2.36% at December 31, 1999 while the
ratio of non-performing assets to total assets fell to 1.32% at September 30,
2000 from 1.47% at December 31, 1999.
Non-performing assets, net of related specific reserves, were as follows:
September 30, December 31,
2000 1999
-------- --------
(In thousands)
Mortgage loans secured by:
Residential one-to four-family $165,013 $172,975
Residential multi-family 15,591 24,144
Commercial property 12,954 22,240
Other loans 239 171
-------- --------
Total non-performing loans (1) 193,797 219,530
Total other real estate owned, net 8,965 7,544
-------- --------
Total non-performing assets $202,762 $227,074
======== ========
(1) Includes $4.6 million and $5.9 million of non-accrual mortgage loans under
90 days past due at September 30, 2000 and December 31, 1999,
respectively.
32
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Allowance for Possible Loan Losses:
The following is a summary of the provision and allowance for possible loan
losses:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 113,000 $ 113,000 $ 113,000 $ 113,000
Provision charged to income 9,085 1,448 24,519 5,902
Charge-offs:
Residential mortgage (1,512) (1,421) (4,575) (5,391)
Manufactured housing (11,034) (223) (29,022) (1,159)
--------- --------- --------- ---------
Total Charge-offs (12,546) (1,644) (33,597) (6,550)
--------- --------- --------- ---------
Recoveries:
Residential mortgage 149 196 236 648
Manufactured housing 3,312 -- 8,842 --
--------- --------- --------- ---------
Total Recoveries 3,461 196 9,078 648
--------- --------- --------- ---------
Balance at end of period $ 113,000 $ 113,000 $ 113,000 $ 113,000
========= ========= ========= =========
</TABLE>
Net mortgage loan charge-offs for the quarter were $1.4 million and $4.3 million
for the quarter and nine months ended September 30, 2000, versus $1.2 million
and $4.7 million, respectively for the comparable 1999 periods. Net charge-offs
on the portfolio of manufactured housing loans held for investment were $7.7
million and $20.2 million for the third quarter and first nine months of 2000.
The $604 million portfolio of manufactured housing loans was retained during the
third quarter of 1999.
Capital Ratios
The Company's ratio of period-end stockholders' equity to ending total assets at
September 30, 2000 was 13.55% compared to 12.90% at December 31, 1999.
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.
33
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Capital Ratios (continued)
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 September 30, 2000, that the Company
and the Bank met all capital adequacy requirements to which they are subject.
As of September 30, 2000, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum Tier 1 capital, total capital and leverage ratios of 6%, 10% and 5%,
respectively. There have been no conditions or events since that notification
that management believes have changed the Company's or Bank's category.
<TABLE>
<CAPTION>
Required For Capital
Actual Adequacy Purposes
-------------------------------- --------------------------------
Amount Ratio Amount Ratio
-------------- -------------- -------------- --------------
(In millions)
<S> <C> <C> <C> <C>
As of September 30, 2000
Total Capital (to Risk Weighted Assets):
Company $ 1,500.6 10.48 % $ 1,145.2 8.00 %
Bank 1,492.1 10.42 1,145.2 8.00
Tier 1 Capital (to Risk Weighted Assets):
Company $ 1,387.6 9.69 % $ 572.6 4.00 %
Bank 1,379.1 9.63 572.6 4.00
Tier 1 Capital (to Average Assets):
Company $ 1,387.6 9.55 % $ 581.3 4.00 %
Bank 1,379.1 9.49 581.1 4.00
</TABLE>
34
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Capital Ratios (continued)
<TABLE>
<CAPTION>
Required For Capital
Actual Adequacy Purposes
-------------------------------- --------------------------------
Amount Ratio Amount Ratio
-------------- -------------- -------------- --------------
(In millions)
<S> <C> <C> <C> <C>
As of December 31, 1999
Total Capital (to Risk Weighted Assets):
Company $ 1,366.2 11.58 % $ 943.8 8.00 %
Bank 1,319.8 11.17 945.1 8.00
Tier 1 Capital (to Risk Weighted Assets):
Company $ 1,253.2 10.62 % $ 471.9 4.00 %
Bank 1,206.8 10.22 472.5 4.00
Tier 1 Capital (to Average Assets):
Company $ 1,253.2 8.73 % $ 574.2 4.00 %
Bank 1,206.8 8.41 573.9 4.00
</TABLE>
35
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk
Market Risk Management
The Company's primary market risk exposure is limited solely to interest rate
risk.
Interest rate risk is defined as the sensitivity of the Company's current and
future earnings to changes in the level of market interest rates. It arises in
the ordinary course of the Company's business, as the repricing characteristics
of its 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.
Management responsibility for interest rate risk resides with the Asset and
Liability Management Committee ("ALCO"). The committee is chaired by the Chief
Financial Officer, and includes the Treasurer, the Head of Risk Management and
the Company's senior business-unit and financial executives. Interest rate risk
management strategies are formulated and monitored by ALCO within policies and
limits approved by the Board of Directors. These policies and limits set forth
the maximum risk which the Board of Directors deems prudent, govern permissible
investment securities and off-balance sheet instruments and identify acceptable
counter-parties to securities and off-balance sheet transactions.
ALCO risk management strategies allow for the assumption of interest rate risk
within the Board approved limits. The strategies are formulated based upon
ALCO's assessments of likely market developments and trends in the Company's
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.
36
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk - (Continued)
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 and manufactured housing 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 table; 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.
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 earned on
earlier investments and loan originations.
37
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk - (Continued)
Interest Rate Sensitivity Gap Analysis
The table below depicts the Company's interest rate sensitivity as of September
30, 2000. Allocations of assets and liabilities, including non-interest bearing
sources of funds to specific periods, are based upon management's assessment of
contractual or anticipated repricing characteristics, adjusted periodically to
reflect actual experience. Those gaps are then adjusted for the net effect of
off-balance sheet financial instruments such as interest rate swaps.
<TABLE>
<CAPTION>
Repricing Periods
--------------------------------------------------------------------------------------------
More than More than More than
Three months three months six months one year More than
or less to six months to one year to three years three years Total
-------------- -------------- -------------- -------------- -------------- ------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Total loans, net $ 2,642 $ 574 $ 1,011 $ 1,970 $ 4,300 $ 10,497
Money market investments (1) 769 -- -- -- -- 769
Securities held to maturity -- -- 1 -- 98 99
Securities available for sale 252 68 173 624 1,218 2,335
Other interest-earning assets 126 -- -- -- -- 126
-------------- -------------- -------------- -------------- -------------- ------------
Total interest-earning assets 3,789 642 1,185 2,594 5,616 13,826
Cash and due from banks 173 -- -- -- -- 173
Servicing assets 5 6 10 37 158 216
Goodwill 20 20 40 160 642 882
Other non-interest earning assets 377 -- -- -- -- 377
-------------- -------------- -------------- -------------- -------------- ------------
Total assets $ 4,364 $ 668 $ 1,235 $ 2,791 $ 6,416 $ 15,474
============== ============== ============== ============== ============== ============
Term certificates of deposit $ 1,661 $ 1,559 $ 2,910 $ 833 $ 137 $ 7,100
Core deposits 327 285 579 1,942 1,074 4,207
-------------- -------------- -------------- -------------- -------------- ------------
Total deposits 1,988 1,844 3,489 2,775 1,211 11,307
Mortgagors' escrow 6 6 13 51 37 113
Securities sold under agreements
to repurchase 50 100 -- -- -- 150
Federal Home Loan Bank of New
York advances 50 100 250 200 250 850
Long term debt -- -- -- 140 -- 140
Subordinated debt (2) -- -- -- -- 149 149
Guaranteed preferred beneficial
interest in Company's junior
subordinated debentures -- -- -- -- 200 200
Notes payable 3 -- -- -- -- 3
Other liabilities 486 -- -- -- -- 486
Stockholders' equity -- -- -- -- 2,076 2,076
-------------- -------------- -------------- -------------- -------------- ------------
Total liabilities and
stockholders' equity $ 2,583 $ 2,050 $ 3,752 $ 3,166 $ 3,923 $ 15,474
============== ============== ============== ============== ============== ============
Off balance sheet financial
instruments $ 350 $ -- $ -- $ (350) $ -- $ --
============== ============== ============== ============== ============== ============
Interest rate sensitivity gap $ 2,131 $ (1,382) $ (2,517) $ (725) $ 2,493
Cumulative gap $ 2,131 $ 749 $ (1,768) $ (2,493) --
Interest rate sensitivity gap as
a percentage of total assets 13.77 % (8.93)% (16.27)% (4.68)% 16.11 %
Cumulative gap as a percentage of
total assets 13.77 % 4.84 % (11.43)% (16.11)% --
</TABLE>
(1) Consists of interest-bearing deposits in other banks, federal funds sold
and securities purchased under agreements to resell.
(2) Subordinated debt was committed to be issued but not settled as of
September 30, 2000.
As of September 30, 2000, the cumulative volume of liabilities maturing or
repricing within one year exceeded assets by $1,768 million, or 11.43% of total
assets.
38
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk - (Continued)
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 and manufactured housing loans and mortgage backed securities
portfolios. The behavior of deposit balances will vary with changes in the
general level of interest rates and management's pricing strategies. The gap
analysis does not provide a clear presentation of the risks to income arising
from options embedded in the balance sheet.
Accordingly, ALCO makes extensive use of an earnings simulation model in the
formulation of its market risk management strategy. The model gives effect to
management assumptions concerning the repricing of assets, liabilities and
off-balance sheet financial instruments, as well as business volumes, under a
variety of hypothetical interest rate scenarios. These hypothetical scenarios
incorporate interest rate increases and decreases of 200 basis points. Actual
interest rate changes during the past three years have fallen within this range
and management expects that any changes over the next year will not exceed this
range.
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 September 30, 2000, 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 0.2% of projected 2000 net income. Conversely, a
gradual 200 basis point increase in interest rates over the next twelve months
on instruments held for other than trading purposes would result in net income
decreasing by 1.1%. GreenPoint does not have significant exposure to such risk
on instruments held for trading purposes.
Management has included all derivative and other financial instruments that have
a material effect in calculating the Company's potential earning at risk.
The Company is exposed to interest rate risk during the accumulation of mortgage
loans prior to sale or securitization. Prior to the closing of the loan, the
Company generally extends an interest rate lock commitment to the borrower. The
Company is exposed to subsequent changes in the level of market interest rates,
and the spread over Treasuries required by investors. An increase in market
interest rates or a widening of spreads will reduce the prices paid by investors
and the resultant gain on sale. To mitigate this risk, at the time the Company
extends an interest rate commitment to the borrower, the Company will enter into
mandatory commitments to deliver mortgage whole loans to various investors, or
to issue private securities and/or Fannie Mae and Freddie Mac securities
(forward delivery commitments). These commitments effectively establish the
price the Company will receive for the related mortgage loan thereby minimizing
the risk of subsequent changes in interest rates.
39
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk - (Continued)
The Company mitigates the risk associated with accumulating manufactured housing
loans by hedging fixed-rate manufactured housing loan production prior to sale
or securitization. Historical analysis indicates that interest rate swap rates
correlate highly with rates paid on manufactured housing securities. Reports are
prepared on the origination of fixed rate manufactured housing loans on a daily
and weekly basis. As the loans are accumulated, the Bank enters into swaps in
which it agrees to pay a fixed rate and receive a floating rate. The amount and
duration of the swaps entered into are selected so the change in fair value
correlates closely with the changes in the fair value of securities backed by
manufactured housing loans similar to the Company's loan inventory. The loans
and the resultant hedging relationships are monitored throughout the
accumulation period. At the time a securitization is priced, establishing the
gain on sale, the swap transactions are unwound. The gain or loss on the swap
position is included as part of the gain on sale from the sale of
securitization.
Credit Risk Management
The Company originates mortgage and manufactured housing loans for its own
portfolio and for disposition in the secondary markets in the form of whole loan
sales and securitizations. In general, whole loan sales transfer the credit risk
to the purchasers. In contrast, for loans placed in the portfolio, or for loans
securitized, the Company retains all or much of the credit risk.
Individual underwriting policies, procedures and authorities reside in the
business units, either GPM or GreenPoint Credit. In each case, the chief credit
executive reports directly to the chief executive of the business, outside of
the production organization. With respect to loans originated for whole loan
sale to the secondary markets, where credit risk is transferred, underwriting
criteria are established to meet investor requirements. A comprehensive quality
control process is in place to ensure that loans being originated meet the
Company's underwriting standards.
In the case of loans originated for GreenPoint's portfolio, an independent
executive-level Risk Management Division determines the characteristics of the
borrowers and the property and loan types acceptable for portfolio investment.
Traditional NoDoc loans continue to be originated based on the borrower's level
of equity in the property securing the loans. Strict appraisal standards are
maintained, requiring all appraisers to be state certified, and all appraisals
are subject to additional levels of review. Alt-A and other non-conforming
loans, which may be placed in portfolio, have separate limits with regard to
borrower and property characteristics established by the Risk Management
Division.
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. Additional security is provided by the housing
collateral securing the loan.
Risk Management reviews monthly the delinquency and loss trends in all the
mortgage and manufactured housing loans serviced by the Company, whether or not
it retains credit exposure. These reviews are intended to identify significant
changes in credit quality, which may indicate changes to the Company's exposures
or to the efficacy of its underwriting of loans sold to other investors. Such
changes could prompt adjustments to the Company's underwriting criteria or
servicing procedures.
40
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk - (Continued)
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 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.
Retained Interest Risk Management
GreenPoint's retained interest consists of two pieces--an asset which is valued
based on expected positive cash flows over the life of the underlying loans, and
a liability reflecting expected negative cash flows--or draws on the Bank's
letter of credit over the same life. In the absence of market-determined values
for these balance sheet items, the Company estimates the values using discounted
future cash flows.
The estimated cash flows are affected by changes to underlying assumptions,
which in turn are a function of changes in current credit loss experience on the
underlying loans, and for variable rate loan securitizations, changes in current
market interest rates.
The Risk Management Division monitors closely the performance of all loans on
which the Company retains credit risk. On securitization or sale, the
independent Risk Management Division sets expectations on the default, recovery
and voluntary prepayment rates. Each pool of loans is reviewed to ensure that
performance is meeting those expectations. In the event performance does not
meet expectations, the assumptions are revised. Responsibility for these
judgments resides with executive management, independent of GPC and GPM.
The interest rate environment impacts the valuation of retained interests on
variable rate loan securitizations because market rates affect both the rates
received and the rates paid on variable rate securitizations. The interest
received on adjustable rate loans is determined by margins added to either the
one-year Treasury rate, or the one-year Libor rate. The interest paid to
bondholders is affected by changes in the one-month Libor rate.
To measure and monitor effectively the value of the retained interests in
conjunction with changes in credit performance and market interest rates,
management completes a rigorous quarterly review of the value of the retained
interests. The review assesses current and historical credit performance and the
interest rate environment. Based on this review, management derives its best
estimate of the interest rate and credit loss assumptions utilized to calculate
projected cash flows.
The frequency of this review enables management to assess the value of the
retained interest and to reflect that valuation regularly in its quarterly
financial statements. Changes in the value of the retained interest are reported
in accordance with established accounting rules, with changes in the value of
the liability reflected currently in the Statement of Income and changes in the
value of the asset reported as a component of "other comprehensive income". If
changes to the asset value are deemed to reflect other than temporary
impairment, this change is also recorded in current period income.
41
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In the ordinary course of business, the Corporation and its subsidiaries are
routinely defendants in or parties to a number of pending and threatened legal
actions and proceedings, in which monetary damages and other forms of relief are
sought. Certain of such actions involve alleged violations of consumer
protection laws, including claims relating to the Corporation's loan collection
efforts, and other federal and state banking laws. Certain of such actions
involve claims for punitive damages. Management has established what it believes
to be sufficient allocated reserves to cover any anticipated losses stemming
from the settlement or payment of any final judgments rendered in any such
cases. Accordingly, management believes that these actions and proceedings and
the losses, if any, resulting from the financial outcome thereof, will not be
material in the aggregate to the Corporation's financial position or results of
operations.
42
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number:
11.1 Statement Regarding Computation of Per Share Earnings
12.1 Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
27.1 Financial Data Schedule
43
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 -Exhibits and Reports on Form 8-K - (Continued)
(b) Reports on Form 8-K
On July 14, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of Headlands
Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed a current
report on Form 8-K to satisfy an undertaking to file copies of certain
agreements executed in connection with the issuance of Home Equity Loan
Asset-Backed Notes, Series 2000-1 (the "Class A-2 Notes"). The Class A-2 Notes
were issued pursuant to a pooling dated June 1, 2000, among the Trust, Bankers
Trust Company (the "Trustee") and the Federal Home Loan Mortgage Corporation.
On July 20, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of Headlands
Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed a current
report on Form 8-K that includes the following information: (i) GreenPoint
Mortgage Securities, Inc. (as Sponsor under the Sale and Servicing Agreement,
dated as of December 1, 1999, providing for the issuance of the GreenPoint Home
Equity Loan Trust 1999-2 Revolving Home Equity Loan Asset-Backed Notes, Series
1999-2); and (ii) the Monthly Payment Date Statement distributed to holders of
Series 1999-2 Notes dated July 15, 2000.
On July 31, 2000, GreenPoint Credit, LLC, the manufactured housing finance
subsidiary of GreenPoint Bank, filed a current report on Form 8-K in order to
file the following documents: (i) a Pooling and Servicing Agreement, dated as of
March 1, 2000, between GreenPoint Credit, LLC, as Contract Seller and Servicer
and The First National Bank of Chicago as Trustee; and (ii) the required Monthly
Investor Servicing Report.
On July 31, 2000, GreenPoint Credit, LLC, the manufactured housing finance
subsidiary of GreenPoint Bank, filed a current report on Form 8-K in order to
file the following documents: (i) a Pooling and Servicing Agreement, dated as of
March 13, 2000, between GreenPoint Credit, LLC, as Contract Seller and Servicer
and The First National Bank of Chicago, as Trustee; and (ii) the required
Monthly Investor Servicing Report.
On July 31, 2000, GreenPoint Credit, LLC, the manufactured housing finance
subsidiary of GreenPoint Bank, filed a current report on Form 8-K in order to
file the following documents: (i) a Pooling and Servicing Agreement, dated as of
May 1, 2000, between GreenPoint Credit, LLC, as Contract Seller and Servicer and
The First National Bank of Chicago as Trustee; and (ii) the required Monthly
Investor Servicing Report.
On August 29, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K that includes the following information: (i)
GreenPoint Mortgage Securities Inc. (the "Company") has previously registered
the offer and sale of the GreenPoint Home Equity Loan Trust Asset-Backed Notes,
Series 2000-1, Class A-2 Variable Rate Asset-Backed Notes (the "Series 2000-1
Notes"); and (ii) the Monthly Payment Date Statement distributed to holders of
Series 2000-1 Notes dated July 15, 2000.
44
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 -Exhibits and Reports on Form 8-K - (Continued)
On August 29, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K that includes the following information: (i)
GreenPoint Mortgage Securities Inc. (the "Company") has previously registered
the offer and sale of the GreenPoint Home Equity Loan Trust Asset-Backed Notes,
Series 2000-1, Class A-2 Variable Rate Asset-Backed Notes (the "Series 2000-1
Notes"); and (ii) the Monthly Payment Date Statement distributed to holders of
Series 2000-1 Notes dated August 15, 2000.
On September 1, 2000, GreenPoint Credit, LLC, the manufactured housing finance
subsidiary of GreenPoint Bank, filed a current report on Form 8-K in order to
file the following document: a Pooling and Servicing Agreement dated March 1,
2000 between GreenPoint, as Contract Seller and Servicer and The First National
Bank of Chicago as Trustee; and (ii) the required Monthly Investor Servicing
Report.
On September 1, 2000, GreenPoint Credit, LLC, the manufactured housing finance
subsidiary of GreenPoint Bank, filed a current report on Form 8-K in order to
file the following documents: (i) a Pooling and Servicing Agreement, dated as of
March 13, 2000, between GreenPoint Credit, LLC, as Contract Seller and Servicer
and The First National Bank of Chicago, as Trustee; and (ii) the required
Monthly Investor Servicing Report.
On September 1, 2000, GreenPoint Credit, LLC, the manufactured housing finance
subsidiary of GreenPoint Bank, filed a current report on Form 8-K in order to
file the following documents: (i) a Pooling and Servicing Agreement, dated as of
May 31, 2000, between GreenPoint Credit, LLC, as Contract Seller and Servicer
and The First National Bank of Chicago, as Trustee; and (ii) the required
Monthly Investor Servicing Report.
On September 12, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K that includes the following information: (i)
GreenPoint Mortgage Securities Inc. (as Sponsor under the Sale and Servicing
Agreement, dated as of December 1, 1999, providing for the issuance of the
GreenPoint Home Equity Loan Trust 1999-2 Revolving Home Equity Loan Asset-Backed
Notes, Series 1999-2); and (ii) the Monthly Payment Date Statement distributed
to holders of Series 1999-2 Notes dated August 15, 2000.
On September 18, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K in which GreenPoint Mortgage Securities Inc. (as
sponsor under the Sale and Servicing Agreement, dated September 1, 2000,
providing for the issuance of GreenPoint Home Equity Loan Trust 2000-2, Home
Equity Loan Asset-Backed Certificates).
On September 19, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K that includes the following information: (i)
GreenPoint Mortgage Securities Inc. (as sponsor under the Sale and Servicing
Agreement, dated June 1, 2000 providing for the issuance of GreenPoint Home
Equity Loan Trust 2000-1, Home Equity Loan Asset-Backed Securities); and (ii)
the Monthly Remittance Statements to the Certificate-holders dated July 17,
2000.
45
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 -Exhibits and Reports on Form 8-K - (Continued)
On September 19, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K that includes the following information: (i)
GreenPoint Mortgage Securities Inc. (as sponsor under the Sale and Servicing
Agreement, dated June 1, 2000, providing for the issuance of GreenPoint Home
Equity Loan Trust 2000-1 Home Equity Loan Asset-Backed Securities); and (ii) the
Monthly Remittance Statements to the Certificate-holders dated August 15, 2000.
On September 20, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K in which GreenPoint Mortgage Securities Inc. (as
sponsor under the Sale and Servicing Agreement, dated September 1, 2000,
providing for the issuance of GreenPoint Home Equity Loan Trust 2000-2, Home
Equity Loan Asset-Backed Securities).
On September 22, 2000, GreenPoint Mortgage Securities Inc., a subsidiary of
Headlands Mortgage Company, a wholly owned subsidiary of GreenPoint Bank, filed
a current report on Form 8-K in which GreenPoint Mortgage Securities Inc. (as
sponsor under the Sale and Servicing Agreement, dated September 1, 2000,
providing for the issuance of GreenPoint Home Equity Loan Trust 2000-2, Home
Equity Loan Asset-Backed Securities).
On September 26, 2000, GreenPoint Credit, LLC filed a current report on Form 8-K
in order to file the following documents: (i) the opinion of Orrick, Herrington
& Sutcliffe LLP ("Orrick") relating to certain tax matters in connection with
the offering of GreenPoint Credit Manufactured Housing Contract Trust
Pass-Through Certificates, Series 2000-5 (the "Publicly Offered Certificates"),
which contains Orrick's consent to use of its name in the Prospectus Supplement
("Prospectus Supplement") dated September 21, 2000 together with the related
Prospectus dated December 9, 1999; (ii) the consent of PricewaterhouseCoopers
LLP to the use of its name in the "Experts" section of the Prospectus
Supplement; and (iii) External Computational Materials prepared by Salomon Smith
Barney Inc.
On September 26, 2000, GreenPoint Credit, LLC filed a current report on Form 8-K
in order to file the following documents: (i) the opinion of Orrick, Herrington
& Sutcliffe LLP ("Orrick") relating to certain tax matters in connection with
the offering of GreenPoint Credit Manufactured Housing Contract Trust
Pass-Through Certificates, Series 2000-4 (the "Publicly Offered Certificates"),
which contains Orrick's consent to use of its name in the Prospectus Supplement
("Prospectus Supplement") dated September 21, 2000 together with the related
Prospectus dated December 9, 1999; (ii) the consent of PricewaterhouseCoopers
LLP to the use of its name in the "Experts" section of the Prospectus
Supplement; and (iii) External Computational Materials prepared by Credit Suisse
First Boston Corporation and First Union Securities.
46
<PAGE>
GREENPOINT FINANCIAL CORP. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GreenPoint Financial Corp.
By: /s/ Thomas S. Johnson
-------------------------------
Thomas S. Johnson
Chairman of the Board and
Chief Executive Officer
By: /s/ Jeffrey R. Leeds
-------------------------------
Jeffrey R. Leeds
Executive Vice President and
Chief Financial Officer
By: /s/ Joseph D. Perillo
-------------------------------
Joseph D. Perillo
Senior Vice President and
Controller
Dated November 13, 2000
47
