Washington, D.C. 20549

 

 

FORM 10-Q

 

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

 

 

For the Quarterly Period Ended
March 31, 2004

 

OR

 

o  Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

001-14320
Commission File Number

 

GreenPoint Financial Corp.

(Exact name of registrant as specified in its charter)

 

 

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.  ý Yes o No

 

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

 

As of April 30, 2004, there were 131,823,054 shares of common stock outstanding.

 

 

GreenPoint Financial Corp.

FORM 10-Q

For the Quarterly Period Ended

March 31, 2004

 

TABLE OF CONTENTS

 

 

PART I – FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Financial Condition (unaudited) as of March 31, 2004 and December 31, 2003
Consolidated Statements of Income (unaudited) for the quarter ended March 31, 2004 and 2003
Consolidated Statements of Comprehensive Income (unaudited) for the quarter ended March 31, 2004 and 2003
Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2004 and 2003
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2004 and 2003
Notes to the Unaudited Consolidated Financial Statements
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Item 4 - Controls and Procedures
PART II – OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 6 - Exhibits and Reports on Form 8-K

 

2

 

GreenPoint Financial Corp. and Subsidiaries
Part 1 – Item 1. Financial Statements

 

Consolidated Statements of Financial Condition
(Unaudited)

 

(In millions, except share amounts)		March 31, 2004			Dec. 31, 2003
ASSETS
Cash and due from banks		$	296		$	268
Money market investments:
Interest-bearing deposits in other banks		15			3
Federal funds sold and securities purchased under agreements to resell		49			64
Total cash and cash equivalents		360			335
Securities:
Securities available for sale		4,667			2,785
Securities available for sale-pledged to creditors		2,228			3,469
Retained interests in securitizations available for sale		52			49
Federal Home Loan Bank of New York stock		245			170
Securities held to maturity (fair value of $6)		6			6
Total securities		7,198			6,479
Loans receivable held for sale		4,601			4,764
Loans receivable held for investment (net of allowance for loan losses of $78)		10,112			9,885
Other interest-earning assets		146			142
Accrued interest receivable		81			81
Banking premises and equipment, net		180			183
Servicing assets		202			183
Goodwill (net of accumulated amortization and impairment of $788)		395			395
Other assets		568			538
Total assets		$	23,843		$	22,985
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
N.O.W. and checking		$	3,267		$	2,983
Savings		1,559			1,514
Variable rate savings		2,096			2,146
Money market		1,502			1,388
Total core deposits		8,424			8,031
Wholesale money market deposits		200			205
Term certificates of deposit		3,953			4,310
Total deposits		12,577			12,546
Borrowings:
Securities sold under agreements to repurchase		2,150			3,327
Other short term borrowings		1,100			1,062
Federal Home Loan Bank of New York advances		4,300			2,800
Senior notes		362			353
Subordinated bank notes		150			150
Guaranteed preferred beneficial interest in Company’s junior subordinated debentures		200			200
Total borrowings		8,262			7,892
Mortgagors’ escrow		68			55
Liability under recourse exposure		208			226
Other liabilities		780			427
Total liabilities		21,895			21,146
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value; 50,000,000 shares authorized; none issued)		—			—
Common stock ($0.01 par value; 220,000,000 shares authorized; 165,391,746 shares issued)		2			2
Additional paid-in capital		957			941
Unallocated Employee Stock Ownership Plan (ESOP) shares		(83		)	(84		)
Retained earnings		2,003			1,926
Accumulated other comprehensive income, net		—			(30		)
Treasury stock, at cost (33,669,661 shares and 33,494,909 shares, respectively)		(931		)	(916		)
Total stockholders’ equity		1,948			1,839
Total liabilities and stockholders’ equity		$	23,843		$	22,985

 

(See accompanying notes to the unaudited consolidated financial statements)

 

3

 

Consolidated Statements of Income

(Unaudited)

 

		Quarter Ended March 31,
(In millions, except per share amounts)		2004			2003
Interest income:
Mortgage loans held for investment		$	155.9		$	166.7
Loans held for sale		55.3			75.9
Securities		71.1			52.1
Other		3.4			3.6
Total interest income		285.7			298.3
Interest expense:
Deposits		49.5			62.7
Other borrowed funds		52.5			52.7
Long-term debt		9.0			8.1
Total interest expense		111.0			123.5
Net interest income		174.7			174.8
Provision for loan losses		(1.3		)	(0.3		)
Net interest income after provision for loan losses		173.4			174.5
Non-interest income:
Income from fees and commissions:
Loan servicing income		(5.9		)	5.8
Banking services fees and commissions		22.4			14.5
Fees, commissions and other income		6.9			3.4
Total income from fees and commissions		23.4			23.7
Net gain on sales of loans		120.7			124.3
Change in valuation of retained interests		(0.4		)	(0.7		)
Net gain on sale of securities		0.5			1.2
Total non-interest income		144.2			148.5
Non-interest expense:
General and administrative expenses:
Salaries and benefits		63.8			61.6
Employee Stock Ownership and stock plans expense		8.9			6.1
Net expense of premises and equipment		23.5			20.9
Federal deposit insurance premiums		0.5			0.5
Other administrative expenses		37.8			31.5
Total general and administrative expenses		134.5			120.6
Other real estate owned operating income		—			0.2
Total non-interest expense		134.5			120.8
Income from continuing operations before income taxes		183.1			202.2
Income taxes related to earnings from continuing operations		70.6			75.3
Net income from continuing operations		112.5			126.9
Discontinued operations:
Net income from disposal of discontinued business		0.1			0.3
Net income		$	112.6		$	127.2
Basic earnings per share:
Net income from continuing operations		$	0.96		$	1.00
Net income from discontinued operations		—			—
Net income		$	0.96		$	1.00
Diluted earnings per share:
Net income from continuing operations		$	0.94		$	0.98
Net income from discontinued operations		—			—
Net income		$	0.94		$	0.98
Dividends declared per share		$	0.30		$	0.21

 

(See accompanying notes to the unaudited consolidated financial statements.)

 

4

 

Consolidated Statements of Comprehensive Income
(Unaudited)

 

		Quarter Ended March 31,
(In millions)		2004			2003
Net income		$	112.6		$	127.2
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period		52.9			(13.8		)
Less: reclassification adjustment for (gains) included in net income		(0.5		)	(1.2		)
Other comprehensive income (loss), before tax		52.4			(15.0		)
Income tax (expense) benefit related to items of other comprehensive income		(22.6		)	6.2
Other comprehensive income (loss), net of tax		29.8			(8.8		)
Total comprehensive income, net of tax		$	142.4		$	118.4

 

(See accompanying notes to the unaudited consolidated financial statements.)

 

5

 

Consolidated Statements of Changes In Stockholders’ Equity
(Unaudited)

 

		Three Months Ended March 31,
(In millions)		2004			2003
Common stock
Balance at beginning of period		$	2		$	1
Balance at end of period		2			1
Additional paid-in capital
Balance at beginning of period		941			907
Reissuance of treasury stock		3			(1		)
Amortization of ESOP shares committed to be released		9			5
Tax benefit for vested stock plans shares		4			1
Balance at end of period		957			912
Unallocated ESOP shares
Balance at beginning of period		(84		)	(89		)
Amortization of ESOP shares committed to be released		1			1
Balance at end of period		(83		)	(88		)
Retained earnings
Balance at beginning of period		1,926			1,563
Net income		112			127
Dividends declared		(35		)	(26		)
Balance at end of period		2,003			1,664
Accumulated other comprehensive income, net
Balance at beginning of period		(30		)	24
Net change in accumulated other comprehensive income, net		30			(9		)
Balance at end of period		—			15
Treasury stock, at cost
Balance at beginning of period		(916		)	(482		)
Reissuance of treasury stock		5			6
Purchase of treasury stock		(20		)	(125		)
Balance at end of period		(931		)	(601		)
Total stockholders’ equity		$	1,948		$	1,903

 

(See accompanying notes to the unaudited consolidated financial statements)

 

6

 

Consolidated Statements of Cash Flows
(Unaudited)

 

		Three Months Ended March 31,
(In millions)		2004			2003
Cash flows from operating activities:
Net income		$	113		$	127
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium amortization on mortgage loans		5			8
Net premium amortization on securities		5			8
Provision for loan losses		1			—
Depreciation and amortization		10			8
Gain on sales of loans		(121		)	(124		)
Gain on sale of securities		(1		)	(1		)
ESOP and stock plans expense		11			8
Capitalization of servicing assets		(45		)	(1		)
Amortization and impairment of servicing assets		25			9
(Increase) decrease in assets associated with operating activities:
Loans receivable held for sale:
Loan originations		(8,211		)	(9,328		)
Proceeds from loan sales		8,288			9,946
Other		207			59
Retained interests in securitizations		(3		)	28
Accrued interest receivable		—			2
Other assets		(53		)	45
Increase (decrease) in liabilities associated with operating activities:
Liabilities under recourse exposure		(18		)	(11		)
Other liabilities		364			43
Other, net		1			4
Net cash provided by operating activities		578			830
Cash flows from investing activities:
Net change in loans receivable held for investment		(248		)	271
Purchases of premises and equipment		(7		)	(14		)
Available for sale securities:
Proceeds from maturities		150			796
Proceeds from sales		779			787
Purchase of securities		(1,922		)	(4,130		)
Principal repayments		400			898
Federal Home Loan Bank Stock – (purchases) redemptions		(75		)	60
Other, net		12			12
Net cash used in investing activities		(911		)	(1,320		)
Cash flows from financing activities:
Net change in:
Domestic deposits		31			411
Mortgagors’ escrow deposits		13			8
Proceeds from securities sold under agreements to repurchase and other borrowings		44,535			16,044
Repayments of securities sold under agreements to repurchase and other borrowings		(45,674		)	(15,489		)
Proceeds from advances from Federal Home Loan Bank		37,927			61,960
Repayments of advances from Federal Home Loan Bank		(36,427		)	(62,360		)
Cash dividends paid		(35		)	(26		)
Treasury stock purchased		(20		)	(125		)
Exercise of stock options		8			5
Net cash provided by financing activities		358			428
Net increase (decrease) in cash and cash equivalents		25			(62		)
Cash and cash equivalents – beginning of period		335			369
Cash and cash equivalents – end of period		$	360		$	307
Non-cash activities:
Additions to other real estate owned, net		$	11		$	12
Unsettled securities trades		$	257		$	—
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	6		$	20
Interest paid		$	113		$	126

 

(See accompanying notes to the unaudited consolidated financial statements)

 

7

 

Notes To The Unaudited Consolidated Financial Statements

 

NOTE 1                                                    Summary of Significant Accounting Policies

 

Basis of Presentation

 

The unaudited consolidated 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 period 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 Company adopted a plan to exit the manufactured housing lending business in December 2001. Current and comparative prior period consolidated statements of income present the results of continuing operations and discontinued operations separately.

 

These unaudited consolidated interim financial statements 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, 2003.

 

Use of Estimates

 

The preparation of the Consolidated Financial Statements under U.S. Generally Accepted Accounting Principals (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and disclosures of contingent assets and liabilities as of the date of the Consolidated Financial Statements. Actual results could differ from those estimates.

 

Accounting for Loan Sales

 

GreenPoint primarily sells loans in the whole loan market. Loans sold on a whole loan basis are sold either with GreenPoint releasing or retaining the right to service the loans. When GreenPoint 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. If the loans are sold with GreenPoint retaining the servicing rights, the gain or loss depends in part on the fair value attributed to the servicing rights.

 

In addition to selling through the whole loan market, GreenPoint on occasion securitizes certain mortgage loans.

 

The rules governing the accounting for loan securitizations are established in Statement of Financial Accounting Standards N0. 140 – “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). This standard establishes the conditions that must be present for treating a transfer of financial assets as a sale and the conditions that must be met to treat the transferor as a Qualifying Special Purpose Entity (“QSPE”).

 

GreenPoint’s securitizations of mortgage loans involve the sale of a pool of loans to a QSPE and securities supported by the cash flow from the transferred loans are sold by the QSPE to third party investors. Funds received from the third-party investors are returned to GreenPoint as payment for the transferred loans. Generally, the Company may retain servicing rights and one or more retained interests. These retained interests include interest-only strips, subordinated certificates, transferor interests, demand notes and certain other credit enhancements.

 

For a securitization transaction to be treated as a sale under SFAS 140, the loans transferred by the Company must have been isolated from the seller (even in bankruptcy or receivership), the QSPE must meet the significant limitations on it’s activities and the transferor can not maintain effective control of the transferred assets. In order to determine if the loans have been isolated, GreenPoint obtains an opinion of legal counsel. The opinion must state that the transaction is a sale and that the assets transferred would not be consolidated with the transferor’s other assets in the event of a bankruptcy or receivership. A QSPE is exempt from being consolidated in the financial statements of a transferor or its affiliates under SFAS 140.

 

8

 

In calculating the gain or loss on the sale, GreenPoint allocates the cost basis of the loans sold between the assets sold, the retained interests and servicing rights based on their relative fair values at the date of sale. 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. Because market quotes are generally not available for retained interests and servicing assets, the Company generally estimates fair value using modeling techniques based on the assumptions the Company believes market participants would use for similar assets and liabilities.

 

Representations and Warranties

 

In the normal course of business, GreenPoint may be required to repurchase a previously sold mortgage if certain deficiencies exist in the loan documentation. GreenPoint has established a liability for losses it estimates might be incurred (“the representation and warranty liability”). This liability is included in the Consolidated Statements of Financial Condition under other liabilities.

 

Additions to the representation and warranty liability are reported as a reduction to gain on sale of loans. Payments made to indemnify an investor for losses and credit losses that occur after GreenPoint has re-acquired the loan are deducted from the representation and warranty liability.

 

Retained Interests in Securitizations

 

Generally, GreenPoint retains one or more interests in loans sold in a securitization. These interests include interest-only strips, subordinated certificates, transferor interests, demand notes and the recorded liabilities for limited recourse provided on mortgage loans.

 

GreenPoint classifies these retained interests in securitizations as available for sale and carries these securities at fair value. To obtain fair values quoted market prices are used if available. Since market quotes are generally not available for retained interests, GreenPoint generally estimates fair value by using modeling techniques to determine the present value of future cash flows using assumptions of prepayments, defaults, loss severity rates, future interest rates and discount rates. These assumptions are based on GreenPoint’s management’s best estimates of what market participants would use for similar assets and liabilities.

 

Generally, if the fair value of a retained interest declines below its amortized cost basis, the change in valuation is recognized in the consolidated statement of income and is classified as a change in valuation of retained interests. If the fair value of a retained interest increases above its amortized cost basis, the unrealized gain is reported, net of applicable taxes, in accumulated other comprehensive income, as a separate component of stockholders’ equity.

 

Servicing Assets

 

Servicing assets are carried at the lower of cost or fair value and are amortized in proportion to and over the estimated net servicing revenue.

 

In determining fair value GreenPoint stratifies its servicing assets based on the risk characteristics of the underlying loan pools. 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, ancillary income, servicing costs and discount rates that GreenPoint believes market participants would use for similar assets.

 

If GreenPoint determines that the impairment for a stratum is temporary, a valuation allowance is recognized through a charge to current earnings for the amount the amortized balance exceeds the current fair value. If the fair value of the stratum were to later increase, the reduction of the valuation allowance may be recorded as an increase to servicing income. However, if GreenPoint determines that an impairment for a stratum is other-than-temporary, the value of the servicing asset and any related valuation allowance is written down.

 

9

 

Goodwill

 

Goodwill represents the excess of cost over fair value of assets of businesses acquired. The goodwill reported on the Consolidated Statements of Financial Condition arose from the 1995 acquisition of the New York Branches of Home Savings of America. In December 2001, GreenPoint formally adopted a plan to discontinue the manufactured housing lending business. As a result of this decision, management determined that the goodwill relating to the 1998 acquisition of the manufactured housing finance business of BankAmerica Housing Services (“BAHS”) was impaired and the remaining carrying value was written off.

 

In accordance with the adoption on January 1, 2002 of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), GreenPoint ceased the amortization of goodwill. Since that date, the Company is required to test goodwill annually for impairment. The test allocates goodwill to the Company’s reporting units and compares the fair value of a reporting unit with its carrying amount, which includes goodwill. Impairment does not exist if the fair value of a reporting unit exceeds its carrying amount.

 

The goodwill shown on the Consolidated Statements of Financial Condition is attributable to the retail-banking segment and is carried at its January 1, 2002 book value of $395 million. Based on GreenPoint’s testing of the retail-banking segment, no goodwill impairment was recognized in either 2003 or 2002.

 

Stock-Based Compensation Plans

 

Deferred compensation for stock award plans are recorded as a reduction of stockholders’ equity and are calculated as the cost of the shares purchased by the Bank and contributed to the plan. Compensation expense is recognized over the vesting period of actual stock awards based upon the fair value of shares at the award date.

 

Compensation expense for the Employee Stock Ownership Plan and Trust (“ESOP”) is recognized for the number of shares allocated to ESOP participants, as they are committed to be released. The difference between the fair value of the shares allocated and the cost of the shares to the ESOP is charged or credited to additional paid-in capital.

 

The Company adopted the disclosure approach under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. Under these standards the Company discloses in the notes to the financial statements the pro forma effects on net income and earnings per share, determined as if the fair value-based method had been applied in measuring compensation cost. The Company continues to apply Accounting Principal Board Statement No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) in accounting for its plans. Under APB 25, the Company has not recognized any costs related to its stock option plans since the options granted under these plans have an exercise price equal to the market value of the Company’s common stock on the grant date.

 

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, to stock-based employee compensation.

 

		Quarter Ended March 31,
(In millions)		2004			2003
Net income as reported		$	112.6		$	127.2
Deduct: Total stock-based employee compensation expense determined under fair value based method net of related tax effects		(2.3		)	(2.3		)
Proforma net income		$	110.3		$	124.9
Earnings per share:
Basic – as reported		$	0.96		$	1.00
Basic – pro forma		$	0.95		$	0.98
Diluted – as reported		$	0.94		$	0.98
Diluted – pro forma		$	0.92		$	0.97

 

10

 

NOTE 2                                                    Agreement and Plan of Merger

 

On February 16, 2004, an Agreement and Plan of Merger dated February 15, 2004 by and between North Fork Bancorporation, Inc. (“North Fork”) and GreenPoint was announced. The agreement provides that North Fork will acquire GreenPoint in an all stock transaction. Under the terms of the agreement, in a tax-free exchange of shares, GreenPoint shareholders will receive a fixed exchange ratio of 1.0514 shares of North Fork common stock for each GreenPoint share held upon consummation of the acquisition.

 

The agreement has been approved unanimously by the Boards of Directors of both companies and is subject to all required regulatory approvals, approval by shareholders of both companies and other customary conditions. The agreement establishes a reciprocal termination fee of $250 million and is expected to be completed in the third quarter of 2004.

 

NOTE 3                                                    Loans Receivable

 

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

 

(In millions)		March 31, 2004			Dec. 31, 2003
Conventional first mortgage loans:
Residential one-to four-family		$	3,720		$	4,036
Commercial property		54			93
Second mortgage and home equity loans		778			589
Other		1			1
Total loans receivable held for sale		4,553			4,719
Net deferred loan origination costs		48			45
Loans receivable held for sale, net		$	4,601		$	4,764

 

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

 

(In millions)		March 31, 2004			Dec. 31, 2003
Conventional first mortgage loans:
Residential one-to four-family		$	8,406		$	8,289
Residential multi-family		198			217
Commercial property		1,170			1,029
Second mortgage and home equity loans		290			301
Manufactured housing loans		51			55
Other		25			25
Total loans receivable held for investment		10,140			9,916
Net deferred loan origination costs and purchase premium		50			47
Allowance for loan losses		(78		)	(78		)
Loans receivable held for investment, net		$	10,112		$	9,885

 

11

 

NOTE 4                                                    Securities Available for Sale

 

The amortized cost and estimated fair value of securities available for sale at March 31, 2004 and December 31, 2003 are summarized as follows:

 

		March 31, 2004
(In millions)		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
U.S. Government and Federal Agency Obligations:
U.S. Treasury notes/bills		$	51		$	—		$	(1	)	$	50
Agency notes		172			1			(4		)	169
Mortgage-backed securities		431			8			(1		)	438
Collateralized mortgage obligations		5,728			24			(22		)	5,730
Trust certificates collateralized by GNMA securities		2			—			—			2
Corporate bonds		149			2			(1		)	150
Municipal bonds		36			3			—			39
Equity securities		330			4			(17		)	317
Total securities available for sale		$	6,899		$	42		$	(46	)	$	6,895

 

		December 31, 2003
(In millions)		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
U.S. Government and Federal Agency Obligations:
U.S. Treasury notes/bills		$	101		$	—		$	(4	)	$	97
Agency notes		240			—			(5		)	235
Mortgage-backed securities		581			9			(5		)	585
Collateralized mortgage obligations		4,912			8			(44		)	4,876
Trust certificates collateralized by GNMA securities		2			—			—			2
Corporate bonds		149			1			(3		)	147
Municipal bonds		46			3			—			49
Equity securities		278			2			(17		)	263
Total securities available for sale		$	6,309		$	23		$	(78	)	$	6,254

 

The following is a summary of the fair value of securities with unrealized losses and identification, by security type, of those unrealized losses that have been in place for less than twelve months and for twelve months or more:

 

		At March 31, 2004
		Less Than 12 Months						12 Months of More						Total
(In millions)		Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
U.S. Government and Federal Agency Obligations:
U.S. Treasury notes/bills		$	50		$	1		$	—		$	—		$	50		$	1
Agency notes		169			4			—			—			169			4
Mortgage-backed securities		438			1			—			—			438			1
Collateralized mortgage obligations		5,161			19			569			3			5,730			22
Trust certificates collateralized by GNMA securities		—			—			2			—			2			—
Corporate bonds		95			—			55			1			150			1
Municipal bonds		39			—			—			—			39			—
Equity securities		248			13			69			4			317			17
Total		$	6,200		$	38		$	695		$	8		$	6,895		$	46

 

12

 

		At December 31, 2003
		Less Than 12 Months						12 Months of More						Total
(In millions)		Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
U.S. Government and Federal Agency Obligations:
U.S. Treasury notes/bills		$	97		$	4		$	—		$	—		$	97		$	4
Agency notes		235			5			—			—			235			5
Mortgage-backed securities		585			5			—			—			585			5
Collateralized mortgage obligations		4,792			43			84			1			4,876			44
Trust certificates collateralized by GNMA securities		2			—			—			—			2			—
Corporate bonds		74			1			73			2			147			3
Municipal bonds		—			—			49			—			49			—
Equity securities		174			10			89			7			263			17
Total		$	5,959		$	68		$	295		$	10		$	6,254		$	78

 

The unrealized losses in the portfolio resulted from changes in market interest rates and not from a deterioration in the creditworthiness of the issuer. At March 31, 2004 there were 154 positions in the portfolio with an unrealized loss.

 

NOTE 5                                                    Mortgage Recourse Arrangements, Retained Interests in Securitizations and Servicing Assets

 

The following describes the balances associated with recourse arrangements, the balances and activity in the corresponding retained interests, the balances and activity in servicing assets and the economic assumptions used in valuing the retained interests and servicing assets of mortgage loans. The discussion of manufactured housing recourse and servicing assets is discussed in Note 10.

 

Recourse Arrangements

 

GreenPoint sells loans in the secondary market either through whole loan sales or by securitization.  Generally the credit risk associated with those loans is transferred to the buyer. GreenPoint retains recourse on such sales. In whole loan sales the recourse is limited to documentation representations and warranties and in securitizations the recourse is limited to the amount of credit enhancement GreenPoint contributes to the particular transaction. 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 limited recourse described herein.

 

Typically in securitizations, GreenPoint will provide credit enhancement to the transaction to indemnify losses incurred by the investors. These credit enhancements will be in the form of over-collateralization, excess interest cash flows, subordinated interests or demand notes. GreenPoint retains those interests and, as such, those interests represent the maximum recourse that GreenPoint has on a mortgage securitization. GreenPoint also entered into a whole loan sale where the risk of loss is shared between GreenPoint and the investor.

 

13

 

The following table shows the principal balances of mortgage loans and amounts of maximum recourse to GreenPoint for securitizations and risk-share sales:

 

(In millions)		March 31, 2004			Dec. 31, 2003
Mortgage securitizations:
Principal balance		$	416		$	458
Maximum recourse (1)		51			48
Mortgage risk-share sales:
Principal balance		147			170
Maximum recourse (2)		144			166

 

(1)       Represents the sum of all mortgage retained interests on the balance sheet.

(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. GreenPoint maintains a liability of $1 million to cover expected losses from this arrangement.

 

The following represents quantitative information about delinquencies on loans securitized and loans sold under risk-sharing arrangements:

 

		March 31, 2004						December 31, 2003
(In millions)		Securitized			Sold			Securitized			Sold
Principal balance of loans		$	416		$	147		$	458		$	170
Principal balance of loans 90 days or more past due		12			24			14			26

 

Balances and Changes in Retained Interests

 

The assets recognized as retained interests in mortgage securitizations include interest-only strips, transferor interests, demand notes and subordinated certificates. These retained interests represent the maximum amount of loss GreenPoint can incur in its mortgage securitizations. The activity in retained interests in mortgage securitizations is summarized as follows:

 

		At and for the Quarter Ended March 31,
(In millions)		2004			2003
Retained Interests in Securitizations:
Balance at beginning of period		$	48		$	104
Additions from securitizations		—			—
Interest and other income		1			2
Cash advanced (received)		2			(6		)
Cleanup call exercise		—			(23		)
Change in unrealized gain		1			(1		)
Change in subordinated certificates		(1		)	—
Change in valuation of retained interests		—			(1		)
Balance at end of period		$	51		$	75

 

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 interests.

 

14

 

Valuation Assumptions

 

There were no new securitizations recorded during the quarter ended March 31, 2004. The key economic assumptions used in estimating the fair value of the entire portfolio of mortgage retained interests at March 31, 2004 and December 31, 2003 were as follows:

 

		Estimate of Fair Value at
		March 31, 2004		Dec. 31, 2003
Weighted average life (in years)		0.7		0.7
Weighted average prepayment rate		58.2	%	59.7	%
Weighted average loss rate		3.6	%	3.2	%
Cumulative loss (1)		2.5	%	2.2	%
Asset cash flows discounted at		8.1	%	8.0	%

 

(1)       Remaining estimated net losses divided by outstanding principal balance.

 

Representations and Warranties

 

A majority of GreenPoint’s loan sales are done as whole loan sales. GreenPoint makes certain representations and warranties, which permit the investor to return the mortgage loan to the originator if deficiencies exist in the loan documentation. This is a common practice in the mortgage secondary markets. GreenPoint maintains a liability for such potential indemnifications and repurchases. The following table summarizes the activity in that liability and the amount of losses incurred by GreenPoint on such repurchases:

 

		At and for the Quarter Ended March 31,
(In millions)		2004			2003
Balance at beginning of period		$	61		$	32
Provision charged to income (1)		11			12
Losses		(6		)	(9		)
Balance at end of period		$	66		$	35

 

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

 

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 mortgage loans, the predominant risk characteristics are loan type and interest rate. The asset pools underlying certain mortgage servicing assets at times do not meet agreed-upon servicing covenants. Management evaluates the impact of these covenants on the value of the servicing assets and incorporates the assessment in their quarterly impairment review.

 

15

 

The activity in mortgage servicing assets is summarized as follows:

 

		At and for the Quarter Ended March 31,
(In millions)		2004			2003
Servicing assets
Balance at beginning of period		$	203		$	112
Additions		45			20
Sales		(1		)	(20		)
Amortization		(15		)	(7		)
Balance at end of period		232			105
Reserve for impairment of servicing assets
Balance at beginning of period		(27		)	(27		)
Additional (impairment) recovery		(10		)	1
Balance at end of period		(37		)	(26		)
Servicing assets, net		$	195		$	79

 

The estimated fair values of mortgage servicing assets were $196 million and $82 million at March 31, 2004 and 2003, respectively and $177 million at December 31, 2003.

 

Servicer advances receivable totaled $90 million and $62 million at March 31, 2004 and 2003, respectively and $79 million at December 31, 2003.

 

The significant assumptions used in estimating the fair value of the servicing assets at March 31, 2004 and December 31, 2003 were as follows:

 

		March 31, 2004		Dec. 31, 2003
Weighted average prepayment rate		28.6	%	30.5	%
Weighted average life (in years)		3.7		4.2
Cash flows discounted at		10.4	%	10.3	%

 

NOTE 6                                                    Derivative Financial Instruments

 

GreenPoint enters into mandatory commitments to deliver mortgage whole loans to various investors and to issue private securities and Fannie Mae and Freddie Mac securities (“forward delivery commitments”). The forward delivery commitments are used to manage the interest rate risk associated with mortgage loans and interest rate lock commitments made by GreenPoint to mortgage borrowers. The notional amounts of these contracts were $3.3 billion and $2.6 billion at March 31, 2004 and December 31, 2003, respectively. The forward delivery commitments designated as fair value hedges associated with mortgage loans had notional values of $2.0 billion and $2.2 billion at March 31, 2004 and December 31, 2003, respectively. The notional amounts of forward delivery commitments used to manage the interest rate risk associated with interest rate lock commitments on mortgage loans were $1.3 billion and $494 million at March 31, 2004 and December 31, 2003, respectively. The following table shows hedge ineffectiveness on fair value hedges included in gain on sale of loans for the quarter ended March 31, 2004 and 2003:

 

		For the Quarter Ended March 31,
(In millions)		2004			2003
Gain (loss) on hedged asset or liability		$	18		$	15
Gain (loss) on derivatives		(16		)	(13		)
Hedge ineffectiveness		$	2		$	2

 

16

 

In November 2003, the company entered into an interest swap agreement with a notional amount of $350 million. The company has designated this swap as fair value hedge of the $350 million of 3.20% Senior Notes issued in June of 2003. This swap met the criteria required to qualify for short cut method accounting for derivatives. Based on this method, no ineffectiveness is assumed and fair value changes in the swap are recorded as changes in value of the swap and the long term debt.

 

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

 

The risks inherent in derivatives are the potential inability of a counterparty to meet the terms of its contract and the risk associated with changes in the fair values of the contracts due to movements in the underlying interest rates. The current credit exposure of derivatives is represented by the fair value of contracts with a positive fair value at the reporting date. At March 31, 2004 and December 31, 2003 the receivable on contracts with a positive fair value was $6 million and $3 million, respectively. To reduce credit risk, management may deem it necessary to obtain collateral.

 

NOTE 7                                                    Pension Plan and Other Employee Benefits

 

The Company maintains a noncontributory, qualified, defined benefit pension plan (the “Pension Plan”) covering substantially all employees who have completed one year of service. The funding of the Pension Plan is actuarially determined on an annual basis.

 

The Company also provides a comprehensive medical plan for certain current and future retirees and certain of their spouses until they become eligible for Medicare and a Medicare Supplemental Plan once they become eligible for Medicare. The plan was amended effective March 1, 1998 to provide different benefit and eligibility provisions to employees who retire after that date. The Company also offers life insurance to certain current and future retirees. Benefits are funded on a pay-as-you-go basis and there are no plan assets to pre-fund the liability. Currently, the company expects to make a post-retirement contribution in 2004 of less than one million.

 

The following tables set forth the components of net periodic benefit cost for the periods ended March 31, 2004 and 2003. An actuarial analysis of plan assets and benefit obligations is completed as of September 30^th of each year.

 

		Pension Benefits						Postretirement Benefits
		Quarter Ended March 31,
		2004			2003			2004			2003
Components of Net Periodic Benefit Cost:
Service cost		$	1.1		$	1.0		$	0.2		$	0.2
Interest cost		0.8			0.7			0.3			0.2
Expected return on plan assets		0.9			(0.7		)	—			—
Amortization of prior service cost		—			—			(0.1		)	(0.1		)
Recognized actuarial gain		—			—			—			—
Curtailment		—			—			—			—
Net periodic benefit cost		$	1.0		$	1.1		$	0.4		$	0.3

 

NOTE 8                                                    Stock Incentive Plans

 

For the three months ended March 31, 2004, the Company granted options to purchase 1,933,750 shares of the Company’s common stock to certain officers and directors, at an exercise price of $37.95. These awards vest at various intervals over three years, on the anniversary dates of the awards.

 

17

 

NOTE 9                                                    Discontinued Operations

 

In December 2001, GreenPoint formally adopted a plan to discontinue the manufactured housing lending business. GreenPoint’s consolidated statements of income have been presented to reflect the manufactured housing lending business as a discontinued operation. Accordingly, the income and expenses relating to the manufactured housing business are reported as “discontinued operations” in the consolidated statements of income. In conjunction with this plan, GreenPoint honored previously existing loan commitments to fund approved loans, but did not approve or process any new loan applications subsequent to the announcement to discontinue the business. GreenPoint continues to service a portfolio of manufactured housing loans and will proceed with the orderly liquidation of the business in conjunction with its existing servicing commitments. See Note 10 for a further description of the valuation of retained interests associated with the discontinued operations.

 

The assets and liabilities from discontinued operations at March 31, 2004 and December 31, 2003 were as follows:

 

(In millions)		March 31, 2004			Dec. 31, 2003
Assets:
Cash, cash equivalents and securities		$	35		$	37
Retained interests in securitizations		1			1
Loans receivable:
Loans receivable held for investment		51			55
Deferred loan fees and unearned discount		—			(1		)
Allowance for loan losses		(3		)	(3		)
Loans receivable held for investment, net		48			51
Servicing assets		7			7
Deferred tax assets		114			117
Intercompany receivable		26			25
Other assets		129			134
Total assets		$	360		$	372
Liabilities:
Liability under recourse exposure		$	207		$	225
Other liabilities		62			69
Allocated capital		91			78
Total liabilities and equity		$	360		$	372

 

The deferred tax asset represents the tax receivable associated with the write-down to the carrying value of certain assets of the discontinued business. A portion of the recorded loss (primarily goodwill) was not currently deductible for tax purposes and will be amortized on a straight-line basis through 2011.

 

Other assets include premises and equipment, servicer advances, intercompany receivables and other operating receivables associated with the servicing operation. Other liabilities represent balances due to investors and surety providers and accrued expenses incurred in the normal course of the discontinued operation. Allocated equity represents the balance of equity capital allocated to the discontinued business under the Company’s equity allocation formula.

 

The net income of $0.1 million and $0.3 million reported for the quarters ended March 31, 2004 and 2003, respectively, represents the difference between the projected results and the actual results of the discontinued business.

 

The Bank has used interest rate swaps for specific manufactured housing securitizations. These swaps are recorded at fair value. The combined notional value of these swaps was $511 million and $533 million at March 31, 2004 and December 31, 2003, respectively.

 

18

 

NOTE 10                                             Manufactured Housing Recourse Arrangements, Retained Interests in Securitizations and Servicing Assets

 

In December 2001, GreenPoint formally adopted a plan to discontinue the manufactured housing lending business. Although it exited the manufactured housing lending business, GreenPoint continues to service existing loans. Such commitments expose GreenPoint to losses on or from securitizations and loan sales. 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 recourse described herein. The following describes the balances associated with recourse arrangements, the balances and activity in the corresponding retained interests, the balances and activity in servicing assets and the economic assumptions used in valuing the retained interests and servicing assets.

 

Recourse Arrangements

 

The following table summarizes the principal balances of manufactured housing loans securitized and sold, the maximum recourse to GreenPoint on those loans and the liability recorded for such recourse.

 

(In millions)		March 31, 2004			Dec. 31, 2003
Manufactured housing securitizations:
Principal balance		$	3,499		$	3,623
Maximum recourse (1)		522			538
Recorded liability		200			217
Manufactured housing sales:
Principal balance		211			218
Maximum recourse		211			218
Recorded liability		7			8

 

(1)       A portion of the securitization maximum exposure is a retained interest asset. As of March 31, 2004 and December 31, 2003 the manufactured housing retained interest asset was $1 million for both periods.

 

GreenPoint’s manufactured housing securitization exposure lies in a corporate guarantee issued with each securitization in the form of a letter of credit to indemnify a limited amount of losses to the investors. The following table summarizes those letters of credit and the amount of draws GreenPoint expects.

 

(In millions)		March 31, 2004			Dec. 31, 2003
Letters of credit outstanding		$	521		$	537
Projected letter of credit draws		(219		)	(239		)
Unreserved exposure		$	302		$	298

 

GreenPoint’s liability under recourse exposure for manufactured housing securitizations represents the present value of the projected letter of credit draws. Of the $3.5 billion of securitized loans outstanding there are five securitizations totaling $1.4 billion, with $68 million in letters of credit remaining, in which GreenPoint’s recorded liability is equal to its remaining exposure under those letters of credit.

 

Under certain securitizations, GreenPoint is committed to exercise its optional termination right and retire such transactions when the underlying loans total 10% of the original loan balance. Loans to be repurchased under this commitment total $376 million and the projected financial statement impact is included in the operating results of the discontinued business.

 

Pursuant to GreenPoint’s letter of credit agreements associated with its manufactured housing securitizations, the announcement of a change in control, more fully described in Note 2, may require GreenPoint to fully fund its remaining obligations under its outstanding letters of credit. If required, the funding would result in a payment of approximately $521 million into the securitization trusts. The funds remaining in the trusts would be returned to GreenPoint upon maturity of each securitization agreement. Although a final assessment of the impact will be determined by the timing, structure, and dollar amount of the fundings, the event is not expected to have a material impact on the Company’s financial position.

 

19

 

The following presents quantitative information about delinquencies on loans sold with recourse:

 

		March 31, 2004						December 31, 2003
(In millions)		Securitized			Sold			Securitized			Sold
Principal balance of loans		$	3,499		$	211		$	3,623		$	218
Principal balance of loans 90 days or more past due (1)		161			1			191			2

 

(1)       Manufactured housing past due loans include repossessed inventory.

 

Balances and Changes in Retained Interests

 

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

 

		At and for the Quarter Ended March 31,
(In millions)		2004			2003
Liability for Recourse Exposure:
Balance at beginning of period		$	225		$	300
Interest expense		3			5
Letter of credit draws and other charges		(17		)	(17		)
Letter of credit pre-funding		—			—
Change in valuation of retained interests		(4		)	1
Balance at end of period		$	207		$	289

 

On a quarterly basis, GreenPoint reviews the liability for recourse exposure on manufactured housing securitizations based on management’s best estimate of future cash flows associated with the corporate guarantees.

 

		At and for the Quarter Ended March 31,
(In millions)		2004			2003
Retained Interests in Securitizations:
Balance at beginning of period		$	1		$	4
Letter of credit pre-funding		—			—
Interest and other income		—			—
Cash received		—			—
Change in unrealized gain		—			—
Change in valuation of retained interests		—			(1		)
Balance at end of period		$	1		$	3

 

20

 

Valuation Assumptions

 

The key economic assumptions used in estimating the fair value of the entire portfolio of manufactured housing retained interests, both assets and liabilities, at March 31, 2004 and December 31, 2003 were as follows:

 

		Estimate of Fair Value at
		March 31, 2004		Dec. 31, 2003
Weighted average life (in years)		5.4		5.4
Weighted average prepayment rate (1)		5.9	%	5.9	%
Weighted average default rate		6.0	%	6.1	%
Loss severity rate		92.0	%	90.5	%
Weighted average loss rate		5.5	%	5.5	%
Cumulative loss (2)		29.7	%	29.7	%
Asset cash flows discounted at		14.0	%	14.0	%
Liability cash flows discounted at		6.6	%	6.6	%

 

(1)       Excludes weighted average default rate.

(2)       Remaining estimated net losses divided by outstanding principal balance.

 

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. The asset pools underlying certain manufactured housing servicing assets at times do not meet agreed-upon servicing covenants. Management evaluates the impact of these covenants on the value of the servicing assets and incorporates the assessment in their quarterly impairment review.

 

The activity in manufactured housing servicing assets is summarized as follows:

 

		At and for the Quarter Ended March 31,
(In millions)		2004			2003
Servicing assets
Balance at beginning of period		$	35		$	101
Additions		—			—
Sales		—			—
Amortization		1			(2		)
Balance at end of period		36			99
Reserve for impairment of servicing assets
Balance at beginning of period		(28		)	(69		)
Additions		(1		)	—
Balance at end of period		(29		)	(69		)
Servicing assets, net		$	7		$	30

 

The estimated fair values of manufactured housing servicing assets were $15 million and $38 million at March 31, 2004 and 2003, respectively and $16 million at December 31, 2003.

 

Manufactured housing servicer advances receivable totaled $37 million at March 31, 2004 and 2003 and $39 million at December 31, 2003.

 

21

 

The significant assumptions used in estimating the fair value of manufactured housing servicing assets at March 31, 2004 and December 31, 2003 were as follows:

 

		March 31, 2004		Dec. 31, 2003
Weighted average prepayment rate (1)		6.6	%	6.6	%
Weighted average life (in years)		5.2		5.3
Weighted average default rate		5.0	%	5.1	%
Cash flows discounted at		14.0	%	14.0	%

 

(1)       Excludes weighted average default rate.

 

NOTE 11                                             Loan Commitments and Contingencies

 

In the normal course of business, there are various outstanding loan commitments and contingent liabilities that have not been reflected in the consolidated financial statements. In addition, in the normal course of business, there are various other outstanding legal and administrative proceedings. In the opinion of management, after consultation with legal counsel, the financial position and results of operations of the Company will not be affected materially as a result of such loan commitments and contingent liabilities or by the outcome of such legal or administrative proceedings.

 

The principal commitments and contingent liabilities of the Company are discussed in the following paragraphs.

 

Pending Litigation

 

In the ordinary course of business, the Corporation and its subsidiaries are defendants in or parties to a number of pending and threatened legal actions and proceedings, and are also involved from time to time in investigations and administrative proceedings by governmental agencies. Certain of such actions and proceedings involve alleged violations of consumer protection laws, including claims relating to the Corporation’s loan origination and collection efforts, and other federal and state banking laws. Certain of such actions and proceedings include claims for breach of contract, restitution, compensatory damages, punitive damages and other forms of relief. Due to the difficulty of predicting the outcome of such matters, the Corporation can give no assurance that it will prevail on all claims made against it; however, management believes, based on current knowledge and after consultation with counsel, that these legal matters and administrative proceedings and the losses, if any, resulting from the final outcome thereof, will not have a material adverse effect on the Corporation and its subsidiaries’ financial position, results of operations or liquidity, but can give no assurance that they will not have such an effect.

 

Loan Commitments

 

At March 31, 2004 and December 31, 2003, the Company had an outstanding pipeline of mortgage loans of approximately, $9.4 billion and $7.0 billion, respectively. This pipeline represents applications received, but not yet funded and is therefore the maximum amount of the Company’s origination commitments. Of this amount, at March 31 2004 approved applications totaled approximately $5.3 billion.

 

The Company is contractually committed to fund the undrawn portion of home equity lines of credit (HELOC’s), which it has originated. The commitment extends to HELOC’s, which are currently held by the Company, and HELOC’s securitized by the Company. As of March 31, 2004, the company is primarily responsible to fund undrawn HELOC’s of approximately $389 million.

 

22

 

Guarantees

 

Under agreements with a third party, the Company has guaranteed a portion of the third party’s secured lending arrangements. As of March 31, 2004, the total potential commitment under this guarantee totaled approximately $40 million. This guarantee would require payment by the company only if the third party’s were to default on payment of this borrowing. Management believes the likelihood a material payment will be required under this guarantee is remote.

 

NOTE 12                                             Business Segments

 

The Company has identified three domestic business segments. The predominant factor by which each segment is organized is the unique products and services they offer. The accounting policies of the segments are the same as those described in Note 1 “Summary of Significant Accounting Policies”. The Mortgage Banking segment originates, sells and services mortgage loans with a specialization in Alt A and NoDoc mortgage loan products. The Retail Banking segment consists of 90 full service banking offices offering a variety of financial services to the Greater New York area. The balance sheet management segment includes earnings from the held for investment mortgage portfolios and other corporate investment activities.

 

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. Credit losses are charged to asset management segment in an amount equal to net charge-offs. The expenses relating to administrative units of the Company such as executive, finance and audit are not allocated to individual operating segments and are identified in the “other” column. The “other” column also includes intercompany eliminations. The management of the Company evaluates the performance of each business segment based on income before income taxes.

 

23

 

The following table sets forth information by business segment:

 

		Quarter Ended March 31, 2004
(In millions)		Balance Sheet Management(1)			Retail Banking			Sub-total Banking			Mortgage Banking(5)			Segment Totals			Other(4)			Consolidated Continuing Operations
Net interest income		$	83.6		$	55.3		$	138.9		$	35.8		$	174.7		$	—		$	174.7
Provision for loan losses		(1.3		)	—			(1.3		)	—			(1.3		)	—			(1.3		)
Net interest income after provision for loan losses		82.3			55.3			137.6			35.8			173.4			—			173.4
Non-interest income:
Loan servicing fees		—			—			—			(11.6		)	(11.6		)	5.7			(5.9		)
Banking fees and commissions		—			22.4			22.4			—			22.4			—			22.4
Other income		4.2			0.3			4.5			2.4			6.9			—			6.9
Net gain on sale of loans		—			—			—			132.9			132.9			(12.2		)	120.7
Change in valuation of retained interests		—			—			—			(0.4		)	(0.4		)	—			(0.4		)
Net gain on sale of securities		0.5			—			0.5			—			0.5			—			0.5
Total non-interest income		4.7			22.7			27.4			123.3			150.7			(6.5		)	144.2
Non-interest expense:
Depreciation		—			3.1			3.1			4.9			8.0			1.6			9.6
ESOP and stock plans expense		—			1.7			1.7			5.4			7.1			1.8			8.9
Other expenses		0.5			34.8			35.3			56.0			91.3			24.7			116.0
Total non-interest expense		0.5			39.6			40.1			66.3			106.4			28.1			134.5
Segment income (loss) before taxes		$	86.5		$	38.4		$	124.9		$	92.8		$	217.7		$	(34.6	)	$	183.1
Total Assets		$	17,020		$	521	(2)	$	17,541		$	5,097		$	22,638		$	1,205	(3)	$	23,843

 

		Quarter Ended March 31, 2003
(In millions)		Balance Sheet Management(1)			Retail Banking			Sub-total Banking			Mortgage Banking(5)			Segment Totals			Other(4)			Consolidated Continuing Operations
Net interest income		$	66.8		$	58.8		$	125.6		$	49.2		$	174.8		$	—		$	174.8
Provision for loan losses		(0.3		)	—			(0.3		)	—			(0.3		)	—			(0.3		)
Net interest income after provision for loan losses		66.5			58.8			125.3			49.2			174.5			—			174.5
Non-interest income:
Loan servicing fees		—			—			—			1.5			1.5			4.3			5.8
Banking fees and commissions		—			14.5			14.5			—			14.5			—			14.5
Other income		4.1			—			4.1			(0.7		)	3.4			—			3.4
Net gain on sale of loans		—			—			—			139.0			139.0			(14.7		)	124.3
Change in valuation of retained interests		—			—			—			(0.7		)	(0.7		)	—			(0.7		)
Net gain on sale of securities		1.2			—			1.2			—			1.2			—			1.2
Total non-interest income		5.3			14.5			19.8			139.1			158.9			(10.4		)	148.5
Non-interest expense:
Depreciation		—			2.3			2.3			3.8			6.1			1.4			7.5
ESOP and stock plans expense		—			1.5			1.5			3.6			5.1			1.0			6.1
Other expenses		0.3			30.0			30.3			57.9			88.2			19.0			107.2
Total non-interest expense		0.3			33.8			34.1			65.3			99.4			21.4			120.8
Segment income (loss) before taxes		$	71.5		$	39.5		$	111.0		$	123.0		$	234.0		$	(31.8	)	$	202.2
Total Assets		$	16,083		$	490	(2)	$	16,573		$	5,462		$	22,035		$	364	(3)	$	22,399

 

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

(2)       Retail Banking segment excludes intercompany funds transfers. Intersegment assets and liabilities eliminated for consolidation purposes were $12.6 billion and $12.2 billion for the quarter ended March 31, 2004 and 2003, respectively.

(3)       Includes the assets of the discontinued business segment.

(4)       Other includes intercompany eliminations and unallocated administrative expenses.

(5)       Intersegment revenues, in the mortgage banking segment, for the quarter ended March 31, 2004 and 2003 were $6.5 million and $10.4 million.

 

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NOTE 13                                             Earnings Per Share

 

The Company’s reconciliation of the income and shares used in the basic and diluted EPS computations is summarized as follows:

 

		Quarter Ended March 31,
(In millions, except per share amounts)		2004			2003
Net income from continuing operations		$	112.5		$	126.9
Net income from discontinued operations		0.1			0.3
Net income		$	112.6		$	127.2
Weighted average number of common shares outstanding during each period – basic		116,699,000			127,047,000
Effect of dilutive securities – stock options		3,157,000			2,280,000
Weighted average number of common shares and common stock equivalents outstanding during each period – diluted		119,856,000			129,327,000
Basic earnings per share:
Net income from continuing operations		$	0.96		$	1.00
Net income from discontinued operations		—			—
Net income		$	0.96		$	1.00
Diluted earnings per share:
Net income from continuing operations		$	0.94		$	0.98
Net income from discontinued operations		—			—
Net income		$	0.94		$	0.98

 

(1)       All options to purchase shares of common stock were included in the computation of diluted earnings per share because the options’ exercise prices were less than the average market price of the common shares for the quarter ended March 31, 2004.

(2)       Options to purchase 1,407,200 shares of common stock at prices between $30.52 and $33.40 per share were outstanding at March 31, 2003, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares for the quarter ended March 31, 2003.

 

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