================================================================================

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-13094

DIME BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 11-3197414
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)

589 FIFTH AVENUE, NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 326-6170
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 such 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. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the shares of registrant's common stock held
by non-affiliates (assuming, solely for purposes of this Form, that all
directors are affiliates) was $3,383,886,475 as of March 6, 1998 (based on the
closing New York Stock Exchange price on such date).

The number of shares of common stock of the registrant outstanding as of
March 6, 1998 was 114,136,996 shares.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of Form 10-K is incorporated by
reference to the registrant's definitive Proxy Statement relating to its 1998
Annual Meeting of Stockholders.

================================================================================
2

DIME BANCORP, INC.
1997 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PAGE
----

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 16

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 7A. Qualitative and Quantitative Disclosures About Market
Risk........................................................ 44
Item 8. Financial Statements and Supplementary Data................. 44
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 45

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 45
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13. Certain Relationships and Related Transactions.............. 46

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 46

SIGNATURES............................................................ 47

PART I

Certain statements contained herein are forward-looking and may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential." These forward-looking
statements are based on the current expectations of the Company (as defined
below), and the Company notes that a variety of factors could cause its actual
results and experience to differ materially from the anticipated results or
other expectations expressed in such forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development, and
results of the Company's business include interest rate movements, competition
from both financial and non-financial institutions, changes in applicable laws
and regulations and interpretations thereof, the timing and occurrence (or
non-occurrence) of transactions and events that may be subject to circumstances
beyond the Company's control, and general economic conditions.

ITEM 1. BUSINESS

GENERAL

Dime Bancorp, Inc. (the "Holding Company"), a Delaware corporation
headquartered in New York, New York, is the holding company for The Dime Savings
Bank of New York, FSB, a federally-chartered savings bank (the "Bank" and,
together with the Holding Company and its direct and indirect subsidiaries, the
"Company"). The Bank operates through 91 branches, principally located in the
greater New York City metropolitan area. At December 31, 1997, the Company had
assets of $21.8 billion (including loans receivable of $12.9 billion), deposits
of $13.8 billion, and stockholders' equity of $1.3 billion.

The principal subsidiary of the Bank is North American Mortgage Company
("NAMC"), a mortgage banking company that, at December 31, 1997, operated over
200 offices in 36 states. NAMC was acquired by the Company in October 1997 (the
"NAMC Acquisition"). On April 30, 1997, the Company acquired BFS Bankorp, Inc.
and its wholly-owned subsidiary, Bankers Federal Savings FSB (the "BFS
Acquisition"). In connection with the BFS Acquisition, the Company acquired
loans receivable, net, of $574.5 million and assumed deposits in five New York
City branches of $447.1 million.

The Company's core business activities consist of consumer financial
services, mortgage banking, commercial real estate lending, consumer lending,
and business banking. In addition, to complement its core business activities,
the Company, through its treasury function, invests in various interest-earning
assets and accesses additional funding sources.

CONSUMER FINANCIAL SERVICES

General

The Company's consumer financial services include deposit products and
related services, securities brokerage services and insurance products. These
products and services, most of which are available 24 hours a day and seven days
a week, are delivered through the Company's multi-channel distribution network,
which includes the Company's new telephone banking unit.

Deposits

The Company's total deposits amounted to $13.8 billion at December 31,
1997. At that date, the Company operated 42 branches in New York City, 23
branches in Long Island, a total of 7 branches in Westchester and Rockland
counties in New York, 18 branches in New Jersey, and one branch in Florida. In
addition to its branch system, the Company's deposit gathering network includes
its telephone banking system and over 150 automated teller machines owned by the
Company.

The Company attracts deposits by offering a broad selection of deposit
instruments and programs. These include demand accounts, savings accounts, money
market accounts, time deposit accounts, individual retirement and Keogh
accounts, and automatic payroll and Social Security deposit programs. The
Company's deposit levels are subject to fluctuations resulting from numerous
factors outside the Company's control, including general economic conditions,
market interest rates and competition both from other depository

1
4

institutions and alternative investments. Depositor behavior is affected by a
variety of factors, including risk-related returns on other available
investments, the rates paid by the Company compared to other institutions and
the Company's ability to satisfy customer needs. These factors may affect the
Company's willingness or ability to compete for deposits and, therefore, the
level of its deposits.

The Bank is a member of the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation ("FDIC"), with approximately 66% of its deposits
insured by the BIF and the remainder insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC, in each case up to applicable limits.

For further information on the Company's deposits, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 9 of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and Supplementary Data."

Securities Brokerage Services and Insurance Activities

Securities brokerage services are provided by the Company through Dime
Securities of New York, Inc. ("Dime Securities"), a wholly-owned subsidiary that
is a registered broker-dealer. The services provided by Dime Securities
primarily consist of the execution of securities transactions, on an agency
basis, solely upon the order and for the accounts of its customers. In addition,
Dime Securities provides standardized and individualized investment and
financial planning advice to individuals and business entities. Products sold by
Dime Securities, which are not BIF- or SAIF-insured, include: mutual funds;
government, corporate and municipal bonds; equity securities and equity options;
annuities; and unit investment trusts.

In connection with the NAMC Acquisition, the Company acquired North
American Mortgage Insurance Services, a subsidiary of NAMC, which expanded the
Company's insurance product line and the number of states in which the products
are sold. The Company's insurance subsidiaries, which also include The Dime
Agency, Inc. and Dime NJ Agency, Inc., currently sell certain tax-deferred
annuities and products issued by various insurance companies, including
individual and group life, disability, and accidental death insurance, as well
as hazard, mortgage, and automobile insurance.

The Company also offers Savings Bank Life Insurance ("SBLI") in New York
through its SBLI Department. Although the activities of this department, which
are segregated from those of the Company, do not directly affect the Company's
earnings, the Company believes that offering SBLI provides an important benefit
to its customers. The SBLI Department pays its own expenses and reimburses the
Company for expenses incurred on its behalf.

MORTGAGE BANKING

General

The Company's mortgage banking activities include the production of
residential real estate loans (consisting of one-to-four family first mortgage
loans and cooperative apartment loans), either for the Company's portfolio or
for sale into the secondary market, and loan servicing. From time to time, the
Company has also purchased, as well as sold, loan servicing rights.

During 1997, the Company continued its strategy of implementing various
initiatives designed to, among other things, further strengthen its mortgage
banking capabilities. These initiatives included increasing the number of the
Company's loan origination offices, expanding its correspondent-purchase
activities, and offering new loan products. This strategy was significantly
accelerated by the NAMC Acquisition. Following the NAMC Acquisition, the Company
reorganized its mortgage banking functions to increase operational efficiencies,
and as a result, its mortgage banking activities are conducted principally
through NAMC.

Residential Real Estate Loan Production

The Company produces fixed-rate and adjustable-rate residential real estate
loans through a multi-channel, multi-regional network. Of the Company's total
residential real estate loan production during 1997 of $8.6 billion, $4.5
billion was originated through approved mortgage brokers (which numbered
approximately

2
5

6,400 at December 31, 1997, as compared with approximately 450 at December 31,
1996), $2.3 billion was originated directly by the Company and $1.8 billion was
purchased through correspondent lenders.

The Company's residential real estate loan production during 1997 was
primarily concentrated in the states of California (17.5%), Illinois (8.7%), New
York (8.6%), Virginia (6.5%), and Georgia (6.1%). During 1996, the Company's
residential real estate loan production amounted to $3.0 billion and was
primarily concentrated in the states of New York (23.7%), Connecticut (13.6%),
Virginia (12.7%), Georgia (10.6%), and New Jersey (9.2%). The Company's
increased residential real estate loan production in California during 1997 was
largely due to the NAMC Acquisition.

The Company's residential real estate loan production includes loans: (i)
that meet the standard underwriting policies and purchase limits (which for
single family homes increased to $214,600 during 1997) established by Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") guidelines ("conforming conventional loans"); (ii) in
amounts in excess of the purchase limits established by FNMA and FHLMC ("jumbo
loans"); (iii) insured or guaranteed under Federal Housing Administration
("FHA") or Veteran Administration ("VA") programs; (iv) that conform to programs
established by various state and local authorities; and (v) exclusively for sale
to specified secondary market investors that conform to the requirements of such
investors, which may be more or less stringent than those for conforming
conventional loans.

Underwriting policies and guidelines for residential real estate loans
produced for the Company's portfolio (except to finance the sales of its
residential owned real estate) are, at a minimum, in conformance with those of
FNMA and FHLMC. Such policies and guidelines include requiring an appraisal of
the value of the collateral for the purpose of determining the loan-to-value
ratio (i.e., the ratio that the principal amount of the loan bears to the value
of the collateral securing the loan at the time of origination) and the
collateral's adequacy as security. The collateral's value is deemed to be the
lower of the purchase price or the appraised value, except for refinance loans,
where the appraised value is used. With respect to residential first mortgage
loans having a loan-to-value ratio in excess of 80% at the date of origination,
the Company generally requires private mortgage insurance underwritten by FNMA-
and FHLMC-approved insurers on at least the amount of the loan in excess of 80%
of the collateral's value.

Since the NAMC Acquisition, the Company makes residential real estate loans
to borrowers whose creditworthiness does not meet standard FNMA and FHLMC
underwriting policies ("subprime loans"). The Company's subprime loan program is
conducted in conjunction with a subsidiary of a major securitizer of subprime
products, which underwrites and purchases all such loans pursuant to a
contractual agreement that was initially entered into by NAMC in 1996. The
Company receives a fee for the origination of subprime loans, and the loans, as
well as the rights to service such loans, are sold without recourse to the
Company.

The Company administers a formal process for approving and monitoring its
mortgage brokers and correspondents and, in addition, conducts annual reviews
thereof. Mortgage broker performance is assessed primarily by monitoring loan
credit quality. Correspondent-purchased loans are contractually required to be
underwritten by the correspondent lenders in accordance with the Company's
guidelines and, unless a correspondent lender has been delegated underwriting
authority, all loans are re-underwritten by the Company prior to purchase.
Correspondent lenders with delegated underwriting status are generally subject
to more stringent financial and operational requirements than those without such
status and have undergone a comprehensive on-site review conducted by the
Company. Mortgage brokers and correspondent lenders demonstrating unacceptable
performance or insufficient loan activity are removed from the Company's
programs.

Secondary Market Activities

During 1997, the Company continued its strategy of selling into the
secondary market substantially all of its fixed-rate residential real estate
loan production. In total, the Company sold $4.7 billion of residential real
estate loans into the secondary market during 1997.

3
6

Conforming conventional loans produced by the Company for sale in the
secondary market are typically exchanged for securities backed by such loans
(mortgage-backed securities ("MBS")) issued by FNMA or FHLMC, which are sold to
investment banking firms. The Company may also sell conforming conventional
loans directly to FNMA or FHLMC or to private investors. Conventional loans
produced for sale in the secondary market that are not conforming loans are sold
to private investors. FHA-insured and VA-guaranteed loans produced for sale in
the secondary market are pooled to form Government National Mortgage Association
("GNMA") MBS, issued by the Company, which are sold to investment banking firms.

Loan Servicing

At December 31, 1997, the Company serviced approximately 329,000
residential real estate loans with principal balances of $31.9 billion,
including approximately 246,000 loans with principal balances of approximately
$22 billion owned by third-parties. In return for servicing residential real
estate loans owned by others, the Company earns fees, which, on an annual basis,
generally range from 25 to 50 basis points of the outstanding principal balances
of the loans. Minimum servicing fees for substantially all loans serviced under
MBS programs are established by the sponsoring entities.

Loan servicing consists of collecting principal and interest payments from
borrowers, remitting aggregate principal and interest payments to investors,
making cash advances when required, accounting for principal and interest,
collecting funds for payment of loan-related expense such as taxes and
insurance, inspecting the collateral as required, contacting delinquent
borrowers, conducting foreclosures and property dispositions in the event of
unremedied defaults, and generally administering loans.

For a further discussion of the Company's loan servicing activities, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 8 of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and Supplementary Data."

COMMERCIAL REAL ESTATE LENDING

At December 31, 1997, the Company's commercial real estate loans receivable
amounted to $2.3 billion, of which approximately $1.9 billion were secured by
properties located in the State of New York. At that date, approximately 61% of
the loans in this portfolio were secured by multifamily properties. The
commercial real estate loans receivable portfolio expanded 20.0% during 1997 due
in part to the BFS Acquisition and the opening of loan production offices in
Philadelphia, Pennsylvania in late 1996 and in Fairfax, Virginia in early 1997.
In the aggregate, these two new loan production offices were responsible for
19.3% of the Company's total commercial real estate loan originations of $539.9
million during 1997.

The Company's underwriting policies with respect to commercial real estate
loans are based primarily on the loan-to-value ratio of the property and an
assessment as to the adequacy of the underlying project's cash flow and its
coverage of operating expenses and debt service payments. The Company's
underwriting policies generally also require an appraisal of the underlying
property, an engineer's report, and a "Phase I" environmental assessment.
Loan-to-value ratios at the time of origination are usually not more than 75%.

For a further discussion of the Company's commercial real estate loans
receivable, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 of the Notes to Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data."

CONSUMER LENDING

The Company's consumer loans receivable, which amounted to $773.8 million
at the end of 1997, includes adjustable- and fixed-rate home equity loans,
manufactured home loans, loans secured by deposits, automobile loans, boat
loans, unsecured and secured personal loans, property improvement loans,
government-guaranteed student loans, and unsecured revolving and overdraft
checking loans. During 1997, the Company extended its consumer lending
capabilities to markets outside of the greater New York City metropolitan area,
particularly as a result of the NAMC Acquisition.

4
7

Home equity loans, which represented approximately 82% of the Company's
total consumer loan portfolio at December 31, 1997, are underwritten following
guidelines similar to those for conforming conventional residential real estate
loans. During 1997, the loan-to-value ratio on any home equity loan, together
with any prior lien, generally did not exceed 90% at the time of origination.
Loans made pursuant to home equity lines of credit have adjustable interest
rates that, after an introductory period, are based generally on a fixed margin
over the prime lending rate.

For a further discussion of the Company's consumer loans receivable, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 5 of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and Supplementary Data."

BUSINESS BANKING

The Company's business banking activities consist of providing loans,
deposit products, and cash management and other services to businesses with
annual revenues generally up to $25 million.

The Company originates business loans principally to finance seasonal
working capital needs, expansion, renovation, and equipment purchases. The
ability of the borrower to generate sufficient cash flows from operations to
liquidate the debt is a critical component of the credit decision. At December
31, 1997, the Company's business loans receivable amounted to $99.1 million, of
which approximately 11% were unsecured.

For a further discussion of the Company's business loans receivable, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 5 of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and Supplementary Data."

OTHER INVESTING ACTIVITIES

General. In addition to its investments in loans, the Company, pursuant to
established policies and guidelines, invests in certain securities and money
market investments through its treasury function. These investments are made in
conjunction with the Company's overall liquidity, interest rate risk and credit
risk management processes and complement the Company's lending activities, which
are its primary focus. In addition, as a member of the Federal Home Loan Bank of
New York ("FHLBNY"), the Bank is required to maintain a specified investment in
the capital stock of the FHLBNY (see "Regulation and Supervision -- Federal Home
Loan Bank System").

Securities. The Company's investments in securities consist substantially
of adjustable-rate MBS or fixed-rate, medium-term MBS issued by FNMA, FHLMC, and
GNMA, and private issuers that are rated "AA" or better. During December 1997,
the Company, primarily as a result of a reassessment of its asset/liability
management strategy, transferred its entire $3.6 billion portfolio of securities
held to maturity to its portfolio of securities available for sale. In
connection therewith, the Company identified approximately $1.4 billion of the
transferred MBS that it expects to sell during 1998. At year-end 1997, the
Company's securities available for sale portfolio amounted to $5.0 billion.

For a further discussion of the Company's securities investments, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of the Notes to Consolidated Financial Statements in Item
8, "Financial Statements and Supplementary Data."

Money Market Investments. The Company invests in a wide range of money
market instruments, including overnight and term federal funds, time deposits,
and securities purchased under agreements to resell. Money market investments
are used to invest the Company's available funds resulting from deposit-taking
operations and normal cash flow and to help satisfy both internal liquidity
needs and the Bank's regulatory liquidity requirements (see "Regulation and
Supervision -- Liquid Assets").

For a further discussion of the Company's money market investments, see
Note 3 of the Notes to Consolidated Financial Statements in Item 8, "Financial
Statements and Supplementary Data."

5
8

EMPLOYEES

The Company had 6,451 employees at December 31, 1997. Employees of the
Company are not represented by any collective bargaining group. The Company
considers its employee relations to be satisfactory.

COMPETITION

The Company experiences substantial competition both in attracting and
retaining deposits and in making loans. Its most direct competition for deposits
historically has come from other thrift institutions and commercial banks doing
business in the greater New York City metropolitan area. The Company also
competes for funds with money market mutual funds, corporate and governmental
debt securities, and other investment alternatives. The Company's competition
for loans comes principally from other thrift institutions, commercial banks,
mortgage banking companies, consumer finance companies, insurance companies, and
other institutional investors and lenders. A number of institutions with which
the Company competes for deposits and loans have significantly greater assets
and capital than the Company.

REGULATION AND SUPERVISION

General

The Bank is a federal savings bank and a member of the FHLBNY and is
subject to the regulations, examinations, and reporting requirements of the
Office of Thrift Supervision (the "OTS"), as the primary regulator of federal
savings associations, and of the FDIC, as insurer of the Bank's deposits.
Additionally, the Bank is subject to certain limited regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As a
savings and loan holding company, the Holding Company is also subject to the
regulations, examinations and reporting requirements of the OTS.

The description of statutory provisions and regulations applicable to
savings associations and savings and loan holding companies set forth below does
not purport to be a complete description of the statutes and regulations
described or of all such statutes and regulations and their effects on the Bank
and the Holding Company. The regulatory scheme has been established primarily
for the protection of depositors and the financial system generally and is not
intended for the protection of stockholders or other creditors.

Deposit Insurance

The FDIC administers two separate deposit insurance funds: the BIF, of
which the Bank is a member, and the SAIF. Approximately 66% of the Bank's
deposits are BIF-insured and approximately 34% of its deposits are SAIF-insured.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the FDIC established a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. Under this
system, both BIF-insured and SAIF-insured depository institutions are placed
into one of nine confidential assessment risk categories using a two-step
process based first on capital ratios and then on other factors. As a result of
the enactment of the Deposit Insurance Funds Act of 1996 (the "Funds Act"),
SAIF-insured deposit assessment rates currently range between $0.00 and $0.27
for each $100 of insured deposits, which is identical to BIF-insured deposit
assessment rates.

Under the Funds Act, beginning January 1, 1997, insured depository
institutions were assessed with respect to BIF-assessable deposits in order to
pay for a portion of the debt service of certain bonds issued by the Federal
Financing Corporation (the "FICO Bonds"). Prior to January 1, 1997, assessments
to pay the debt service on the FICO Bonds were applicable only to SAIF-member
institutions. The Funds Act provides that, between January 1, 1997 and the
earlier of December 31, 1999 or the date as of which the last savings
association ceases to exist, BIF-assessable deposits will be assessed at a rate
equal to 20% of the rate applied to SAIF-assessable deposits for purposes of the
FICO Bonds debt service assessment. Thereafter, all insured deposits will be
assessed on a pro rata basis. The FDIC has established initial assessment rates
of $0.0648 for each $100 of SAIF-assessable deposits and $0.01296 for each $100
of BIF-assessable deposits through the

6
9

earlier of December 31, 1999 or the date as of which the last savings
association ceases to exist. Assessment rates have not yet been established for
the period from January 1, 2000, or such earlier date on which the last savings
association ceases to exist, through the year 2017 (the maturity date of the
FICO Bonds).

The Funds Act further provides for the merger of the SAIF and the BIF on
January 1, 1999 if no insured depository institution is a savings association on
that date. Until the earlier of December 31, 1999 or the date as of which the
last savings association ceases to exist, the Funds Act also provides that the
federal banking agencies are to take "appropriate action" to prevent insured
depository institutions and depository institution holding companies from
facilitating or encouraging the shifting of deposits from SAIF-assessable
deposits to BIF-assessable deposits for the purpose of evading the assessments
imposed on insured depository institutions with respect to SAIF-assessable
deposits for deposit insurance and the FICO Bonds debt service.

Capital Requirements

Under federal law and OTS regulations, savings associations are required to
comply with each of three separate capital adequacy standards: a leverage or
core capital requirement; a tangible capital requirement; and a risk-based
capital requirement. The OTS is also authorized to establish individual minimum
capital requirements for a savings association consistent with these capital
standards. The OTS has not established any such individual minimum capital
requirements for the Bank. There are potentially severe consequences for failing
to meet these regulatory capital requirements.

The leverage capital requirement adopted by the OTS requires savings
associations to maintain core capital in an amount equal to at least 3% of
adjusted total assets. Core capital includes common stockholders' equity
(including common stock, common stock surplus and retained earnings, but
excluding any net unrealized gains or losses, net of related taxes, on certain
securities available for sale), non-cumulative perpetual preferred stock and any
related surplus, and minority interests in the equity accounts of fully
consolidated subsidiaries. Intangible assets, other than mortgage servicing
rights valued in accordance with applicable regulations and purchased credit
card relationships, generally must be deducted from core capital. Mortgage
servicing rights and purchased credit card relationships may comprise only up to
50% of core capital. In addition, certain deferred tax assets and investments in
and loans to non-includable subsidiaries must be deducted from core capital.

Savings associations are required to hold tangible capital in an amount
equal to at least 1.5% of adjusted total assets. Tangible capital means core
capital less any intangible assets (except for mortgage servicing rights
includable in core capital).

Under the risk-based capital requirement, savings associations must
maintain a ratio of total capital to risk-weighted assets equal to at least 8%.
Risk-weighted assets are determined by multiplying certain categories of the
institution's assets, including off-balance sheet equivalents, by an assigned
risk weight of 0% to 100% based on the credit risk associated with those assets
as specified in OTS regulations. For purposes of the risk-based capital
requirement, total capital means core capital plus supplementary capital, so
long as the amount of supplementary capital that is used to satisfy the
requirement does not exceed the amount of core capital. Supplementary capital
includes, among other things, general valuation loan and lease loss allowances
up to a maximum of 1.25% of risk-weighted assets. The OTS adopted a rule,
effective January 1, 1994, incorporating an interest-rate risk component into
its existing risk-based capital requirement. In March 1995, the OTS extended a
waiver of the interest rate risk capital deduction until it issued a Thrift
Bulletin establishing an appeals process and notified thrift institutions of the
effective date. Although the OTS issued the Thrift Bulletin on August 21, 1995,
it also announced that the automatic interest rate risk capital deduction would
not be implemented until the OTS issued a notice otherwise.

Pursuant to FDICIA, the OTS adopted prompt corrective action ("PCA")
regulations that established five capital categories for savings associations
("well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized") and require
certain mandatory actions and authorize other discretionary actions to be taken
by the OTS with respect to institutions in the three undercapitalized
categories, with the nature and extent of such actions dependent primarily on
the category in which the institution is placed. The OTS has specified by
regulation the relevant capital level for

7
10

each category. Under OTS regulations, an institution is considered well
capitalized if its ratio of total risk-based capital to risk-weighted assets is
10% or more, its ratio of core capital to risk-weighted assets is 6% or more,
its ratio of core capital to adjusted total assets is 5% or greater, and it is
not subject to any order or directive by the OTS to meet a specific capital
level.

In addition, an institution's primary federal bank regulatory agency is
authorized to downgrade the institution's capital category to the next lower
category upon a determination that the institution is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice. An unsafe or unsound
practice can include receipt by the institution of a less than satisfactory
rating on its most recent examination with respect to its asset quality,
management, earnings or liquidity.

For information concerning the Bank's regulatory capital status, see Note
16 of the Notes to Consolidated Financial Statements in Item 8, "Financial
Statements and Supplementary Data."

The Federal Deposit Insurance Act (the "FDI Act") generally prohibits a
depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the
depository institution would be "undercapitalized." "Undercapitalized"
depository institutions are subject to limitations on, among other things, asset
growth, acquisitions, branching, new business lines, acceptance of brokered
deposits, and borrowings from the Federal Reserve System and are required to
submit a capital restoration plan. The federal bank regulatory agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital restoration plan to
be acceptable, the depository institution's holding company, if any, must
guarantee that the institution will comply with such capital restoration plan.
The aggregate liability of the holding company under such guarantee is limited
to the lesser of (i) an amount equal to 5% of the depository institution's total
assets at the time it became "undercapitalized," or (ii) the amount that is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If the depository
institution fails to submit an acceptable plan, it is treated as if it is
"significantly undercapitalized." "Significantly undercapitalized" depository
institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become "adequately
capitalized," requirements to reduce total assets, and cessation of receipt of
deposits from correspondent banks. "Critically undercapitalized" institutions
are subject to the appointment of a receiver or conservator.

Depositor Preference

The FDI Act provides that, in the event of the "liquidation or other
resolution" of an insured depository institution, the claims of depositors of
such institution (including claims by the FDIC as subrogee of insured
depositors) and certain claims for administrative expenses of the FDIC, as a
receiver, would be afforded a priority over other general unsecured claims
against such an institution. If an insured depository institution fails, insured
and uninsured depositors, along with the FDIC, will be placed ahead of
unsecured, non-deposit creditors, including a holding company for the
institution (such as the Holding Company), in order of priority of payment.

Loans-to-One-Borrower Limitations and Loans to Insiders

Savings associations are subject to loans-to-one-borrower limitations under
federal law and OTS regulations. At December 31, 1997, the Bank's loans-to-one
borrower limitation was approximately $197 million.

Savings associations are also subject to Sections 22(g) and 22(h) of the
Federal Reserve Act. These provisions, among other things, limit a savings
institution's extension of credit to the principal stockholders, directors and
executive officers of the savings institution and its affiliates and to the
related interests of these persons.

8
11

Liquid Assets

The OTS, by regulation, requires savings associations to maintain a certain
level of liquid assets (as defined). Prior to November 24, 1997, savings
associations were required to maintain, during each calendar month, an average
daily balance of liquid assets of not less than 5%, and short-term liquid assets
(as defined) of not less than 1%, of their liquidity base (average daily
balances of net withdrawable accounts plus short-term borrowings during the
preceding calendar month). Effective November 24, 1997, the OTS revised these
regulations by: (i) lengthening the period of time over which the requirement
will be measured from monthly to quarterly; (ii) authorizing savings
associations to calculate the requirement either as a percentage of its
liquidity base at the end of the preceding calendar quarter or as a percentage
of the average daily balance of its liquidity base during the preceding quarter;
(iii) reducing the requirement for liquid assets from 5% to 4% of the liquidity
base and eliminating the requirement regarding short-term liquid assets; and
(iv) adding to the list of liquid assets. Monetary penalties may be imposed for
failure to meet liquidity ratio requirements.

For additional information on the Bank's regulatory liquid assets, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."

Restrictions on Dividends and Capital Distributions

The payment of dividends by the Bank to the Holding Company is subject to
certain regulatory restrictions. These restrictions may affect the Holding
Company's liquidity as well as its ability to pay dividends on its capital stock
or principal or interest on its debt. A savings association, such as the Bank,
may not make a capital distribution (or pay management fees to its holding
company) if, following such distribution (or payment), the institution would be
"undercapitalized" as that term is defined for purposes of the PCA provisions
described above. In addition, OTS regulations limit the ability of savings
associations to pay dividends and make other capital distributions according to
the institution's level of capital and income, with the greatest flexibility
afforded to institutions that meet or exceed their OTS capital requirements.
Capital distributions include cash dividends, payments to repurchase, redeem,
retire or otherwise acquire an institution's shares, payments to stockholders of
another institution in a cash-out merger, other distributions charged against
capital and any other transaction that the OTS determines to entail a payout of
capital. To the extent that the OTS regulations described below and the PCA
provisions are inconsistent, the PCA provisions take precedence.

Under current OTS regulations, a savings association that exceeds its fully
phased-in OTS capital requirements both before and after a proposed distribution
(a "Tier 1 Institution") and that has not been advised by the OTS that it is in
need of more than normal supervision may, after prior notice to but without the
approval of the OTS, make capital distributions during a calendar year up to the
higher of (i) 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the percentage
by which the institution's ratio of total capital to assets exceeds the ratio of
its fully phased-in capital requirement to assets) at the beginning of the
calendar year or (ii) 75% of its net income over the most recent four-quarter
period. In addition, a Tier 1 Institution may make capital distributions in
excess of the foregoing limits if it gives the OTS 30 days' notice of the
proposed distribution and the OTS does not object within that period. A Tier 1
Institution that has been notified by the OTS that it is in need of "more than
normal supervision" must, under the OTS regulations, be treated as a "Tier 2
Institution" or a "Tier 3 Institution," to which progressively more stringent
restrictions on dividends and capital distributions apply. As of December 31,
1997, the Bank was a Tier 1 Institution.

The OTS also may prohibit a proposed capital distribution that would
otherwise be permitted if it determines that the distribution would constitute
an unsafe or unsound practice. Finally, a savings association that has converted
from mutual to stock form, such as the Bank, may not declare or pay a dividend
on or repurchase any of its capital stock if the effect of such action would be
to reduce the regulatory capital of the institution below the amount required
for its "liquidation account."

For a discussion of additional limitations on the Bank's ability to issue
dividends and certain limitations on the ability of the Holding Company to issue
dividends, see Notes 12 and 15 of the Notes to Consolidated Financial Statements
in Item 8, "Financial Statements and Supplementary Data."

9
12

Transactions with Affiliates

Under federal law and regulation, transactions between a savings
association and its "affiliates," which term includes its holding company and
other companies controlled by its holding company, are subject to quantitative
and qualitative restrictions. Savings associations are restricted in their
ability to engage in certain types of transactions with their affiliates. These
"covered transactions" include: (i) purchasing or investing in securities issued
by an affiliate; (ii) lending or extending credit to, or guaranteeing credit of,
an affiliate; (iii) purchasing assets from an affiliate; and (iv) accepting
securities issued by an affiliate as collateral for a loan or extension of
credit. Covered transactions are permitted between a savings association and a
single affiliate up to 10% of the capital stock and surplus of the association,
and between a savings association and all of its affiliates up to 20% of the
capital stock and surplus of the institution. The purchase of low-quality assets
by a savings association from an affiliate is not permitted. Each loan or
extension of credit to an affiliate by a savings association must be secured by
collateral with a market value ranging from 100% to 130% (depending on the type
of collateral) of the amount of credit extended. Notwithstanding the foregoing,
a savings association is not permitted to make a loan or extension of credit to
any affiliate unless the affiliate is engaged only in activities that the
Federal Reserve Board has determined to be permissible for bank holding
companies. Savings associations also are prohibited from purchasing or investing
in securities issued by an affiliate, other than shares of a subsidiary. Covered
transactions between a savings association and an affiliate, and certain other
transactions with or benefiting an affiliate, must be on terms and conditions at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. This arms-length
requirement applies to all covered transactions, as well as to: (i) the sale of
securities or other assets to an affiliate; (ii) the payment of money or the
furnishing of services to an affiliate; (iii) any transaction in which an
affiliate acts as agent or broker or receives a fee for its services to the
savings association or to any other person; or (iv) any transaction or series of
transactions with a third party if any affiliate has a financial interest in the
third party or is a participant in the transaction or series of transactions.

Community Reinvestment Act ("CRA")

Under the CRA and the implementing OTS regulations, a savings association
has a continuing and affirmative obligation to help meet the credit needs of its
local communities, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of the institution.

As part of its CRA activities, the Bank originates loans for affordable
housing (which are generally loans to low- or moderate-income borrowers). In
order to generate these loans, the Bank's specifically designated staff uses a
variety of outreach initiatives, including participation in seminars and housing
fairs, such as those targeted to first-time home buyers, loan application
materials in a variety of foreign languages, and cooperative ventures with
not-for-profit groups. The Bank's CRA lending activities also include loans in
low- or moderate-income neighborhoods, community development financing for new
construction and rehabilitation of affordable multifamily housing, and targeted
commercial projects. Typically, these project loans are made in partnership with
government subsidy programs.

Under new standards effective as of July 1, 1997, the OTS assigns a CRA
rating based upon a Lending Test, Investment Test and Service Test keyed to,
respectively, the number of loans, the number of investments, and the level of
availability of retail banking services in a savings association's assessment
area. The Lending Test is the primary component of the assigned composite
rating. An "outstanding" rating on the Lending Test automatically results in at
least a "satisfactory" rating on the composite, but an institution cannot
receive a "satisfactory" or better rating on the composite if it does not
receive at least a "low satisfactory" rating on the Lending Test. Alternatively,
a savings association may elect to be assessed by complying with a strategic
plan approved by the OTS.

Prior to the effective date of the new standards, the OTS implementing
regulations required the board of directors of each savings association to adopt
a CRA statement for each delineated local community that, among other things,
described its efforts to help meet community credit needs and the specific types
of credit that the institution was willing to extend.

10
13

Following each of the four most recent CRA examinations of the Bank by the
OTS, which were completed in August 1997 (under the new standards), June 1995,
February 1993, and December 1990, the Bank received an "outstanding" CRA rating,
which is the highest rating that an institution may receive.

Savings Association Investment Powers

Federal savings associations are subject to comprehensive regulation
governing their investments and activities. Among other things, a federal
savings association may invest up to 3% of its assets in service corporations,
an unlimited percentage of its assets in operating subsidiaries (which may only
engage in activities permissible for the association itself) and under certain
conditions may invest in finance subsidiaries. Other than investments in service
corporations, operating subsidiaries, finance subsidiaries, stock of
government-sponsored agencies such as FHLMC and FNMA, and certain "pass-through
investments" in entities engaging only in activities that a federal savings
association may conduct directly, federal savings associations generally are not
permitted to make equity investments. A service corporation in which a federal
savings association may invest is permitted to engage in activities reasonably
related to the activities of a federal savings association as the OTS may
approve on a case-by-case basis and certain activities pre-approved by the OTS.

Under federal law, a savings association may not acquire or retain,
directly or through a subsidiary, any corporate debt securities that, when
acquired, were not rated in one of the four highest rating categories by at
least one nationally recognized rating agency, unless such activity is done
through a separately capitalized affiliate (other than a subsidiary or an
insured depository institution).

Until June 1983, the Bank was a New York State-chartered mutual savings
bank. The Bank converted to a federally-chartered mutual savings bank in 1983
and in 1986 converted from mutual to stock form. Federal law and regulations
empower the Bank to exercise any authority to make investments or engage in
activities that the Bank was authorized to exercise or engage in under New York
law in effect at the time it converted to a federal mutual charter, whether or
not the Bank had utilized such authority as a state-chartered mutual savings
bank. These so-called "grandfathered" powers are in addition to the powers the
Bank possesses as a federal savings bank. Among these grandfathered powers is
the authority to make "leeway" investments. Under this authority, the Bank,
subject to certain limitations, may make equity and other investments that do
not qualify under any other provision of the grandfathered powers, so long as no
one such investment exceeds 1% of the Bank's assets and the total of all such
investments does not exceed 5% of its assets. However, certain specific types of
investments are prohibited under this provision, including the acquisition of
common stock in a commercial bank or life insurance company.

The exercise of these grandfathered powers, or any other activity, is
subject to the authority of the FDIC to issue regulations or orders it deems
necessary to prevent actions or practices that pose a serious threat to the BIF
or the SAIF. The FDIC has authority, upon making such determination, to prohibit
a savings association from engaging in that activity.

Acquisition of Control of Savings Associations

The Home Owners Loan Act ("HOLA") prohibits a savings and loan holding
company, directly or indirectly, from: (i) acquiring control of a savings
association or another savings and loan holding company, without prior OTS
approval; (ii) generally acquiring more than 5% of the voting shares of a
savings and loan holding company or a savings association which is not a
controlled subsidiary; or (iii) acquiring control of an "uninsured institution,"
as defined in the HOLA. No director or officer of a savings and loan holding
company or individual owning, controlling or holding power to vote more than 25%
of the holding company's voting shares may: (i) hold, solicit or exercise
proxies in respect of any voting rights in a mutual savings association; or (ii)
except with the prior approval of the OTS, acquire control of any savings
association that is not a subsidiary of such holding company.

11
14

Federal Home Loan Bank ("FHLB") System

The Bank is a member of the FHLB system, which consists of 12 regional
FHLBs. The FHLB system provides a central credit facility primarily for member
institutions. Members are required to hold shares of the capital stock of the
regional FHLB in which they are a member in an amount at least equal to the
greater of 1% of the member's home mortgage loans or 5% of the member's advances
from the FHLB.

Federal Reserve System

Federal Reserve Board regulations require depository institutions,
including the Bank, to maintain non-interest-earning reserves against certain
deposits. The Bank maintained $34.5 million of such reserves for the calculation
period including December 31, 1997. The effect of these reserve requirements is
to reduce the Bank's interest-earning assets. The balances maintained to comply
with the reserve requirements of the Federal Reserve Board may be used to
satisfy the liquidity requirements imposed on the Bank by the OTS.

The Bank is also subject to additional regulations promulgated by the
Federal Reserve Board, including, but not limited to, Regulation B (Equal Credit
Opportunity Act), Regulation E (Electronic Fund Transfers Act), Regulation Z
(Truth in Lending Act), Regulation CC (Expedited Funds Availability Act) and
Regulation DD (Truth in Savings Act).

FHLB system members are authorized to borrow from the Federal Reserve
"discount window," but Federal Reserve Board regulations require institutions to
exhaust all FHLB sources before borrowing from a Federal Reserve Bank.

Legislative and Regulatory Proposals

The operations of a savings association and a savings and loan holding
company are affected by the economic, fiscal and monetary policies of the United
States and its agencies and regulatory authorities, particularly the Federal
Reserve Board. The fiscal and economic policies of various governmental entities
and the monetary policies of the Federal Reserve Board have a direct effect on
the Company's business operations and the availability, growth and distribution
of the Company's investments and deposits.

In addition, proposals to change the laws and regulations governing the
operations and taxation of savings associations and other financial institutions
and companies that control such institutions are frequently raised in Congress
and before the OTS and other bank regulatory authorities. The likelihood of any
major changes in the future and the effect such changes might have on the
Company are impossible to determine.

Federal Securities Laws

The Holding Company is subject to the periodic reporting, proxy
solicitation, tender offer, insider trading and other requirements and
restrictions under the Securities Exchange Act of 1934.

TAXATION

Federal Income Taxation

General. The Holding Company files consolidated federal income tax returns
with its eligible 80%-or-greater-owned subsidiaries on a calendar year basis.
The maximum corporate federal income tax rate applicable to the Holding Company
and its subsidiaries currently is 35%, subject to the 20% alternative minimum
tax applicable to corporations, as discussed below.

Alternative Minimum Tax. The 20% alternative minimum tax applies generally
to taxable income, with certain adjustments, plus items of tax preference
("AMTI") and is imposed to the extent that the alternative minimum tax exceeds
the regular income tax for the taxable year. The amount of AMTI that can be
offset by net operating loss ("NOL") carryforwards is limited to 90% of AMTI.
Therefore, for taxable years in which available NOL carryforwards completely
offset taxable income, the Holding Company (and its subsidiaries) would be
subject to an effective minimum federal tax rate of 2% of AMTI (as determined
before offset by NOL carryforwards). Any alternative minimum tax paid by the
Company would be available as a

12
15

carryforward tax credit, which, subject to certain limitations, could be used to
reduce its otherwise determined regular federal tax liability.

Bad Debt Deductions. Effective for 1996, federal tax legislation modified
the methods by which a thrift computes its bad debt deduction. As a result,
"large thrifts," including the Bank, are required to claim a deduction equal to
their actual loss experience, and the "reserve method" is no longer available.
Any cumulative reserve additions (i.e., bad debt deductions) in excess of actual
loss experience for tax years 1988 through 1995 are subject to recapture over a
six- to eight-year period. Generally, reserve balances as of December 31, 1987
will only be subject to recapture upon distribution of such reserves to
shareholders.

In New York State and New York City, legislation was enacted during 1996
and in early 1997, respectively, that allows thrift institutions to continue to
use the reserve method of tax accounting for bad debts and to determine a
deduction for bad debts in a manner similar to prior law.

State and Local Taxation

New York State and New York City each imposes an annual franchise tax on
banking corporations, based on net income allocable to New York State or New
York City, respectively, at a rate of 9%. If, however, the application of an
alternative minimum tax (based on taxable assets allocated to New York,
"alternative" net income, or a flat minimum fee) results in a greater tax, an
alternative minimum tax will be imposed. In addition, New York State imposes a
tax surcharge equal to 17% of the New York State franchise tax allocable to
business activities carried on in the Metropolitan Commuter Transportation
District. NOLs cannot be carried back or forward for New York State or New York
City tax purposes. These taxes apply to the Holding Company, the Bank and
certain of the Bank's subsidiaries. Certain subsidiaries of a banking
corporation may be subject to a general business corporation tax in lieu of the
tax on banking corporations. The rules regarding the determination of income
allocated to New York and alternative minimum taxes differ for these
subsidiaries.

The Holding Company and certain of its subsidiaries are also subject to
state and local taxation in states other than New York. Most states provide a
statutory apportionment methodology that determines the allocable income subject
to tax in those states. In certain cases, the income and activities of the
affiliated group are used to determine the tax liability of the entity doing
business in that state. Further, the ability to utilize NOL carryovers varies by
state. New Jersey imposes a Savings Institution Tax based on net income
attributed to New Jersey on the basis of separate accounting, at a rate of 3%,
and NOLs cannot be carried back or forward. In addition, the Holding Company is
subject to an annual franchise tax imposed by Delaware, its state of
incorporation. This franchise tax is the higher of an amount determined by
reference to authorized shares or assumed capital (asset size), but cannot
exceed $150,000.

Limitations on Use of Tax Losses

As of December 31, 1997, the Company had certain net deferred tax benefits
(generally, expenses or losses recorded in the financial statements that have
not yet reduced its income tax liability) of approximately $102 million.

The timing of the realization of a substantial portion of the Company's
deferred tax asset is subject to limitation under section 382 ("Section 382") of
the Internal Revenue Code (the "Code") because the Holding Company underwent an
ownership change as defined by Section 382 ("Ownership Change") as a result of
the issuance of its common stock ("Common Stock") in conjunction with the NAMC
Acquisition.

Generally, an Ownership Change occurs with respect to a corporation if any
stockholders who own or have owned, directly or indirectly, 5% or more of the
capital stock of the corporation ("5% stockholders") increase their aggregate
percentage ownership of such stock by more than 50 percentage points over the
lowest percentage of such stock owned by such 5% stockholders at any time during
the testing period (generally the three years preceding). In applying Section
382, under a special rule, at least a portion of newly-issued stock is
considered to be acquired by a new 5% stockholder even if no person acquiring
the stock in fact owns as much as 5% of the issuer's stock. Under this rule, the
Common Stock issued to common stockholders of NAMC in

13
16

connection with the NAMC Acquisition, as well as the Common Stock issued to
common stockholders of Anchor Bancorp, Inc. ("Anchor Bancorp") in connection
with its merger with and into the Holding Company in January 1995 (together with
the merger of Anchor Savings Bank FSB ("Anchor Savings") with and into the Bank,
the "Anchor Merger"), is considered to have been acquired by a new 5%
stockholder.

Section 382 imposes an annual limitation on the timing of the amount of
taxable income a corporation may offset, after the date of an Ownership Change
(the "Change Date"), with NOL and tax credit carryforwards and certain net
unrealized built-in losses existing on the Change Date. The limitation equals
the product of (i) the fair market value of the corporation's equity on the
Change Date (with certain adjustments, including an adjustment excluding certain
capital contributions made in the two years preceding the Change Date) and (ii)
a long-term tax-exempt bond rate as defined by the Code.

The Company believes that the application of Section 382 resulting from the
NAMC Acquisition will only limit the utilization of its federal NOL and tax
credit carryforwards. This represents approximately $83 million of the Company's
deferred tax asset at December 31, 1997. Effectively, the Company would be
limited to realizing no more than approximately $50 million of these benefits
for each calendar year beginning in 1998. The delay in utilizing these tax
carryforwards will not require an adjustment to the Company's financial
statement presentation of its tax position nor will it have a material impact on
its earnings.

Based on the information available to the Company, it does not currently
believe that the issuance of shares of Common Stock in the Anchor Merger
resulted in an Ownership Change. However, because the application of Section 382
is highly complex and uncertain in some respects, the Company cannot provide any
assurances that an Ownership Change did not occur.

Other Tax Information

For additional information regarding income taxes of the Company, see Note
21 of the Notes to Consolidated Financial Statements in Item 8, "Financial
Statements and Supplementary Data."

ITEM 2. PROPERTIES

At December 31, 1997, the Bank operated 91 full-service branches, of which
40 were owned and 51 were leased. At that date, the Company leased its principal
executive offices in New York City, its administrative headquarters in
Uniondale, New York, the executive offices for its mortgage banking operations
located in Tampa, Florida, and 226 residential real estate loan production
facilities located in 36 states. In addition, at December 31, 1997, the Company
owned the building and leased the land for its remote computer operations hub in
Valley Stream, New York, and owned its residential real estate and consumer loan
servicing operations center in Albion, New York and its residential real estate
loan production headquarters located in Santa Rosa, California.

For further information regarding the Company's properties and lease
obligations, see Notes 7 and 24 of the Notes to Consolidated Financial
Statements in Item 8, "Financial Statements and Supplementary Data."

ITEM 3. LEGAL PROCEEDINGS

On January 13, 1995, Anchor Savings filed suit in the United States Court
of Federal Claims against the United States for breach of contract and taking of
property without compensation in contravention of the Fifth Amendment to the
United States Constitution. The action arose because the passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and the regulations adopted by the OTS pursuant to FIRREA deprived Anchor
Savings of the ability to include supervisory goodwill and certain other assets
for purposes of computing its regulatory capital as the Federal Savings and Loan
Insurance Corporation ("FSLIC") had agreed it could. The direct effect was to
cause Anchor Savings to go from an institution that substantially exceeded its
regulatory capital requirements to one that was critically undercapitalized upon
the effectiveness of the FIRREA-mandated capital requirements.

From 1982 to 1985, Anchor Savings had acquired eight FSLIC-insured
institutions that were in danger of failing and causing a loss to the FSLIC.
Four institutions were acquired with some financial assistance from
14
17

the FSLIC and four were unassisted "supervisory" cases. In acquiring the
institutions, Anchor Savings assumed liabilities determined to exceed the assets
it acquired by over $650 million at the dates of the respective acquisitions.
The difference between the fair values of the assets acquired and the
liabilities assumed in the transactions were recorded on Anchor Savings' books
as goodwill. At the time of these acquisitions, the FSLIC had agreed that this
supervisory goodwill was to be amortized over periods of up to 40 years. Without
that agreement, Anchor Savings would not have made the acquisitions. When the
capital regulations imposed under FIRREA became effective, Anchor Savings still
had over $518 million of supervisory goodwill on its books and approximately 20
years remaining to amortize it under the agreements with FSLIC. The
FIRREA-mandated capital requirements excluded all but approximately $124 million
of Anchor Savings' supervisory goodwill, over $42 million attributable to the
FSLIC contribution in one acquisition, and, until the formation of Anchor
Bancorp in 1991, $157 million associated with preferred stock issued to the
FSLIC as a result of one of the acquisitions. FIRREA also required the remaining
supervisory goodwill to be eliminated by December 31, 1994 for regulatory
capital purposes. The elimination of the supervisory goodwill resulted in severe
limitations on Anchor Savings' activities and required the disposition of
valuable assets under liquidation-like circumstances, as a result of which
Anchor Savings was damaged. The complaint asks that the government make Anchor
Savings whole for the effects of the loss, which are estimated to exceed
substantially the goodwill remaining at the time FIRREA was enacted.

There are approximately 130 cases involving similar issues pending in the
United States Court of Federal Claims, which has entered summary judgment for
the plaintiffs as to liability, but not damages, in three of the cases. Those
cases, referred to as the Winstar cases, were appealed to the United States
Supreme Court, which, on July 1, 1996, affirmed the decision that the government
was liable for breach of contract.

All of the Winstar-related cases, including Anchor Savings' lawsuit (which
was assumed by the Bank upon consummation of the Anchor Merger), have been
assigned to the Chief Judge of the Court of Federal Claims. The Chief Judge has
issued an Omnibus Case Management Order ("OCMO") that controls the proceedings
in all these cases, which imposes procedures and schedules different from most
cases in the Court of Federal Claims. Under the OCMO, the Bank has moved for
partial summary judgment as to the existence of a contract and the inconsistency
of the government's actions with that contract in each of the related
transactions. The government has disputed the existence of a contract in each
case and cross-moved for summary judgment. The government also submitted a
filing acknowledging that it is not aware of any affirmative defenses. Briefing
on the motions was completed on August 1, 1997, but no timetable has been set
for disposition of the Bank's motions and the government cross-motions. In
August 1997, the Court held a hearing on summary judgment motions in four other
cases. As part of that hearing, the Court heard argument on eleven issues that
the plaintiffs contend are common to many of the pending cases, including the
Bank's case. The Court issued its order on December 22, 1997, ruling in favor of
the plaintiffs on all eleven "common" issues. The Court's order directed the
Government to submit a "show cause" filing by February 20, 1998 asserting why
judgment for the plaintiff should not be entered on each of the common issues
with respect to each pending summary judgment motion. The Court, however, did
not prescribe a clear procedure for implementing its order. The Government
submitted a filing in response to the "show cause" order, but asserted that it
might need further discovery as to certain issues. At a status conference on
March 11, 1998, the Court directed each of the plaintiffs to submit a proposed
form of order for entry of judgment as to liability on the Winstar contract
issues and an accompanying brief by March 31, 1998 and directed the Government
to respond by April 30, 1998 with a filing asserting any basis for not entering
the order proposed by the plaintiff. The Bank intends to submit such a proposed
order. Nonetheless, it is not possible to predict whether the Court will grant
any of the Bank's motions for partial summary judgment or, if so, when the Chief
Judge will schedule a trial on damages and any remaining liability issues.

The Court has ordered that certain common discovery proceed through at
least the first quarter of 1998. The Government is required to produce certain
documents relating to unassisted acquisitions of failing institutions effected
by the Bank and five other plaintiffs. In addition, the Court has directed that
full discovery of facts common to all pending cases be conducted. Such discovery
will include materials concerning the policies and procedures of the Federal
Home Loan Bank Board (the predecessor of the OTS) and the FSLIC during the
thrift crisis of the 1980's, when the transactions that are the subject of the
litigation occurred. In

15
18

addition, the common discovery will include generally applicable information
concerning the operations of the FSLIC that will be relevant under certain
damage theories.

Commencing in April 1998, the oldest 30 of the pending cases (after
excluding certain specific cases) that elect to proceed will be allowed to
commence full discovery as to liability and damages in their cases. The
case-specific discovery will continue for one year, unless extended by the
Court. The second 30 cases will start discovery in 1999, and so on. Discovery of
damage experts will follow the fact discovery in each case. Cases will not be
assigned to trial judges until after the fact discovery is completed. The Bank
is among the 30 plaintiffs that will commence full case-specific discovery on
April 1, 1998.

There have been no decisions determining damages in any of the
Winstar-related cases. The trial in the first of the Winstar-related cases to
proceed to trial on damages is expected to be concluded by early April 1998, and
the second is scheduled to commence in May 1998. It is unlikely that any
decision on damages will be issued before the summer of 1998. It is likely that
any determination of damages by the Court of Federal Claims will be appealed. It
is impossible to predict the measure of damages that will be upheld in cases in
which liability is found. The Company, nevertheless, believes that its claim is
meritorious, that it is one of the more significant cases before the Court, and
that it is entitled to damages, which, as noted, are estimated to exceed
substantially the goodwill remaining on Anchor Savings' books at the time FIRREA
was enacted.

The Bank and/or its wholly-owned subsidiaries, Dime Mortgage of New Jersey,
Inc. and NAMC (and in one instance, Dime Mortgage, Inc., a subsidiary of the
Company that was merged into NAMC in the fourth quarter of 1997), as the case
may be, have been named as defendants in the following purported class actions:
Koslowe v. Dime Mortgage of New Jersey and The Dime Savings Bank of New York,
filed in the United States District Court for the District of New Jersey on
February 25, 1997; Bray v. North American Mortgage Co., filed in the United
States District Court for the Middle District of Alabama on January 31, 1997;
Bailey v. North American Mortgage Co., filed in the United States District Court
for the Middle District of Alabama on October 28, 1997; Brigham v. North
American Mortgage Co., filed in the United States District Court for the Middle
District of Georgia on January 14, 1998; Sisson v. Dime Mortgage, Inc., filed in
the United States District Court for the Northern District of Alabama on January
23, 1998; Levine v. North American Mortgage Co., filed in the United States
District Court for the District of Minnesota on January 29, 1998; and Hamilton
v. North American Mortgage Co., filed in the United States District Court for
the District of Maine on March 4, 1998. In each of these cases, the plaintiff
alleges, among other things, that, in connection with the making of residential
real estate loans, the Bank and/or such subsidiaries made certain payments to
mortgage brokers in violation of specified federal laws, including the Real
Estate Settlement Procedures Act ("RESPA"). Each of the plaintiffs seeks
unspecified compensatory damages plus, as to certain claims, treble damages. The
Company believes that its compensation programs for mortgage brokers comply with
applicable laws and with accepted mortgage banking industry practices and that
it has meritorious defenses to each of the actions. The Company intends to
oppose each of the actions vigorously.

Certain other claims, suits, complaints and investigations involving the
Company, arising in the ordinary course of business have been filed or are
pending. The Company is of the opinion, after discussion with legal counsel
representing the Company in these proceedings, that the aggregate liability or
loss, if any, arising from the ultimate disposition of these matters would not
have a material adverse effect on the Company's consolidated financial position
or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to the Holding Company's stockholders during the
quarter ended December 31, 1997.

16
19

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "DME." On March 6, 1998, there were approximately 22,252 holders of
record of the Common Stock.

The following table sets forth, for the quarters indicated, the high and
low sales prices of the Common Stock based on the NYSE Composite Tape and any
cash dividends declared per share of Common Stock.

SALES PRICE
--------------- DIVIDENDS
HIGH LOW DECLARED
---- --- ---------

1997:
Fourth quarter............................. $30 3/8 $20 15/16 $0.04
Third quarter.............................. 22 1/16 16 15/16 0.04
Second quarter............................. 19 14 7/8 0.04
First quarter.............................. 18 1/8 14 1/2 --
1996:
Fourth quarter............................. 16 7/8 13 1/2 --
Third quarter.............................. 14 11 1/8 --
Second quarter............................. 13 3/8 11 1/2 --
First quarter.............................. 12 3/8 10 5/8 --

The Holding Company's Board of Directors (the "Board") periodically
considers the payment of dividends on the Common Stock, taking into account the
Company's financial condition and level of net income, its future prospects,
economic conditions, industry practices, and other factors, including the
dividend restrictions described in Notes 12 and 15 of the Notes to Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data"
and "Regulation and Supervision -- Restrictions on Dividends and Capital
Distributions" under Item 1, "Business."

17
20

ITEM 6. SELECTED FINANCIAL DATA

AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE YEAR
Net interest income.............. $ 483,062 $ 461,295 $ 409,626 $ 429,077 $ 390,172
Provision for loan losses........ 49,000 41,000 39,650 55,799 95,489
Non-interest income.............. 145,291 85,978 74,712 89,900 134,381
Non-interest expense:
General and administrative
expense..................... 337,122 292,795 285,901 294,474 294,755
Amortization of mortgage
servicing assets............ 29,751 19,382 20,652 20,297 31,740
Other real estate owned
expense, net................ 4,341 10,072 12,892 11,013 77,393
SAIF recapitalization
assessment.................. -- 26,280 -- -- --
Restructuring and related
expense..................... 9,931 3,504 15,331 58,258 4,000
----------- ----------- ----------- ----------- -----------
Total non-interest
expense.............. 381,145 352,033 334,776 384,042 407,888
----------- ----------- ----------- ----------- -----------
Minority interest -- preferred
stock dividends of
subsidiary..................... -- -- -- 11,433 1,312
----------- ----------- ----------- ----------- -----------
Income before income tax expense
(benefit), extraordinary item
and cumulative effect of a
change in accounting
principle...................... 198,208 154,240 109,912 67,703 19,864
Income tax expense (benefit)..... 75,034 49,984 47,727 (53,138) (68,959)
----------- ----------- ----------- ----------- -----------
Income before extraordinary item
and cumulative effect of a
change in accounting
principle...................... 123,174 104,256 62,185 120,841 88,823
Extraordinary item -- loss on
early extinguishment of debt,
net of income tax benefit of
$895........................... (1,460) -- -- -- --
Cumulative effect of a change in
accounting principle for
goodwill in 1994 and securities
available for sale, net of
income tax benefit of $842, in
1993........................... -- -- -- (92,887) (1,187)
----------- ----------- ----------- ----------- -----------
Net income....................... $ 121,714 $ 104,256 $ 62,185 $ 27,954 $ 87,636
=========== =========== =========== =========== ===========
PER COMMON SHARE
Basic earnings:
Income before extraordinary
item and cumulative effect
of a change in accounting
principle................... $ 1.15 $ 1.00 $ 0.63 $ 1.23 $ 1.01
Net income..................... 1.14 1.00 0.63 0.28 1.00
Diluted earnings:
Income before extraordinary
item and cumulative effect
of a change in accounting
principle................... 1.13 0.96 0.57 1.12 0.91
Net income..................... 1.12 0.96 0.57 0.26 0.90
Cash dividends declared.......... 0.12 -- -- -- --
Book value at December 31, (1)... 11.30 9.76 9.03 8.43 8.48
Market value at December 31,..... 30.25 14.75 11.63 7.75 8.13

18
21

PERFORMANCE RATIOS
Return on average assets......... 0.60% 0.52% 0.30% 0.15% 0.53%
Return on average stockholders'
equity......................... 11.04 10.36 6.56 3.25 11.02
Net interest margin for the
year........................... 2.51 2.40 2.07 2.36 2.47
Non-interest income to total
revenues....................... 23.12 15.71 15.43 17.32 25.62
Efficiency ratio................. 51.98 51.83 57.11 57.28 58.66
AT YEAR END
Total assets..................... $21,848,000 $18,870,108 $20,326,620 $19,647,937 $18,098,984
Securities available for sale.... 4,992,304 2,589,572 4,070,865 530,714 658,204
Securities held to maturity...... -- 4,363,971 5,085,736 8,609,897 8,159,747
Loans held for sale.............. 1,841,862 115,325 139,370 16,621 134,364
Loans receivable................. 12,984,507 10,738,057 9,830,313 9,351,622 7,906,573
Allowance for loan losses........ 104,718 106,495 128,295 170,383 157,515
Deposits......................... 13,847,275 12,856,739 12,572,203 12,811,269 11,091,362
Borrowed funds................... 6,319,312 4,815,191 6,614,552 5,758,734 5,850,575
Stockholders' equity............. 1,314,858 1,022,337 976,530 905,125 904,982
Loans serviced for others........ 21,986,111 11,036,624 9,514,560 8,713,047 8,265,354
Common shares outstanding (in
thousands)..................... 116,358 104,744 99,706 98,601 98,303
ASSET QUALITY
Non-performing assets............ $ 146,749 $ 244,845 $ 315,800 $ 415,866 $ 641,743
Non-performing assets to total
assets......................... 0.67% 1.30% 1.55% 2.12% 3.55%
Non-accrual loans to loans
receivable..................... 0.92 1.78 2.60 3.66 3.68
Allowance for loan losses to:
Loans receivable............... 0.81 0.99 1.31 1.82 1.99
Non-accrual loans.............. 88.01 55.58 50.29 49.84 54.14
CAPITAL RATIOS
Stockholders' equity to total
assets......................... 6.02% 5.42% 4.80% 4.61% 5.00%
Average stockholders' equity to
average total assets........... 5.46 5.05 4.62 4.57 4.82
The Dime Savings Bank of New
York, FSB:
Tangible and leverage.......... 5.64 6.06 5.16 5.41 5.62
Tier 1 risk-based.............. 10.29 11.96 10.76 9.88 8.71
Total risk-based............... 11.17 13.08 12.01 11.14 10.02

- ---------------
(1) For 1995, 1994 and 1993, the computation assumes that a warrant issued to
the FDIC in July 1993 to acquire 8.4 million shares of the Common Stock at
$0.01 per share (the "Warrant") was exercised. The Warrant was exercised in
May 1996. For a further discussion of the Warrant, see Note 15 of Notes to
Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data."

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company's net income was $121.7 million for 1997, as compared with
$104.3 million for 1996 and $62.2 million for 1995. Diluted earnings per common
share were $1.12 for 1997, up 16.7% from $0.96 in 1996, which had increased
68.4% from $0.57 in 1995. The Company's returns on average assets and average

19
22

stockholders' equity increased to 0.60% and 11.04%, respectively, in 1997, from
0.52% and 10.36%, respectively, in 1996 and from 0.30% and 6.56%, respectively,
in 1995.

Contributing to the $17.5 million improvement in net income for 1997, as
compared with 1996, were increases in net interest income, fee income, and gains
associated with mortgage banking activities, as well as the effect of a $26.3
million charge in 1996 to recapitalize the SAIF (the "SAIF Special Assessment").
These factors were offset, in part, by a higher level of securities-related
losses associated with balance sheet restructuring initiatives and increases in
certain expenses due primarily to business expansion efforts, as well as $12.3
million of income tax benefits recognized during 1996 in connection with the
final resolution of certain tax filing positions taken in prior years.

In December 1997, the Company implemented a balance sheet restructuring
initiative, which included the transfer of its entire $3.6 billion portfolio of
securities held to maturity to securities available for sale. As part of this
initiative, which was undertaken in conjunction with the Company's reassessment
of its asset/liability management strategy, the Company designated $1.4 billion
of the transferred securities for sale. It is anticipated that such securities
will be sold during 1998.

The Company experienced growth in loan production in all lending areas in
1997, as compared with 1996, particularly with respect to residential real
estate loans, which increased largely as a result of the NAMC Acquisition. The
Company's total loan production (which consists of both originations and
purchases) amounted to $9.8 billion for 1997, up $6.0 billion from the prior
year. The NAMC Acquisition also contributed significantly to an almost 100%
increase in the Company's portfolio of loans serviced for others during 1997,
which amounted to $22.0 billion at the end of the year.

In connection with the BFS Acquisition, the Company acquired five New York
City branches with deposits of approximately $447 million at the date of the
acquisition. In addition, the BFS Acquisition added approximately $580 million
to the Company's commercial real estate loan portfolio.

Non-performing assets declined from $244.8 million at December 31, 1996 to
$146.7 million at year-end 1997, principally due to the sales of approximately
$126 million of non-performing residential real estate assets during the second
quarter of 1997 (the "NPA Sales"). In connection with the NPA Sales, the Company
recorded special provisions for loan and other real estate owned ("ORE") losses
totaling $14.6 million.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income amounted to $483.1 million in 1997, up $21.8 million,
or 4.7%, from 1996, primarily due to an increase in the Company's net interest
margin to 2.51% for 1997 from 2.40% for the prior year. This improvement in the
net interest margin principally reflects the Company's operating strategy of
increasing its emphasis on loans, while reducing its reliance on MBS, which, in
general, provide a lower yield than the Company's loans. In 1997, as compared
with 1996, the average balance of loans increased $1.8 billion, or 17.2%, while
the average balance of MBS declined $1.7 billion, or 21.4%. Loans represented
63.0% of total average interest-earning assets during 1997, as compared with
53.9% of total average interest-earning assets during the prior year. Improved
asset quality, principally as a result of the NPA Sales, and growth in deposits
as a percentage of total interest-bearing liabilities, due in part to the BFS
Acquisition, also contributed to the improved net interest margin. These factors
were partially offset by a flattening of the interest rate yield curve during
1997, higher borrowing costs, and a $150.0 million investment during the third
quarter of 1997 in a bank-owned life insurance program (the "BOLI Program"),
associated revenues of which are reflected in non-interest income. The Company
expects that the flat interest rate yield curve, if sustained, will continue to
exert pressure on its net interest income and net interest margin.

During 1996, net interest income amounted to $461.3 million, an increase of
12.6% from $409.6 million during 1995, despite a $548.3 million reduction in
average interest-earning assets. The Company's net interest margin of 2.40% for
1996 increased 33 basis points from the level in 1995. Significant factors
contributing to the increases in net interest income and the net interest margin
in 1996 as compared with 1995 included growth in average loans of $816.1
million, or 8.5%, a more favorable interest rate yield curve, lower overall

20
23

funding costs, and a balance sheet restructuring plan initiated at the end of
1995. As part of that plan, the Company, during 1996, sold approximately $2.0
billion of securities available for sale, including certain lower-yielding MBS,
the proceeds from which were primarily used to reduce borrowed funds.

The following table sets forth, for the years indicated, the Company's
consolidated average statement of financial condition, net interest income, the
average yield on interest-earning assets, and the average cost of
interest-bearing liabilities. Average balances are computed on a daily basis.
Non-accrual loans are included in average balances in the table below.

1997 1996
---------------------------------- ----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- ---------- ------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)

ASSETS
Interest-earning assets:
Loans:
Residential real
estate............. $ 9,165,665 $ 660,505 7.21% $ 7,771,197 $ 558,248 7.18%
Commercial real
estate............. 2,193,661 191,111 8.71 1,834,313 159,019 8.67
Consumer............. 730,106 63,222 8.66 723,744 63,679 8.80
Business............. 54,050 5,052 9.35 35,131 3,163 9.00
----------- ---------- ----------- ----------
Total loans........ 12,143,482 919,890 7.58 10,364,385 784,109 7.57
----------- ---------- ----------- ----------
MBS.................... 6,176,259 406,781 6.59 7,856,066 508,342 6.47
Other securities....... 362,538 23,774 6.56 514,888 31,910 6.20
Money market
investments.......... 586,500 32,370 5.52 495,395 26,337 5.32
----------- ---------- ----------- ----------
Total interest-earning
assets................. 19,268,779 1,382,815 7.18 19,230,734 1,350,698 7.02
---------- ----------
Other assets............. 923,409 710,519
----------- -----------
Total assets............. $20,192,188 $19,941,253
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits:
Demand............... $ 1,267,547 8,012 0.63 $ 1,093,311 8,254 0.75
Savings.............. 2,468,652 60,689 2.46 2,574,273 64,642 2.51
Money market......... 1,953,931 72,723 3.72 2,100,392 80,904 3.85
Time................. 7,556,076 417,935 5.53 6,913,469 377,416 5.46
----------- ---------- ----------- ----------
Total deposits..... 13,246,206 559,359 4.22 12,681,445 531,216 4.19
----------- ---------- ----------- ----------
Borrowed funds:
Securities sold under
agreements to
repurchase......... 3,628,681 206,822 5.70 2,672,859 147,561 5.52
FHLBNY advances...... 1,539,079 91,321 5.93 3,081,743 179,338 5.82
Other................ 483,202 42,251 8.74 364,703 31,288 8.58
----------- ---------- ----------- ----------
Total borrowed
funds............ 5,650,962 340,394 6.02 6,119,305 358,187 5.85
----------- ---------- ----------- ----------
Total interest-bearing
liabilities............ 18,897,168 899,753 4.76 18,800,750 889,403 4.73
---------- ----------
Other liabilities........ 192,941 134,218
Stockholders' equity..... 1,102,079 1,006,285
----------- -----------
Total liabilities and
stockholders' equity... $20,192,188 $19,941,253
=========== ===========
Net interest income...... $ 483,062 $ 461,295
========== ==========
Interest rate spread..... 2.42 2.29
Net interest margin...... 2.51 2.40

1995
----------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
----------- ---------- -------
(DOLLARS IN THOUSANDS)

ASSETS
Interest-earning assets:
Loans:
Residential real
estate............. $ 6,903,212 $ 485,340 7.03%
Commercial real
estate............. 1,843,131 162,712 8.83
Consumer............. 768,148 71,124 9.26
Business............. 33,750 3,250 9.63
----------- ----------
Total loans........ 9,548,241 722,426 7.57
----------- ----------
MBS.................... 9,187,208 567,885 6.18
Other securities....... 460,049 32,596 7.09
Money market
investments.......... 583,510 34,224 5.87
----------- ----------
Total interest-earning
assets................. 19,779,008 1,357,131 6.86
----------
Other assets............. 721,586
-----------
Total assets............. $20,500,594
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits:
Demand............... $ 1,052,485 10,849 1.03
Savings.............. 2,981,762 72,721 2.44
Money market......... 2,176,214 85,627 3.93
Time................. 6,410,394 355,255 5.54
----------- ----------
Total deposits..... 12,620,855 524,452 4.16
----------- ----------
Borrowed funds:
Securities sold under
agreements to
repurchase......... 1,398,041 84,323 6.03
FHLBNY advances...... 4,963,392 303,153 6.11
Other................ 416,091 35,577 8.55
----------- ----------
Total borrowed
funds............ 6,777,524 423,053 6.24
----------- ----------
Total interest-bearing
liabilities............ 19,398,379 947,505 4.88
----------
Other liabilities........ 154,102
Stockholders' equity..... 948,113
-----------
Total liabilities and
stockholders' equity... $20,500,594
===========
Net interest income...... $ 409,626
==========
Interest rate spread..... 1.98
Net interest margin...... 2.07

21
24

The following table sets forth, for the years indicated, the changes in
interest income and expense for each major component of interest-earning assets
and interest-bearing liabilities and the amounts attributable to changes in
average balances (volume) and average interest rates (rate). The changes in
interest income and interest expense attributable to changes in both volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate.

1997 VERSUS 1996 1996 VERSUS 1995
------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
------------------------------- --------------------------------
DUE TO DUE TO DUE TO DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- ------- --------- --------- -------- ---------
(IN THOUSANDS)

Interest income:
Loans:
Residential real estate..... $ 100,331 $ 1,926 $ 102,257 $ 62,156 $ 10,752 $ 72,908
Commercial real estate...... 31,229 863 32,092 (776) (2,917) (3,693)
Consumer.................... 555 (1,012) (457) (4,002) (3,443) (7,445)
Business.................... 1,736 153 1,889 130 (217) (87)
--------- ------- --------- --------- -------- ---------
Total loans............ 133,851 1,930 135,781 57,508 4,175 61,683
--------- ------- --------- --------- -------- ---------
MBS............................ (109,665) 8,104 (101,561) (85,193) 25,650 (59,543)
Other securities............... (9,716) 1,580 (8,136) 3,648 (4,334) (686)
Money market investments....... 4,936 1,097 6,033 (4,870) (3,017) (7,887)
--------- ------- --------- --------- -------- ---------
Total interest income............ 19,406 12,711 32,117 (28,907) 22,474 (6,433)
--------- ------- --------- --------- -------- ---------
Interest expense:
Deposits:
Demand...................... 1,208 (1,450) (242) 407 (3,002) (2,595)
Savings..................... (2,624) (1,329) (3,953) (10,180) 2,101 (8,079)
Money market................ (5,546) (2,635) (8,181) (2,944) (1,779) (4,723)
Time........................ 35,312 5,207 40,519 27,530 (5,369) 22,161
--------- ------- --------- --------- -------- ---------
Total deposits......... 28,350 (207) 28,143 14,813 (8,049) 6,764
--------- ------- --------- --------- -------- ---------
Borrowed funds:
Securities sold under
agreements to
repurchase................ 53,623 5,638 59,261 70,932 (7,694) 63,238
FHLBNY advances............. (90,654) 2,637 (88,017) (110,101) (13,714) (123,815)
Other....................... 10,264 699 10,963 (4,408) 119 (4,289)
--------- ------- --------- --------- -------- ---------
Total borrowed funds... (26,767) 8,974 (17,793) (43,577) (21,289) (64,866)
--------- ------- --------- --------- -------- ---------
Total interest expense........... 1,583 8,767 10,350 (28,764) (29,338) (58,102)
--------- ------- --------- --------- -------- ---------
Net interest income.............. $ 17,823 $ 3,944 $ 21,767 $ (143) $ 51,812 $ 51,669
========= ======= ========= ========= ======== =========

Provision for Loan Losses

The Company's provision for loan losses, which is predicated upon the
Company's assessment of the adequacy of its allowance for loan losses (see
"Management of Credit Risk -- Allowance for Loan Losses"), amounted to $49.0
million for 1997, including a $14.0 million special provision for loan losses
recognized during the 1997 second quarter in connection with the NPA Sales. In
comparison, the provision for loan losses was $41.0 million in 1996 and $39.7
million in 1995. Net loan charge-offs for 1997 amounted to $64.0 million,
including charge-offs of $35.8 million associated with the NPA Sales, as
compared with $62.8 million for 1996 and $81.7 million for 1995.

22
25

Non-Interest Income

General. The Company's non-interest income was $145.3 million for 1997, up
69.0% from 1996 due, in large part, to the NAMC Acquisition. For 1996,
non-interest income was $86.0 million, an increase of 15.1% as compared with the
prior year. This increase was principally fueled by growth in fee income.
Non-interest income represented 23.1% of total revenues in 1997, as compared
with 15.7% and 15.4% in 1996 and 1995, respectively.

Loan Servicing Fees and Charges. Loan servicing fees and charges amounted
to $74.0 million in 1997, an increase of 54.7% from $47.9 million in 1996. This
increase was largely attributable to the NAMC Acquisition, which contributed
substantially to growth of $10.9 billion in the level of loans serviced for
others during 1997. At December 31, 1997, the Company owned the servicing rights
to approximately 246,000 loans owned by others, with principal balances of $22.0
billion. Loan servicing fees and charges rose slightly in 1996, as compared with
1995, as the effect of a $1.5 billion increase in the portfolio of loans
serviced for others during 1996 was largely offset by a reduction in the average
loan servicing fee.

Banking Service Fees. Banking service fees were $31.8 million in 1997, up
from $28.1 million and $22.6 million in 1996 and 1995, respectively. The growth
of 13.3% in 1997 and 24.3% in 1996, as compared with the respective prior years,
was reflective of changes in the Company's fee structure, coupled with volume
increases in certain underlying transactions.

Securities and Insurance Brokerage Activities. Securities and insurance
brokerage fees amounted to $23.7 million in 1997, an increase of $2.7 million
from the prior year. The higher level of such fees reflects growth in securities
brokerage fees of $1.4 million, or 7.4%, coupled with an increase in
insurance-related fees, primarily due to the NAMC Acquisition, of $1.3 million,
or 55.8%. In 1996, securities and insurance brokerage fees increased $5.5
million from the $15.5 million earned during 1995. This growth was largely
attributable to a $4.1 million, or 28.2%, rise in securities brokerage fees,
which resulted principally from new sales initiatives and an expanded sales
force. Insurance-related fees increased $1.4 million in 1996 as compared with
1995, principally due to the introduction of certain life insurance products.

Net Gains (Losses) on Sales Activities. The following table summarizes the
components of net gains (losses) on sales activities for the year ended December
31:

1997 1996 1995
-------- -------- --------
(IN THOUSANDS)

Net gains (losses) on:
Sales, calls and other than temporary impairment
in value of securities........................ $(17,794) $(11,265) $(29,044)
Sales of loans held for sale..................... 23,219 2,630 2,344
Sales of loan servicing rights................... 6,888 -- 738
Sales of branches................................ -- -- 18,637
Other............................................ (277) (4,081) (5,090)
-------- -------- --------
Total net gains (losses) on sales activities....... $ 12,036 $(12,716) $(12,415)
======== ======== ========

The securities-related net losses of $17.8 million, $11.3 million and $29.0
million in 1997, 1996 and 1995, respectively, were largely attributable to
actions, including the designation for sale, and sale, of certain MBS, taken in
connection with balance sheet restructuring initiatives. During the fourth
quarters of 1997 and 1995, MBS of $1.4 billion and $1.0 billion, respectively,
were designated for sale, and in connection therewith, the Company recognized
losses of $25.2 million and $23.6 million, respectively, representing the
write-down of those securities with unrealized losses to estimated fair market
value. The Company recognized net gains in 1997 of $8.9 million on sales of $1.7
billion of securities, as compared with net losses in 1996 and 1995 of $7.0
million and $0.7 million, respectively, on sales of $2.3 billion and $0.2
billion, respectively, of securities. Securities-related net losses for 1997,
1996 and 1995 also included losses of $1.5 million, $4.7 million and $3.3
million, respectively, as a result of other than temporary impairment in value
of certain MBS (see "Management of Credit Risk -- MBS").

23
26

Net gains on loan sales in connection with the Company's mortgage banking
activities increased $20.6 million in 1997 and $0.3 million in 1996, as compared
with the respective prior years. During 1997, the Company sold $4.7 billion of
loans into the secondary market (including $3.6 billion during the 1997 fourth
quarter), as compared with $1.1 billion during 1996 and $0.4 billion during
1995. The relatively high level of loan sales in 1997, as well as the net gains
thereon, was substantially attributable to the NAMC Acquisition.

During 1997, the Company recognized net gains of $6.9 million on sales of
loan servicing rights, substantially due to a sale, in December 1997, of
approximately $3 billion in principal amount of loan servicing rights. The sale
of loan servicing rights in December 1997 was associated with the Company's
interest rate risk management program and was intended to reduce the impact of a
declining long-term interest rate environment on the Company's mortgage
servicing assets. During 1995, the Company sold approximately $0.2 billion in
principal amount of loan servicing rights and recognized gains of $0.7 million.
No such sales occurred during 1996. Sales of loan servicing rights are dependent
on a variety of factors, including market conditions and existing operating
strategies; thus, the level of future sales of loan servicing rights, if any,
cannot currently be predicted.

During 1995, the Company sold four Florida branches and one New York branch
with aggregate deposits at the time of sale of approximately $283 million. A net
gain of $18.6 million was recognized on these sales.

Included in "Other" in the above table for 1996 were losses on the
write-down of certain non-interest earning assets and, for 1995, net losses of
$4.6 million incurred in connection with the disposition and consolidation of
certain operating facilities.

Other. Other non-interest income amounted to $3.7 million for 1997, as
compared with $1.7 million and $1.3 million for 1996 and 1995, respectively. The
increase in 1997, as compared with the prior year, primarily resulted from
revenues of $2.5 million earned in connection with the BOLI Program, which was
initiated during the 1997 third quarter. In general, under the BOLI Program, the
Company purchases, owns, and is the beneficiary of insurance policies on the
lives of certain employees who consent to being covered under the program in
order to help defray certain costs associated with the Company's employee
benefit plans. Other non-interest income for 1996 included $1.0 million of
income recognized upon settlement of certain litigation.

Non-Interest Expense

General. Non-interest expense amounted to $381.1 million in 1997, as
compared with $352.0 million and $334.8 million in 1996 and 1995, respectively.
The $29.1 million growth in non-interest expense in 1997 as compared with 1996
was principally associated with the NAMC Acquisition. The increase in
non-interest expense of $17.3 million in 1996 as compared with the prior year
was primarily attributable to the SAIF Special Assessment, coupled with certain
non-recurring personnel expenses and business expansion efforts, primarily with
respect to its residential real estate loan origination capabilities. The impact
of these factors was mitigated by a reduction in restructuring and related
expense associated with the Anchor Merger and legislation which reduced the
Bank's federal deposit insurance premiums.

General and Administrative ("G&A") Expense. Compensation and employee
benefits expense, which was $157.9 million for 1997, was up $18.5 million as
compared with 1996, largely due to the NAMC Acquisition. At December 31, 1997,
the Company had 6,000 full-time equivalent employees, up from 2,872 one year
earlier. For 1996, compensation and employee benefits expense was $139.4
million, an increase of $7.6 million as compared with 1995. Contributing
significantly to the higher expense level were charges of $5.6 million
recognized during 1996 in connection with the retirement, on December 31, 1996,
of James M. Large, Jr., the Company's former Chief Executive Officer, and
severance benefits incurred in 1996 as a result of the relocation of the
headquarters of the Company's mortgage banking operations from Uniondale, New
York to Tampa, Florida, the effects of which were partially offset by Anchor
Merger-related staff reductions. The increases in compensation and employee
benefits expense in 1997 and 1996, as compared with the respective prior years,
also reflect, among other factors, higher levels of commissions and incentives,
as well as the impact of normal merit increases.

24
27

Occupancy and equipment expense, net, was $63.6 million in 1997, an
increase of $10.9 million, or 20.7%, as compared with the prior year. The growth
in such expense was largely the result of business expansion efforts, including
the NAMC Acquisition and the BFS Acquisition, and the enhancement of the
Company's technological capabilities. Occupancy and equipment expense, net,
which amounted to $52.7 million in 1996, had declined $5.6 million, or 9.6%,
from 1995, substantially due to cost savings associated with the Anchor Merger,
including the closing of 13 of the Bank's branches.

Other G&A expense increased to $115.7 million for 1997 from $100.8 million
for 1996, largely due to the acquisitions of NAMC and BFS, which, among other
things, contributed significantly to year-to-year increases of $6.9 million in
data processing and communications expense and $3.3 million in goodwill
amortization. The higher level of other G&A expense in 1997, as compared with
1996, also reflects expenses of $1.3 million incurred during 1997 in connection
with the development and implementation of a plan to prepare the Company's
computer systems for the year 2000 (see "Year 2000 Issue"). Other general and
administrative expense in 1996 rose $4.9 million from $95.9 million in 1995.
This increase was primarily associated with a $5.2 million rise in marketing
expenses, due principally to television advertising costs, the outsourcing of
additional aspects of the Company's data processing operations during the first
quarter of 1996, and the implementation of various other strategic initiatives.
Other general and administrative expense levels in 1997 and 1996, as compared
with the respective prior years, were reduced by $4.7 million and $12.7 million,
respectively, as a result of lower federal deposit insurance premiums due to
certain legislative actions during 1996 and 1995.

Amortization of Mortgage Servicing Assets. Amortization of mortgage
servicing assets amounted to $29.8 million in 1997, an increase of $10.4
million, or 53.5%, from the prior year, substantially due to the NAMC
Acquisition. During 1996, amortization of mortgage servicing assets was $19.4
million, down from $20.7 million in 1995. At December 31, 1997, the carrying
value of the Company's mortgage servicing assets was $341.9 million, up,
primarily due to the NAMC Acquisition, from $127.7 million and $99.1 million at
year-end 1996 and 1995, respectively.

In a declining long-term interest rate environment, actual or expected
prepayments of the loans underlying the Company's mortgage servicing assets
portfolio may increase, which would have an adverse impact on the value of such
assets. In connection therewith, the Company, during 1997, expanded its use of
derivative financial instruments as a hedge against its mortgage servicing
assets (see "Asset/Liability Management -- Derivative Financial Instruments")
and sold approximately $3 billion in principal amount of loan servicing rights
underlying the mortgage servicing assets portfolio, which resulted in a
reduction in the carrying value of that portfolio of approximately $57 million.

Other Real Estate Owned ("ORE") Expense, Net. ORE expense, net, totaled
$4.3 million in 1997, as compared with $10.1 million in 1996 and $12.9 million
in 1995. The year-to-year declines were largely attributable to reductions in
ORE, net. At December 31, 1997, ORE, net, amounted to $27.8 million, down from
$53.3 million and $60.7 million at year-end 1996 and 1995, respectively.
Contributing to the decrease in ORE, net, during 1997 were the sales of
approximately $13 million of residential ORE during the 1997 second quarter in
connection with the NPA Sales.

SAIF Recapitalization Assessment. The FDIC implemented portions of the
Funds Act in a final regulation that became effective in the fourth quarter of
1996. The FDIC regulation mandated the SAIF Special Assessment of $0.657 per
$100 of SAIF-insured deposits as of March 31, 1995 in order to recapitalize the
SAIF and bring it to its statutorily-required level of $1.25 of reserves for
each $100 of insured deposits. However, the Funds Act provided for certain
adjustments for purposes of computing the SAIF Special Assessment, including a
20% reduction for certain BIF-member institutions having SAIF-insured deposits,
such as the Bank. The Bank's SAIF Special Assessment, which was expensed during
the third quarter of 1996, amounted to $26.3 million.

Restructuring and Related Expense. The Company incurred restructuring and
related expense of $9.9 million for 1997, all of which was incurred in
connection with the NAMC Acquisition. The level of any further restructuring and
related expense associated with the NAMC Acquisition is not currently expected
to be

25
28

material. During 1996 and 1995, restructuring and related expense amounted to
$3.5 million and $15.3 million, respectively, and was associated with the Anchor
Merger.

Income Tax Expense

Income tax expense amounted to $75.0 million for 1997, as compared with
$50.0 million and $47.7 million for 1996 and 1995, respectively. The
year-to-year increases reflect the net impact of growth in pre-tax income, a
$12.3 million tax benefit realized during 1996 as a result of the final
resolution of certain federal, state and local tax filing positions taken in
prior years, and the effects of certain tax management strategies. The Company's
effective income tax rates declined to 37.9% in 1997 from 40.4% in 1996
(excluding the $12.3 million of tax benefits recognized during the year) and
43.4% in 1995, largely due to its tax management strategies.

Extraordinary Item

During the fourth quarter of 1997, the Holding Company purchased $55.6
million of its outstanding 8.9375% senior notes due July 2003. In connection
therewith, an extraordinary loss of $1.5 million, net of an income tax benefit
of $0.9 million, was recognized.

YEAR 2000 ISSUE

The Company acknowledges the challenges posed worldwide due to the current
inability of certain computer systems to properly recognize the date change from
December 31, 1999 to January 1, 2000. Failure to adequately meet these
challenges could have a material adverse effect on the operations of a financial
institution, such as the Company. The Company has completed the process of
assessing the systems issues associated with this year 2000 problem and adopted
a plan to prepare its computer systems, software, and applications to properly
process dates beyond December 31, 1999 (the "Year 2000 Plan"). The Year 2000
Plan requires modifications to be made to certain of the Company's existing
systems and, in other cases, conversions to new systems or software.

In addition, the Company is involved in ongoing communications with its
significant third-party contractors, such as vendors and service providers, for
the purpose of evaluating their readiness to meet the challenges of the year
2000 and the extent to which the Company may be affected by the remediation of
their systems, software, and applications. The Company cannot guarantee that the
computer systems of its third-party contractors will be remediated on a timely
basis or that the failure of any such party to remediate, or a remediation that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company.

The Company anticipates that the primary costs associated with the
development and implementation of the Year 2000 Plan will be in the areas of
remediation and testing of its computer applications, principally consisting of
costs related to outside consultants and applications upgrades. The Company
currently estimates that this plan, including unit testing, will be completed by
the end of 1998, with full integrated testing completed by the second quarter of
1999, and that total related pretax costs will be approximately $20 million, of
which approximately 75% is expected to be incurred during 1998. These estimates
are based on certain assumptions relating to future events, including, but not
limited to, the remediation efforts of third-party contractors, the continued
availability of certain resources, and other factors. There can be no guarantee
that these estimates will be achieved, and actual results could be significantly
different from those estimates, due to, among other factors, the unavailability
and cost of trained personnel and the failure to identify all affected systems.

ASSET/LIABILITY MANAGEMENT

General

The goal of asset/liability management is the prudent control of market
risk, liquidity, and capital. Asset/liability management is governed by policies
that are reviewed and approved annually by the Boards of

26
29

Directors of the Holding Company and the Bank, which oversee the development and
execution of risk management strategies in furtherance of these polices. The
Asset/Liability Management Committee ("ALMAC"), which is comprised of members of
the Company's senior management, monitors the Company's interest rate risk
position and related strategies.

Market Risk

In general, market risk is the sensitivity of income to variations in
interest rates, foreign currency exchange rates, commodity prices, and other
relevant market rates or prices, such as prices of equities. Market rate
sensitive instruments include: derivative financial instruments, such as
futures, forwards, swaps and options; other financial instruments, such as
investments, loans, MBS, deposits, and other debt obligations; and derivative
commodity instruments, such as commodity futures, forwards, swaps and options
that are permitted to be settled in cash or another financial instrument.

The Company did not enter into any market rate sensitive instruments for
trading purposes during 1997. However, as discussed below, the Company enters
into such instruments in connection with its various business operations,
particularly its mortgage banking activities. Loans originated, and the related
commitments to originate loans that will be sold, represent market risk that is
realized in a short period of time, generally two to three months.

The Company's primary source of market risk exposure arises from changes in
United States interest rates and the effects thereof on mortgage prepayment and
closing behavior, as well as depositors' choices ("interest rate risk"). Changes
in interest rates may result in reduced earnings and erosion of the market value
of assets and liabilities. The Company does not have any material exposure to
foreign exchange rate risk or commodity price risk. Movements in equity prices
may have an indirect, but limited, effect on certain of the Company's business
activities and/or the value of credit sensitive loans and securities.

Interest Rate Risk Management

The Company manages its interest rate risk through strategies designed to
maintain acceptable levels of interest rate exposure throughout a range of
interest rate environments. These strategies are intended not only to protect
the Company from significant long-term declines in net interest income as a
result of certain changes in the interest rate environment, but also to mitigate
the negative effect of certain interest rate changes upon the Company's mortgage
banking operating results. The Company seeks to contain its interest rate risk
within a band that it believes is manageable and prudent given its capital and
income generating capacity. As a component of its interest rate risk management
process, the Company employs various derivative financial instruments.

The Company's sensitivity to interest rates is driven primarily by the
mismatch between the term to maturity or repricing of its interest-earning
assets and that of its interest-bearing liabilities. In general, the Company's
interest-bearing liabilities reprice or mature, on average, sooner than its
interest-earning assets.

The Company is also exposed to interest rate risk arising from the "option
risk" embedded in many of the Company's interest-earning assets. For example,
mortgages and the mortgages underlying MBS may contain prepayment options,
interim and lifetime interest rate caps and other such features driven or
otherwise influenced by changes in interest rates. Prepayment option risk
affects mortgage-related assets in both rising and falling interest rate
environments as the financial incentive to refinance a mortgage loan is directly
related to the level of the existing interest rate on the loan relative to
current market interest rates.

Extension risk on mortgage-related assets is the risk that the duration of
such assets may increase as a result of declining prepayments due to rising
interest rates. Certain mortgage-related assets are more sensitive to changes in
interest rates than others, resulting in a higher risk profile. Because the
Company's interest-bearing liabilities are not similarly affected, the Company's
overall duration gap generally increases as interest rates rise. In addition, in
a rising interest rate environment, adjustable-rate assets may reach interim or
lifetime interest rate caps, thereby limiting the amount of upward adjustment,
which effectively lengthens the duration of such assets.

27
30

Lower interest rate environments may also present interest rate exposure.
In general, lower interest rate environments tend to accelerate prepayment
rates, which both shorten the duration of mortgage-related assets and accelerate
the amortization of any premiums paid in the acquisition of these assets. The
recognition of premiums over a shorter than expected term causes yields on the
related assets to decline from anticipated levels. In addition, unanticipated
accelerated prepayment rates increase the likelihood of potential losses of net
future servicing revenues associated with the Company's mortgage servicing
assets.

The Company is also exposed to interest rate risk resulting from certain
changes in the shape of the yield curve (particularly a flattening or
inversion -- also called "yield curve twist risk" -- of the yield curve) and to
differing indices upon which the yield on the Company's interest-earning assets
and the cost of its interest-bearing liabilities are based ("basis risk").

As further described below, in evaluating and managing its interest rate
risk, the Company employs simulation models to help assess its interest rate
risk exposure and the impact, and probability of occurrence, of alternate
interest rate scenarios, which consider the effects of adjustable-rate loan
indices, periodic and lifetime interest rate adjustment caps, estimated loan
prepayments, anticipated deposit retention rates, and other dynamics of the
Company's portfolios of interest-earning assets and interest-bearing
liabilities. Moreover, in order to reduce its sensitivity to interest rate risk,
the Company's investment strategy has emphasized adjustable-rate loans and
securities and fixed-rate medium-term securities.

Derivative Financial Instruments

The Company uses a variety of derivative financial instruments to assist in
managing its interest rate risk exposures. Derivative financial instruments
employed by the Company at December 31, 1997 were interest rate swaps, interest
rate swaptions, interest rate floors, interest rate caps, forward contracts to
purchase or sell loans or securities, and options to purchase or sell certain of
these and other instruments at designated prices. While the Company's use of
derivative financial instruments has served to mitigate the unfavorable effects
changes in interest rates may have on its results of operations, the Company
continues to be susceptible to interest rate risk.

Interest Rate Risk Management Instruments. The Company's assets generally
reprice or mature at a longer term than the liabilities used to fund those
assets. Consequently, the Company uses derivative financial instruments in its
efforts to reduce the repricing risk.

The Company uses three major classes of derivative financial instruments to
manage interest rate risk: interest rate swaps, where the Company pays a fixed
rate and receives a floating rate; interest rate caps, where the Company
receives the excess, if any, of the prevailing floating rate (usually London
Interbank Offered Rates ("LIBOR")) over a specified rate (the cap level); and
interest rate swaptions, where, in exchange for the payment of a premium, the
Company has the right to enter into pay-fixed interest rate swaps at a future
date.

The pay-fixed-rate swaps are used to modify specific variable-rate
liabilities and thereby improve the stability of the Company's net interest
margin. Interest rate caps are used to hedge the periodic and lifetime rate caps
embedded in specific adjustable-rate loans and securities and to limit the
effect of increases in the cost of short-term funds above certain specified
maximum levels. Interest rate swaptions are used to hedge the repricing risk on
certain assets with high prepayment risk.

The use of derivative financial instruments for interest rate risk
management purposes resulted in decreases in net interest income during 1997 and
1996 of $17.6 million and $17.2 million, respectively, as compared with an
increase in net interest income of $10.6 million during 1995.

Mortgage Banking Risk Management Instruments. The Company uses two major
classes of derivative financial instruments to protect against the impact of
substantial declines in long-term interest rates and the consequent increase in
mortgage prepayment rates: interest rate swaps, where the Company receives a
fixed rate and pays a floating rate; and interest rate floors, where the Company
receives the difference, if any, between a designated average long-term interest
rate (usually the ten-year constant maturity Treasury index) and a specified
strike rate.
28
31

The Company uses three major classes of derivative financial instruments to
hedge the risk in its loans held for sale and loan purchase commitment pipeline.
To the extent that the Company is confident that it will have loans to sell, the
Company sells loans into the forward MBS market. Such short sales are similar in
composition as to term and coupon with the loans held in, or expected to be
funded into, the loans held for sale portfolio. In addition, because the amount
of loans that the Company will fund, as compared with the total amount of loans
that it has committed to fund, is uncertain, the Company purchases various
options, including puts and calls on both the forward MBS market and the
interest rate futures market.

The following table sets forth the characteristics of derivative financial
instruments used by the Company at December 31, 1997, segregated by the
activities that they hedge.

WEIGHTED WEIGHTED AVERAGE
ESTIMATED AVERAGE RATE
NOTIONAL FAIR MATURITY ----------------
AMOUNT VALUE (IN YEARS) RECEIVE PAY
---------- --------- ---------- ------- ----
(DOLLARS IN THOUSANDS)

Interest rate risk management
instruments:
Interest rate swaps (pay fixed/receive
variable) hedging:
Loans receivable and securities..... $1,452,355 $(22,072) 4.9 5.98% 6.55%
Short-term borrowed funds........... 60,000 (590) 1.1 5.86 6.65
Interest rate caps hedging:
Loans receivable and securities..... 648,391 13 2.4 --(1) --(1)
Short-term borrowed funds........... 361,000 1,172 2.6 --(2) --(2)
Interest rate swaptions hedging loans
receivable.......................... 40,000 119 1.3 --(3) --(3)
---------- --------
Total interest rate risk
management instruments....... 2,561,746 (21,358)
---------- --------
Mortgage banking risk management
instruments:
Interest rate swaps (pay
variable/receive fixed) hedging
mortgage servicing assets........... 400,000 2,829 7.4 6.22 5.95
Interest rate floors hedging mortgage
servicing assets.................... 2,384,514 30,377 3.6 --(4) --(4)
Forward contracts hedging loans held
for sale originations............... 1,725,910 (4,760) 0.1 -- --
Put options (vs. United States
Treasury-based futures) hedging
loans held for sale originations.... 40,000 25 0.1 -- --
Call options on MBS forward contracts
hedging loans held for sale
originations........................ 67,000 180 0.3 -- --
---------- --------
Total mortgage banking risk
management instruments....... 4,617,424 28,651
---------- --------
Total derivative financial instruments... $7,179,170 $ 7,293
========== ========

- ---------------
(1) The weighted average strike rate was 8.00%.
(2) The weighted average strike rate was 7.04%.
(3) The weighted average strike rate was 6.75%.
(4) The weighted average strike rate was 5.64%.

For additional information concerning the Company's derivative financial
instruments, see Notes 1 and 23 of Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and Supplementary Data."

29
32

Asset/Liability Repricing

The measurement of differences (or "gaps") between the Company's
interest-earning assets and interest-bearing liabilities that mature or reprice
within a period of time is one indication of the Company's sensitivity to
changes in interest rates. A negative gap generally indicates that, in a period
of rising interest rates, deposit and borrowing costs will increase more rapidly
than the yield on loans and securities and, therefore, reduce the Company's net
interest margin and net interest income. The opposite effect will generally
occur in a declining interest rate environment. Although the Company has a large
portfolio of adjustable-rate assets, the protection afforded by such assets in
the event of substantial rises in interest rates for extended time periods is
limited due to interest rate reset delays, periodic and lifetime interest rate
caps, payment caps and the fact that indices used to reprice a portion of the
Company's adjustable-rate assets lag changes in market rates. Moreover, in
declining interest rate environments or certain shifts in the shape of the yield
curve, these assets may prepay at significantly faster rates than otherwise
anticipated. It should also be noted that the Company's gap measurement reflects
broad judgmental assumptions with regard to repricing intervals for certain
assets and liabilities.

The following table reflects the repricing of the Company's
interest-earning assets, interest-bearing liabilities and related derivative
financial instruments at December 31, 1997. The amount of each asset, liability
or derivative financial instrument is included in the table at the earlier of
the next repricing date or maturity. Prepayment assumptions for loans and MBS
used in preparing the table are based upon industry standards as well as the
Company's experience and estimates. Non-accrual loans have been included in the
"Over One Through Three Years" category. Demand deposits, money market deposits
and savings accounts are allocated to the various repricing intervals in the
table based on the Company's experience and estimates.

OVER ONE
THROUGH OVER
ONE YEAR THREE THREE
OR LESS YEARS YEARS TOTAL
-------- -------- ------ -------
(DOLLARS IN MILLIONS)

Interest-earning assets:
Loans...................................... $ 7,186 $4,109 $3,531 $14,826
MBS........................................ 3,797 799 307 4,903
Other...................................... 162 1 387 550
------- ------ ------ -------
Total interest-earning assets...... 11,145 4,909 4,225 20,279
------- ------ ------ -------
Interest-bearing liabilities:
Deposits................................... 7,992 2,701 3,154 13,847
Borrowed funds............................. 6,021 67 231 6,319
------- ------ ------ -------
Total interest-bearing
liabilities...................... 14,013 2,768 3,385 20,166
------- ------ ------ -------
Impact of hedging activities................. 1,115 (492) (623) --
------- ------ ------ -------
Gap (repricing difference)................... $(1,753) $1,649 $ 217 $ 113
======= ====== ====== =======
Cumulative gap............................... $(1,753) $ (104) $ 113
======= ====== ======
Cumulative ratio of gap to total assets...... (8.0)% (0.5)% 0.5%

The Company also utilizes complex simulation models to perform a
sensitivity analysis by which it estimates the potential change in its net
interest income over selected time periods resulting from hypothetical changes
in interest rates. This analysis evaluates the interest rate sensitivity of all
of the Company's interest-earning assets, interest-bearing liabilities and
derivative financial instruments by measuring the impact of changing rates on
12-month projected interest income and interest expense. The Company estimates
that, over a 12-month period, its net interest income would increase 2% and
decrease 2% in the event of an instantaneous and sustained 100 basis point
increase and decrease in interest rates, respectively.

This analysis requires the Company to make certain assumptions regarding
prepayments of loans and securities, reinvestment of cash flow, deposit
retention, availability of external funding, and the spread between

30
33

market rates on interest-earning assets and interest-bearing liabilities. The
Company relies upon industry data, as well as its own experience, in developing
the estimates required for this interest rate sensitivity analysis.

The Company has developed policies addressing limits on changes in 12-month
projected net interest income for specific instantaneous and sustained shocks in
interest rates. The Company also utilizes market value of portfolio equity and
duration of equity analyses in the management of its interest rate risk.

MANAGEMENT OF CREDIT RISK

General

The Company's credit risk arises from the possibility that borrowers,
issuers, or counterparties will not perform in accordance with contractual
terms. The Company has a process of credit risk controls and management
procedures by which it monitors and manages its level of credit risk.

Non-Performing Assets

The Company's non-performing assets consist of non-accrual loans and ORE,
net. Non-accrual loans are all loans 90 days or more delinquent, as well as
loans less than 90 days past due for which the full collectability of
contractual principal or interest payments is doubtful. When a loan is placed on
non-accrual status, any accrued but unpaid interest income on the loan is
reversed and future interest income on the loan is recognized only if actually
received by the Company and full collection of principal is not in doubt. Loans
are generally returned to accrual status when principal and interest payments
are current, full collectability of principal and interest is reasonably
assured, and a consistent record of performance has been demonstrated. Loans
modified in a troubled debt restructuring ("TDR") that have demonstrated a
sufficient payment history to warrant return to performing status are not
included within non-accrual loans (see "Loans Modified in a TDR").

31
34

The following table presents the components of the Company's non-performing
assets at December 31:

1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)

Non-accrual loans:
Residential real estate:
Permanent.......................... $ 90,488 $163,156 $206,230 $214,222 $173,146
Construction....................... 510 635 840 1,130 1,630
-------- -------- -------- -------- --------
Total residential real
estate...................... 90,998 163,791 207,070 215,352 174,776
-------- -------- -------- -------- --------
Commercial real estate:
Permanent.......................... 21,601 17,375 34,618 106,778 92,120
Construction....................... 159 3,672 4,427 3,965 6,301
-------- -------- -------- -------- --------
Total commercial real
estate...................... 21,760 21,047 39,045 110,743 98,421
-------- -------- -------- -------- --------
Consumer.............................. 5,719 6,645 8,263 13,860 16,539
Business.............................. 511 107 741 1,909 1,180
-------- -------- -------- -------- --------
Total non-accrual loans....... 118,988 191,590 255,119 341,864 290,916
-------- -------- -------- -------- --------
ORE, net:
Residential real estate............... 20,228 36,182 38,799 43,881 67,638
Commercial real estate................ 9,255 20,367 24,952 37,368 26,127
Allowance for losses.................. (1,722) (3,294) (3,070) (7,247) (7,538)
-------- -------- -------- -------- --------
Total ORE, net................ 27,761 53,255 60,681 74,002 86,227
-------- -------- -------- -------- --------
Non-performing assets held for bulk
sale(1):
Residential real estate loans......... -- -- -- -- 186,000
Residential ORE....................... -- -- -- -- 78,600
-------- -------- -------- -------- --------
Total non-performing assets
held for bulk sale.......... -- -- -- -- 264,600
-------- -------- -------- -------- --------
Total non-performing assets............. $146,749 $244,845 $315,800 $415,866 $641,743
======== ======== ======== ======== ========
Non-performing assets to total assets... 0.67% 1.30% 1.55% 2.12% 3.55%
Non-accrual loans to loans receivable... 0.92 1.78 2.60 3.66 3.68

- ---------------
(1) The non-performing assets held for bulk sale were written down in 1993 to
the amount of the proceeds anticipated to be received from the sales.

The Company generally has pursued a loan-by-loan/property-by-property
disposition strategy with respect to its non-performing assets, while also
considering the appropriateness of alternate disposition strategies, including
bulk sales of non-performing assets. During 1997 and 1994, the Company
consummated bulk sales of approximately $126 million (i.e., the NPA Sales) and
$265 million, respectively, of non-performing residential real estate assets.

Since December 31, 1996, the Company expanded its lending activities and
product mix and anticipates that such expansion efforts will continue. The
Company intends to continue to monitor closely the effects of these efforts on
the overall risk profile of its loan portfolio, which the Company expects will
continue to change over time.

32
35

The level of loans delinquent less than 90 days may, to some degree, be a
leading indicator of future levels of non-performing assets. The following table
sets forth, at December 31, 1997, such delinquent loans of the Company, net of
those already in non-performing status.

DELINQUENCY PERIOD
-----------------------------------
30-59 DAYS 60-89 DAYS TOTAL
---------- ---------- -------
(IN THOUSANDS)

Residential real estate loans....................... $47,413 $17,946 $65,359
Commercial real estate loans........................ 1,836 2,797 4,633
Consumer loans...................................... 5,023 1,334 6,357
Business loans...................................... 1,657 92 1,749
------- ------- -------
Total............................................... $55,929 $22,169 $78,098
======= ======= =======

Loans Modified in a TDR

When borrowers encounter financial hardship but are able to demonstrate to
the Company's satisfaction an ability and willingness to resume regular monthly
payments, the Company may provide them with an opportunity to restructure the
terms of their loans. These arrangements, which are negotiated individually,
generally provide for interest rates that are lower than those initially
contracted for, but which may be higher or lower than current market interest
rates for loans with comparable risk, and may, in some instances, include a
reduction in the principal amount of the loan. The Company evaluates the costs
associated with any particular restructuring arrangement and may enter into such
an arrangement if it believes it is economically beneficial for the Company to
do so.

The following table sets forth the Company's loans that have been modified
in a TDR, excluding those classified as non-accrual loans, at December 31:

1997 1996 1995 1994 1993
------- -------- -------- -------- --------
(IN THOUSANDS)

Residential real estate loans.... $37,532 $ 42,684 $ 43,090 $ 21,409 $ 36,960
Commercial real estate loans..... 46,677 170,323 159,097 167,205 177,868
------- -------- -------- -------- --------
Total loans modified in a TDR.... $84,209 $213,007 $202,187 $188,614 $214,828
======= ======== ======== ======== ========

Allowance for Loan Losses

The Company's allowance for loan losses is intended to be maintained at a
level sufficient to absorb all estimable and probable losses inherent in the
loans receivable portfolio. In determining the appropriate level of the
allowance for loan losses and, accordingly, the level of the provision for loan
losses, the Company reviews its loans receivable portfolio on at least a
quarterly basis, taking into account its impaired loans, the size, composition
and risk profile of the portfolio, delinquency levels, historical loss
experience, cure rates on delinquent loans, economic conditions and other
pertinent factors, such as assumptions and projections of future conditions.
While the Company believes that the allowance for loan losses is adequate,
additions to the allowance for loan losses may be necessary in the event of
future adverse changes in economic and other conditions that the Company is
unable to predict.

33
36

The following table sets forth the activity in the Company's allowance for
loan losses for the year ended December 31:

1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)

Balance at beginning of year........... $106,495 $128,295 $170,383 $157,515 $ 248,429
Anchor Merger adjustment............... -- -- -- (928) --
Acquired in acquisitions............... 13,249 -- -- 32,579 --
Provision charged to operations........ 49,000 41,000 39,650 55,799 95,489
Charge-offs:
Residential real estate loans........ (61,235) (52,191) (46,131) (43,910) (184,478)
Commercial real estate loans......... (5,984) (13,244) (37,759) (35,327) (9,085)
Consumer loans....................... (4,161) (5,371) (8,172) (5,314) (7,464)
Business loans....................... (228) (490) (26) (233) (2,266)
-------- -------- -------- -------- ---------
Total charge-offs............ (71,608) (71,296) (92,088) (84,784) (203,293)
-------- -------- -------- -------- ---------
Recoveries:
Residential real estate loans........ 3,652 5,093 5,220 5,895 11,710
Commercial real estate loans......... 2,006 977 1,552 676 1,433
Consumer loans....................... 1,833 2,292 2,482 3,433 3,572
Business loans....................... 91 134 1,096 198 175
-------- -------- -------- -------- ---------
Total recoveries............. 7,582 8,496 10,350 10,202 16,890
-------- -------- -------- -------- ---------
Net charge-offs............ (64,026) (62,800) (81,738) (74,582) (186,403)
-------- -------- -------- -------- ---------
Balance at end of year................. $104,718 $106,495 $128,295 $170,383 $ 157,515
======== ======== ======== ======== =========
Allowance for loan losses to:
Loans receivable..................... 0.81% 0.99% 1.31% 1.82% 1.99%
Non-accrual loans.................... 88.01 55.58 50.29 49.84 54.14
Net charge-offs during the year to
average loans outstanding during the
year................................. 0.53 0.61 0.86 0.87 2.49

The following table sets forth, at December 31 for the years indicated, the
Company's allocation of the allowance for loan losses by category of loans
receivable and the percentage of each category of loans receivable to total
loans receivable. Although the Company has allocated a portion of the allowance
for loan losses to specific loans receivable categories, the allowance for loan
losses is available to absorb losses, regardless of the nature of the loan.

1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)

Balance of allowance for loan losses at
year end allocated to:
Residential real estate loans...... $ 49,494 $ 59,228 $ 68,177 $ 73,562 $ 72,976
Commercial real estate loans....... 47,394 39,872 51,138 84,350 55,642
Consumer loans..................... 4,724 5,652 6,881 3,691 4,774
Business loans..................... 1,606 1,743 2,099 2,029 384
Unallocated........................ 1,500 -- -- 6,751 23,739
-------- -------- -------- -------- --------
Total allowance for loan losses......... $104,718 $106,495 $128,295 $170,383 $157,515
======== ======== ======== ======== ========
Percentage of loans to total loans
receivable:
Residential real estate loans......... 75.8% 75.2% 73.0% 71.5% 75.5%
Commercial real estate loans.......... 17.4 17.6 18.9 19.9 15.5
Consumer loans........................ 6.0 6.8 7.7 8.3 8.9
Business loans........................ 0.8 0.4 0.4 0.3 0.1
-------- -------- -------- -------- --------
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========

34
37

The Company has developed models and other analytic tools to assist in the
assessment of estimable and probable losses inherent in both the non-performing
and performing residential real estate loan portfolios. The Company periodically
reviews and refines these models, analyzing the continuing validity of the
assumptions used, comparing actual experience to that projected in the models
and modifying those assumptions as may, in the Company's judgment, be
appropriate. The Company also regularly analyzes economic trends and underlying
portfolio trends, such as changes in geographic and property type mix and loan
seasoning. The results of these reviews and analyses, which may yield a range of
values, are evaluated in determining the need during any period for additions to
the allowance for loan losses for residential real estate loans. However, it
should be noted that these various models and analyses depend upon a large
number of estimates and assumptions, especially with respect to future economic
and market conditions and borrower behavior, that are subject to change, and it
is entirely likely that future events will vary in some respects from those
predicted by any particular model or analysis.

The adequacy of the allowance for loan losses for the Company's commercial
real estate loan portfolio is based in part on a loan-by-loan analysis that
includes a risk-rating system. The Company's Asset Quality Review Department
("AQRD") provides an independent review of the analyses performed by management
with respect to commercial real estate loans, including the respective risk
ratings assigned to such loans. Pursuant to the Company's policy, the AQRD
conducts an annual review of all commercial real estate loans that have been
assigned certain risk ratings, with the balance of the portfolio reviewed on a
test basis.

Loans Sold with Recourse

In the past, the Company sold certain residential and commercial real
estate loans with limited recourse. The principal balance of loans sold with
recourse amounted to approximately $648 million at December 31, 1997, down from
$752 million one year earlier. The Company's related maximum potential recourse
exposure was approximately $181 million and $196 million at December 31, 1997
and 1996, respectively. Of the loans sold with recourse at December 31, 1997,
$7.5 million were delinquent 90 days or more. During 1997 and 1996, the Company
repurchased loans sold with recourse totaling $20.1 million and $35.0 million,
respectively.

MBS

In general, the Company's MBS carry a significantly lower credit risk than
its loans receivable. Of the $4.9 billion carrying value of the Company's MBS
portfolio at December 31, 1997, approximately 15% were issued by FHLMC, GNMA and
FNMA. The Company's privately-issued MBS, which have been issued by entities
other than FHLMC, GNMA and FNMA, have generally been underwritten by large
investment banking firms, with the timely payment of principal and interest on
these securities supported ("credit enhanced") in varying degrees by either
insurance issued by a financial guarantee insurer, letters of credit or
subordination techniques. Privately-issued MBS are subject to certain
credit-related risks normally not associated with MBS issued by FHLMC, GNMA and
FNMA, including the limited loss protection generally provided by the various
forms of credit enhancements, as losses in excess of certain levels are not
protected. Furthermore, the credit enhancement itself is subject to the
creditworthiness of the provider. Thus, in the event that a provider of a credit
enhancement does not fulfill its obligations, the MBS holder could be subject to
risk of loss similar to a purchaser of a whole loan pool.

The most common form of credit enhancement for the privately-issued MBS in
the Company's portfolio is a senior/subordinated structure, in which losses are
allocated to a "subordinate class" of the MBS until the principal balance of
that class is reduced to zero, thereby protecting the "senior class" to such
extent. The level of subordination is a primary factor in the determination of
the rating for the senior class of the MBS. Under mortgage pool insurance, which
is another common form of credit enhancement for the Company's privately-issued
MBS, losses of principal and interest to the date of liquidation on a loan are
paid by the insurer up to the specific dollar amount of the pool policy. The
terms of the pool insurance policy specify the eligibility requirements of
losses that are covered. The credit rating of the provider of the mortgage pool
insurance policy is an important factor in the rating of the MBS. A letter of
credit, which is a promise by a bank to reimburse losses up to a specified
amount, is also frequently used either as credit support for an entire
transaction or to cover specified types of risk. In addition, special hazard
policies are usually obtained to

35
38

protect against damages to the underlying properties that are not covered by
normal home insurance policies, such as the effects of earthquakes, mudslides
and certain other natural disasters in areas susceptible to these types of
risks.

During 1997, 1996 and 1995, the Company recognized losses of $1.5 million,
$4.7 million and $3.3 million, respectively, associated with the other than
temporary impairment in value of certain privately-issued MBS. These losses were
necessitated by the depletion of the underlying credit enhancements as a result
of losses incurred on the loans underlying the securities, coupled with the
Company's projections of estimated future losses on the securities. No assurance
can be given that future losses on these securities, the carrying value of which
amounted to approximately $69 million at December 31, 1997, will not be
incurred. While substantially all of the $4.2 billion portfolio of
privately-issued MBS held by the Company at December 31, 1997 were rated "AA" or
better by one or more of the nationally recognized securities rating agencies,
no assurance can be given that such ratings will be maintained, and the Company
cannot predict whether losses will or will not be recognized on any such
securities.

The following table sets forth, by issuer, the aggregate amortized cost and
estimated fair value of the Company's privately-issued MBS that exceeded 10% of
stockholders' equity at December 31, 1997.

AMORTIZED ESTIMATED
ISSUER COST FAIR VALUE
------ --------- ----------
(IN THOUSANDS)

Residential Funding Mortgage Securities, Inc. .............. $748,220 $738,931
Prudential Home Mortgage Securities Co., Inc. .............. 435,284 437,456
Resolution Trust Corporation................................ 381,393 377,209
Regal Trust................................................. 232,874 236,590
American Residential Mortgage Corp. ........................ 207,513 205,032
Countrywide Funding Corp. and Countrywide Mortgage Backed
Securities, Inc. ......................................... 207,144 208,841
DLJ Mortgage Acceptance Corporation......................... 197,715 196,493
Housing Securities Inc. .................................... 184,770 186,068
Salomon Brothers Mortgage Securities VII, Inc. ............. 144,031 143,973
PHH Mortgage Services Corporation........................... 140,286 141,850

Derivative Financial Instruments

The credit risk from the Company's derivative financial instruments arises
from the possible default by a counterparty on its contractual obligations. In
the event of default by a counterparty, the Company would be subject to an
economic loss that corresponds to the cost to replace the agreement. The level
of credit risk associated with derivative financial instruments depends on a
variety of factors, including the estimated fair value of the instrument, the
collateral maintained, the use of master netting arrangements, and the ability
of the counterparty to comply with its contractual obligations. The Company has
established policies and procedures limiting its credit exposure to
counterparties of derivative financial instrument agreements, which include
consideration of credit ratings on a continuous basis, collateral requirements
and exposure to any one counterparty. In addition, as deemed necessary, the
Company may enter into master netting agreements, under which it may offset
payable and receivable positions, to the extent they exist, with the same
counterparty in the event of default. There were no past due amounts related to
the Company's derivative financial instruments at December 31, 1997 or 1996.

FINANCIAL CONDITION

General

The Company's total assets amounted to $21.8 billion at December 31, 1997,
up $3.0 billion, or 15.8%, from the end of 1996. This growth was substantially
attributable to increases in the Company's loans held for sale and loans
receivable portfolios, partially offset by a reduction in securities.

36
39

Securities

At December 31, 1997, the Company maintained a securities available for
sale portfolio totaling $5.0 billion, or 24.6% of total interest-earning assets.
In December 1997, the Company transferred its entire securities held to maturity
portfolio to its securities available for sale portfolio as part of a balance
sheet restructuring initiative implemented at that time, primarily in connection
with a reassessment by the Company of its asset/liability management strategy.
As a result, the Company did not maintain a portfolio of securities held to
maturity at the end of 1997. In connection with the balance sheet restructuring
initiative, the Company designated $1.4 billion of MBS for sale during 1998. At
December 31, 1996, the aggregate carrying value of the Company's securities
available for sale and securities held to maturity was $7.0 billion, or 38.4% of
total interest-earning assets.

At year-end 1997, approximately 72% of the $4.9 billion portfolio of MBS
available for sale consisted of adjustable-rate securities. The predominant
indices underlying these securities are the one-year United States Treasury
interest rate and the Eleventh District cost of funds index published by the
FHLB of San Francisco.

The following table sets forth the carrying value of the Company's
securities available for sale and securities held to maturity at December 31 for
the years indicated. Securities designated as available for sale are carried at
estimated fair value with unrealized gains and losses recorded in a valuation
allowance that is included, net of related income taxes, as a separate component
of stockholders' equity. Securities classified as held to maturity are carried
at amortized cost.

SECURITIES
--------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------------------------ -----------------------
1997 1996 1995 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

MBS:
Pass-through securities:
Privately-issued................ $2,851,007 $1,228,264 $2,715,097 $2,520,013 $3,071,166
FNMA............................ 402,096 919,346 747,189 -- --
FHLMC........................... 181,098 167,073 448,356 44,711 --
GNMA............................ 15,517 187,006 22,525 -- --
Collateralized mortgage obligations
("CMOs"):
Privately-issued.............. 1,336,690 -- -- 1,670,983 1,867,318
FNMA.......................... 91,436 -- -- 94,412 94,636
FHLMC......................... 23,920 -- -- 30,089 49,330
Interest-only...................... 1,129 1,291 1,679 -- --
---------- ---------- ---------- ---------- ----------
Total MBS.................. 4,902,893 2,502,980 3,934,846 4,360,208 5,082,450
---------- ---------- ---------- ---------- ----------
Other debt securities:
U.S. government and federal
agency.......................... 8,638 17,969 28,045 -- --
State and municipal................ 36,291 43,307 78,053 -- --
Domestic corporate................. 35,359 15,328 17,249 -- --
Other.............................. 500 -- -- 3,763 3,286
---------- ---------- ---------- ---------- ----------
Total other debt
securities............... 80,788 76,604 123,347 3,763 3,286
---------- ---------- ---------- ---------- ----------
Equity securities.................... 8,623 9,988 12,672 -- --
---------- ---------- ---------- ---------- ----------
Total................................ $4,992,304 $2,589,572 $4,070,865 $4,363,971 $5,085,736
========== ========== ========== ========== ==========

At December 31, 1997, the Company's securities available for sale portfolio
had gross unrealized gains of $22.1 million and gross unrealized losses of $37.4
million. These gross unrealized gains and losses reflect normal market
conditions and vary, either positively or negatively, based primarily on changes
in general levels of market interest rates relative to the yields on the
portfolios.

37
40

The Company's $1.5 billion portfolio of CMOs at December 31, 1997 consisted
primarily of sequential pay tranches (approximately 40%), accretion directed
tranches (approximately 21%) and planned amortization tranches (approximately
11%). None of these securities were considered "high risk," as defined by a
Federal Financial Institutions Examination Council policy statement effective
February 10, 1992, at the time of purchase. At December 31, 1997, one CMO with a
carrying value of $8.0 million was considered to be "high risk" under that
policy statement; however, this security was sold during the first quarter of
1998 for an immaterial gain. The Company cannot provide any assurances that no
other CMOs will be considered "high risk" in the future.

Loans

The Company's loans held for sale amounted to $1.8 billion at December 31,
1997, up from $0.1 billion at year-end 1996. This increase was largely
attributable to the NAMC Acquisition.

At December 31, 1997, the Company's loans receivable (exclusive of the
allowance for loan losses) amounted to $13.0 billion, or 64.0% of total
interest-earning assets. In comparison, loans receivable at the end of 1996
totaled $10.7 billion, or 59.3% of total interest-earning assets. While the
growth in loans receivable during 1997 was largely associated with residential
real estate loans, increases were noted in all major loan categories.

Residential real estate loans receivable, which amounted to $9.8 billion at
year-end 1997, increased $1.8 billion, or 22.0%, from December 31, 1996,
reflective of the Company's expansion of its lending capabilities in this area.
Production for the residential real estate loans receivable portfolio in 1997
totaled $3.3 billion, including $1.4 billion during the fourth quarter of the
year. At December 31, 1997, residential real estate loans receivable comprised
75.8% of the Company's loans receivable portfolio, relatively unchanged from the
end of 1996.

At the end of 1997, approximately $8.0 billion, or 83%, of the Company's
residential real estate loans receivable were adjustable-rate loans. The
interest rate adjustments for these loans are based on a fixed margin over
various indices, including cost-of-funds indices ("COFI") and indices based on
certain United States Treasury interest rates ("Treasury Indices").
Approximately 82% of the Company's adjustable-rate residential real estate loans
receivable at year-end 1997 were based on Treasury Indices, up from
approximately 69% at December 31, 1996. Annual interest rate adjustment caps on
the Company's adjustable-rate residential real estate loans receivable have
generally been two percentage points. Many of these loans have lifetime interest
rate adjustment caps, which have generally been six percentage points over the
initial interest rate.

Commercial real estate loans receivable rose $377.3 million, or 20.0%, in
1997. Contributing significantly to this increase was the impact of the BFS
Acquisition, which, at the date of the acquisition, added approximately $580
million of loans to the Company's commercial real estate loans receivable
portfolio. At the end of 1997, commercial real estate loans receivable primarily
consisted of multifamily properties (61%), shopping centers (17%), office
buildings (10%), and industrial properties (6%). The Company's commercial real
estate loans generally have balloon payments of principal due between five and
ten years after origination. Of the Company's $2.3 billion commercial real
estate loans receivable at the end of 1997, approximately 48% were
adjustable-rate loans.

During 1997, the Company's consumer loans receivable portfolio increased
$39.5 million, or 5.4%, substantially reflecting growth in home equity loans,
its primary focus in this lending area. Home equity loans rose 17.0% during 1997
and, based on outstanding principal balances, represented approximately 82% of
the consumer loans receivable portfolio at December 31, 1997. The increase in
the consumer loans receivable portfolio during 1997 was limited by, among other
factors, the repurchase during the year of the Company's portfolio of third
party-originated automobile loans by the seller and a $16.5 million reduction in
manufactured home loan principal balances, as this product line was discontinued
in the past.

The Company also experienced growth in business loans receivable during
1997. Such loans increased $55.9 million, or 130%, during 1997.

38
41

A summary of the Company's loans receivable (exclusive of the allowance for
loan losses) is as follows at December 31:

1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ----------
(IN THOUSANDS)

Residential real estate loans:
Principal balances:
Permanent..................... $ 9,779,559 $ 8,016,699 $7,139,862 $6,659,935 $5,952,063
Construction.................. 2,453 3,697 1,948 1,989 3,222
----------- ----------- ---------- ---------- ----------
Total principal
balances............... 9,782,012 8,020,396 7,141,810 6,661,924 5,955,285
Net deferred yield adjustments... 66,581 54,509 45,002 19,774 16,877
----------- ----------- ---------- ---------- ----------
Total residential real
estate loans........... 9,848,593 8,074,905 7,186,812 6,681,698 5,972,162
----------- ----------- ---------- ---------- ----------
Commercial real estate loans:
Principal balances:
Permanent..................... 2,214,620 1,856,563 1,813,344 1,834,114 1,211,551
Construction.................. 57,152 33,046 42,584 40,592 13,076
----------- ----------- ---------- ---------- ----------
Total principal
balances............... 2,271,772 1,889,609 1,855,928 1,874,706 1,224,627
Net deferred yield adjustments... (8,749) (3,876) (5,030) (11,192) (2,219)
----------- ----------- ---------- ---------- ----------
Total commercial real
estate loans........... 2,263,023 1,885,733 1,850,898 1,863,514 1,222,408
----------- ----------- ---------- ---------- ----------
Consumer loans:
Principal balances:
Home equity................... 617,041 527,442 520,589 531,008 465,738
Manufactured home............. 44,432 60,965 78,319 98,354 110,962
Secured by deposit accounts... 40,992 39,684 40,578 40,309 40,191
Automobile.................... 6,298 43,661 53,947 30,104 7,067
Other......................... 46,400 51,923 59,854 73,042 78,147
----------- ----------- ---------- ---------- ----------
Total principal
balances............... 755,163 723,675 753,287 772,817 702,105
Net deferred yield adjustments... 18,654 10,606 4,127 1,792 3,002
----------- ----------- ---------- ---------- ----------
Total consumer loans..... 773,817 734,281 757,414 774,609 705,107
----------- ----------- ---------- ---------- ----------
Business loans:
Principal balances............... 99,110 43,138 35,189 31,817 6,899
Net deferred yield adjustments... (36) -- -- (16) (3)
----------- ----------- ---------- ---------- ----------
Total business loans..... 99,074 43,138 35,189 31,801 6,896
----------- ----------- ---------- ---------- ----------
Total loans receivable............. $12,984,507 $10,738,057 $9,830,313 $9,351,622 $7,906,573
=========== =========== ========== ========== ==========

39
42

The following table presents the contractual maturities of the principal
balances of the Company's commercial real estate loans receivable, residential
real estate construction loans receivable and business loans receivable at
December 31, 1997.

REMAINING CONTRACTUAL MATURITY
--------------------------------------------------
OVER ONE
ONE YEAR THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ----------
(IN THOUSANDS)

Commercial real estate loans:
Permanent:
Adjustable-rate......................... $195,379 $256,439 $ 576,758 $1,028,576
Fixed-rate.............................. 105,558 640,745 439,741 1,186,044
-------- -------- ---------- ----------
Total permanent.................... 300,937 897,184 1,016,499 2,214,620
-------- -------- ---------- ----------
Construction:
Adjustable-rate......................... 16,988 39,284 -- 56,272
Fixed-rate.............................. 531 349 -- 880
-------- -------- ---------- ----------
Total construction................. 17,519 39,633 -- 57,152
-------- -------- ---------- ----------
Total commercial real estate loans........... $318,456 $936,817 $1,016,499 $2,271,772
======== ======== ========== ==========
Residential real estate construction loans:
Fixed-rate................................. $ 1,471 $ -- $ 982 $ 2,453
Business loans:
Adjustable-rate............................ $ 70,142 $ 18,762 $ 4,014 $ 92,918
Fixed-rate................................. 2,157 2,048 1,987 6,192
-------- -------- ---------- ----------
Total business loans......................... $ 72,299 $ 20,810 $ 6,001 $ 99,110
======== ======== ========== ==========

In 1997, as compared with 1996, the Company's total loan production
increased $6.0 billion, or 157%. The following table summarizes the Company's
loan production for the year ended December 31:

1997 1996
---------- ----------
(IN THOUSANDS)

Residential real estate loan production:
Originated................................................ $6,401,406 $2,685,946
Purchased................................................. 2,234,980 311,375
---------- ----------
Total residential real estate loan
production(1)................................... 8,636,386 2,997,321
---------- ----------
Commercial real estate loans originated..................... 539,850 405,741
Consumer loans originated:
Home equity loans......................................... 337,795 216,353
Other consumer loans...................................... 157,253 157,050
---------- ----------
Total consumer loans originated................... 495,048 373,403
---------- ----------
Business loans originated................................... 125,601 30,061
---------- ----------
Total loan production....................................... $9,796,885 $3,806,526
========== ==========

- ---------------
(1) Includes loan production for sale in the secondary market of $5.3 billion in
1997 and $1.0 billion in 1996.

Approximately 36% of the $8.6 billion of residential real estate loans
produced during 1997 were refinance loans, the proceeds of which were used in
full or in part to prepay loans previously originated by the Company or other
financial institutions. The level of loan refinancing activity is influenced by
various factors,

40
43

including relative interest rates, refinancing costs, the availability of credit
on terms acceptable to the borrower, and real estate values.

The Company continues to experience significant competition in its loan
production activities. As a result, the Company cannot predict whether it will
be able to achieve continuing growth in any of its lending areas.

Deposits

Total deposits amounted to $13.8 billion at year-end 1997, an increase of
$1.0 billion, or 7.7%, from December 31, 1996. The growth in deposits was
largely attributable to the BFS Acquisition, in connection with which the
Company acquired five New York City branches and $447.1 million of deposits, the
NAMC Acquisition, and a brokered time deposit program implemented during 1997,
in part, to expand the Company's available sources of funds. Total brokered time
deposits amounted to $193.0 million at December 31, 1997. At that date, the Bank
operated 91 branches, comprised of 90 branches in the greater New York City
metropolitan area and one branch in Florida.

The following table sets forth a summary of the Company's deposits at
December 31:

1997 1996
------------------------- -------------------------
PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)

Demand............................. $ 1,572,797 11.4% $ 1,130,863 8.8%
Savings............................ 2,431,812 17.6 2,460,367 19.1
Money market....................... 1,971,081 14.2 2,007,448 15.6
Time............................... 7,871,585 56.8 7,258,061 56.5
----------- ----- ----------- -----
Total deposits..................... $13,847,275 100.0% $12,856,739 100.0%
=========== ===== =========== =====

Borrowed Funds

Total borrowed funds amounted to $6.3 billion at the end of 1997, up $1.5
billion from the level at the end of 1996. This increase was principally
associated with the funding of growth in interest-earning assets.

The following table sets forth a summary of the Company's borrowed funds at
December 31:

1997 1996
------------------------ ------------------------
PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Securities sold under agreements to
repurchase................................. $2,975,774 47.1% $3,550,234 73.7%
FHLBNY advances.............................. 2,786,751 44.1 925,139 19.2
Senior notes(1).............................. 142,475 2.3 197,584 4.1
Guaranteed preferred beneficial interests in
Holding Company's junior subordinated
deferrable interest debentures(2).......... 196,137 3.1 -- --
Other........................................ 218,175 3.4 142,234 3.0
---------- ----- ---------- -----
Total borrowed funds......................... $6,319,312 100.0% $4,815,191 100.0%
========== ===== ========== =====

- ---------------
(1) In November 1997, the Holding Company purchased $55.6 million in principal
amount of its outstanding 8.9375% senior notes due July 2003.

(2) For a further discussion, see Note 13 of the Notes to Consolidated Financial
Statements in Item 8, "Financial Statements and Supplementary Data."

41
44

Stockholders' Equity

Stockholders' equity amounted to $1.3 billion at December 31, 1997, as
compared with $1.0 billion at the prior year end, an increase of 28.6%. This
growth was largely attributable to the NAMC Acquisition, which increased
stockholders' equity by $372.5 million at the acquisition date, and the
recognition of net income of $121.7 million. In connection with the NAMC
Acquisition, the Company issued 19.4 million shares of Common Stock, of which
7.5 million were issued from treasury. At year-end 1997, stockholders' equity
represented 6.02% of total assets, up from 5.42% of total assets at year-end
1996. The Holding Company's book value per common share was $11.30 at December
31, 1997, up 15.8% from $9.76 one year earlier.

During 1997, the Holding Company repurchased a total of 9.3 million shares
of Common Stock (including 6.9 million shares in connection with the NAMC
Acquisition) at an average cost per share of $21.57. Since the announcement in
January 1996 of the Holding Company's initial Common Stock repurchase program, a
total of 14.3 million shares of Common Stock have been repurchased at an average
cost per share of $18.92.

At December 31, 1997, the Holding Company had one Common Stock repurchase
program in effect. This program, which was announced in December 1997, provides
for the repurchase of up to 3 million additional shares of Common Stock. No
repurchases were made under this program as of December 31, 1997. During the
first quarter of 1998, the Holding Company repurchased 3 million shares of
Common Stock under this program.

During the second, third and fourth quarters of 1997, the Holding Company
declared and paid cash dividends on the Common Stock of $0.04 per share. The
Holding Company's Common Stock dividend payout ratio for 1997 was 10.5%.

LIQUIDITY

The Company's liquidity management process focuses on ensuring that
sufficient funds exist to meet withdrawals from deposit accounts, loan funding
commitments, the repayment of borrowed funds, and other financial obligations
and expenditures, as well as ensuring the Bank's compliance with regulatory
liquidity requirements. The liquidity position of the Company, which is
monitored on a daily basis, is managed pursuant to established policies and
guidelines.

The Company's sources of liquidity include principal repayments on loans
and MBS, borrowings, deposits, sales of loans in connection with mortgage
banking activities, sales of securities available for sale, and net cash
provided by operations. Additionally, the Company has access to the capital
markets for issuing debt or equity securities, as well as access to the discount
window of the Federal Reserve Bank of New York, if necessary, for the purpose of
borrowing to meet temporary liquidity needs, although it has not utilized this
funding source in the past.

Excluding funds raised through the capital markets, the primary source of
funds of the Holding Company, on an unconsolidated basis, has been dividends
from the Bank, whose ability to pay dividends is subject to regulations of the
OTS (see "Regulation and Supervision -- Restrictions on Dividends and Capital
Distributions" in Item 1, "Business").

Under OTS regulations, which were revised effective in November 1997 (see
"Regulation and Supervision -- Liquid Assets" in Item 1, "Business"), the Bank
must maintain average eligible liquid assets (as defined) for each calendar
quarter of not less than 4.00% of its liquidity base (as defined). For the
fourth quarter of 1997, the Bank's liquidity ratio was 4.51%.

REGULATORY CAPITAL

Pursuant to OTS regulations, the Bank is required to maintain tangible
capital of at least 1.50% of adjusted total assets, leverage capital of at least
3.00% of adjusted total assets, and risk-based capital of at least 8.00% of
risk-weighted assets. The Bank exceeded these capital requirements at December
31, 1997.

42
45

Under the PCA regulations adopted by the OTS pursuant to FDICIA, an
institution is considered well capitalized, the highest of five categories, if
it has a leverage capital ratio of at least 5.00%, a tier 1 risk-based capital
ratio (leverage capital to risk-weighted assets) of at least 6.00%, and a total
risk-based capital ratio of at least 10.00%, and it is not subject to an order,
written agreement, capital directive, or PCA directive to meet and maintain a
specific capital level for any capital measure. At December 31, 1997, the Bank
met the published standards for a well capitalized designation under these
regulations.

The following table sets forth the regulatory capital position of the Bank
at December 31:

BANK REGULATORY CAPITAL
------------------------------------------
1997 1996
------------------- -------------------
AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)

Tangible capital........................... $1,216,417 5.64% $1,139,443 6.06%
Leverage capital........................... 1,216,417 5.64 1,139,443 6.06
Risk-based capital......................... 1,321,135 11.17 1,245,938 13.08
Tier 1 risk-based capital.................. 1,216,417 10.29 1,139,443 11.96

The declines in the Bank's regulatory capital ratios during 1997 were
largely due to the growth in the Bank's assets during the year, principally
reflecting the NAMC Acquisition and the BFS Acquisition. At December 31, 1997,
the Bank's adjusted total assets, which are used to compute its tangible and
leverage capital ratios, were $21.6 billion, up from $18.8 billion one year
earlier. The Bank's risk-weighted assets, which are used to compute its
risk-based capital and tier 1 risk-based capital ratios, increased to $11.8
billion at December 31, 1997 from $9.5 billion at the end of 1996.

RECENT ACCOUNTING DEVELOPMENTS

In December 1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125," which
deferred, for one year, the effective date of those provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," relating to collateral, repurchase agreements, dollar-rolls,
securities lending, and similar transactions. The Company's adoption, as of
January 1, 1998, of the deferred portions of SFAS No. 125 did not have, and is
not expected to have, a material impact on its consolidated financial
statements.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Under the requirements of
SFAS No. 130, an enterprise must classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the stockholders' equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and requires reclassification of financial statements for earlier
periods provided for comparative purposes.

The FASB, in June 1997, issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements, requires that selected information
about operating segments be reported in interim financial statements issued to
stockholders, and establishes standards for related disclosures about an
enterprise's products and services, geographic areas, and major customers. SFAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 need not be applied to interim financial
statements in the initial year of its application, but comparative information
for interim periods in the initial year of application is to be reported in
financial statements for interim periods in the second year of application.

43
46

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is contained in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Asset/Liability Management," incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors.............................. F-1
Consolidated Statements of Financial Condition.............. F-2
Consolidated Statements of Income........................... F-3
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6

44
47

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age, and position of each
executive officer of the Company as of March 1, 1998 and the year in which such
person joined the Company:

WITH THE
COMPANY
NAME AGE POSITIONS AND OFFICES WITH THE COMPANY SINCE
---- --- -------------------------------------- --------

Lawrence J. Toal............................. 60 Director, Chief Executive Officer, 1991
President, and Chief Operating
Officer
Gene C. Brooks............................... 48 Director of the Office of the 1995
Secretary and Senior Legal Advisor
Anthony R. Burriesci......................... 50 Chief Financial Officer 1997
D. James Daras .............................. 44 Treasurer and Asset/Liability 1990
Executive
James E. Kelly............................... 46 General Counsel 1987
Fred B. Koons................................ 53 Chief Executive Officer, Mortgage 1996
Banking
Carlos R. Munoz.............................. 62 Chief Credit & Risk Management Officer 1995
Peyton R. Patterson.......................... 41 General Manager, Consumer Financial 1996
Services

Mr. Daras has been employed by the Company in the positions stated above
for more than five years. The principal occupation for at least the last five
years of each other executive officer who is not a member of the Board and who
is not currently a nominee for election to the Board is set forth below:

Mr. Brooks, who joined Anchor Savings in July 1987, served as Vice
President and General Counsel of Anchor Bancorp from its formation until the
Anchor Merger and as Secretary of Anchor Bancorp from March 1993 until the
Anchor Merger. He was General Counsel of the Holding Company and the Bank from
April 1995 to January 1998, at which time he assumed his present position.

Mr. Burriesci joined the Company in July 1997 as Chief Financial Officer.
From 1990 until he joined the Company, he held various finance-related positions
with First Fidelity Bancorporation, the most recent of which was Executive Vice
President and Corporate Controller, until it was acquired by First Union
Corporation in 1996, where he served as Executive Vice President-Finance and
Administration and Chief Financial Officer-Northern Region.

Mr. Kelly has served in various legal and business positions with the
Company since joining the Bank in January 1987, including as assistant to the
President from February 1992 to March 1995 and thereafter as Deputy General
Counsel until he assumed his present position in January 1998.

Mr. Koons joined the Company in December 1996 as Chief Executive Officer,
Mortgage Banking. From July 1996 until he joined the Company, he was a
consultant to the Company regarding its mortgage banking strategy. Previously,
Mr. Koons was Chairman and Chief Executive Officer of Chase Manhattan Mortgage
Corporation, where he was responsible for all aspects of its residential lending
activities in the United States. He had joined Chase in 1980 and served in
various positions, including Regional Executive, Secondary Marketing Executive,
and Production Executive.

Mr. Munoz joined the Company in April 1995 as Chief Credit Officer. Prior
to joining the Company, he served in various positions with Citibank, N.A.,
where he was most recently Senior Vice President and a member of the Credit
Policy Committee. In that position, he had been responsible at various times for
credit management and oversight of part or all of Citibank's worldwide consumer
banking activities, as well as

45
48

Private Banking and Global Finance in Latin America. He previously served with
Citibank in New York, San Francisco and the Caribbean, including management of
that institution's corporate lending activities in the Western United States and
the workout of exposure to the troubled Real Estate Investment Trust industry in
the mid-1970's.

Ms. Patterson joined the Company in May 1996 as General Manager, Consumer
Lending and assumed her present position in June 1997. From 1989 until she
joined the Company, Ms. Patterson held several positions with Chemical Bank,
including most recently as General Manager of its Consumer Asset Group, until
the merger of that institution with Chase Manhattan Bank in 1996, when she
became the Director of Marketing for its National Consumer Services Division.

Information required by this Item regarding members of the Board is
contained in the Holding Company's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders (the "Proxy Statement"), which is expected to be
filed with the Securities and Exchange Commission (the "Commission") within 120
days from December 31, 1997, incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item is contained in the Proxy Statement,
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this Item is contained in the Proxy Statement,
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item is contained in the Proxy Statement,
incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS

See Item 8, "Financial Statements and Supplementary Data."

(a)(2) FINANCIAL STATEMENT SCHEDULES

All financial statement schedules for the Holding Company and its
subsidiaries have been included in the consolidated financial statements or the
related notes or they are either inapplicable or not required.

(a)(3) EXHIBITS

See Exhibit Index, page 97.

(b) REPORTS ON FORM 8-K

During the three-month period ended December 31, 1997, the Holding Company
filed with the Commission one Current Report on Form 8-K, dated October 30,
1997, which reported that, on October 15, 1997, the Company had consummated the
NAMC Acquisition.

46
49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DIME BANCORP, INC.

By: /s/ LAWRENCE J. TOAL
------------------------------------
Lawrence J. Toal
Chief Executive Officer, President
and Chief Operating Officer

March 31, 1998

--------------------------------------
Date

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 1998 by the following persons on
behalf of the registrant and in the capacities indicated.

SIGNATURE CAPACITY
--------- --------

/s/ LAWRENCE J. TOAL Director, Chief Executive Officer, President and
- --------------------------------------------- Chief Operating Officer (Principal Executive
Lawrence J. Toal Officer)

* Chairman of the Board
- ---------------------------------------------
James M. Large, Jr.

* Director
- ---------------------------------------------
Derrick D. Cephas

* Director
- ---------------------------------------------
Frederick C. Chen

* Director
- ---------------------------------------------
J. Barclay Collins II

* Director
- ---------------------------------------------
Richard W. Dalrymple

* Director
- ---------------------------------------------
James F. Fulton

* Director
- ---------------------------------------------
Sally Hernandez-Pinero

47
50

SIGNATURE CAPACITY
--------- --------

* Director
- ---------------------------------------------
Virginia M. Kopp

* Director
- ---------------------------------------------
John Morning

* Director
- ---------------------------------------------
Margaret Osmer-McQuade

* Director
- ---------------------------------------------
Dr. Paul A. Qualben

* Director
- ---------------------------------------------
Eugene G. Schulz, Jr.

* Director
- ---------------------------------------------
Howard Smith

* Director
- ---------------------------------------------
Dr. Norman R. Smith

* Director
- ---------------------------------------------
Ira T. Wender

/s/ ANTHONY R. BURRIESCI Chief Financial Officer (Principal Financial
- --------------------------------------------- Officer)
Anthony R. Burriesci

/s/ HAROLD E. REYNOLDS Controller (Principal Accounting Officer)
- ---------------------------------------------
Harold E. Reynolds

*By: /s/ LAWRENCE J. TOAL
----------------------------------------
Lawrence J. Toal
Attorney-in-Fact

48
51

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Dime Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial
condition of Dime Bancorp, Inc. and subsidiaries (Dime) as of December 31, 1997
and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of Dime's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dime
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

/s/ KPMG PEAT MARWICK LLP

New York, New York
January 19, 1998

F-1
52

DIME BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
--------------------------
1997 1996
----------- -----------

ASSETS
Cash and due from banks..................................... $ 295,369 $ 158,753
Money market investments.................................... 157,158 25,764
Securities available for sale............................... 4,992,304 2,589,572
Securities held to maturity (estimated fair value of
$4,279,937 in 1996)....................................... -- 4,363,971
Federal Home Loan Bank of New York stock.................... 303,287 266,244
Loans held for sale......................................... 1,841,862 115,325
Loans receivable, net:
Residential real estate loans............................. 9,848,593 8,074,905
Commercial real estate loans.............................. 2,263,023 1,885,733
Consumer loans............................................ 773,817 734,281
Business loans............................................ 99,074 43,138
Allowance for loan losses................................. (104,718) (106,495)
----------- -----------
Total loans receivable, net....................... 12,879,789 10,631,562
----------- -----------
Accrued interest receivable................................. 106,829 106,041
Premises and equipment, net................................. 150,805 103,541
Mortgage servicing assets................................... 341,906 127,745
Other assets................................................ 778,691 381,590
----------- -----------
Total assets................................................ $21,848,000 $18,870,108
=========== ===========

LIABILITIES
Deposits.................................................... $13,847,275 $12,856,739
Securities sold under agreements to repurchase.............. 2,975,774 3,550,234
Federal Home Loan Bank of New York advances................. 2,786,751 925,139
Senior notes................................................ 142,475 197,584
Guaranteed preferred beneficial interests in Holding
Company's junior subordinated deferrable interest
debentures................................................ 196,137 --
Other borrowed funds........................................ 218,175 142,234
Other liabilities........................................... 366,555 175,841
----------- -----------
Total liabilities................................. 20,533,142 17,847,771
----------- -----------

STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share (200,000,000 shares
authorized; 120,256,459 shares issued in 1997 and
108,262,216 shares issued in 1996)........................ 1,203 1,083
Additional paid-in capital.................................. 1,158,221 914,386
Retained earnings........................................... 261,201 158,956
Treasury stock, at cost (3,898,132 shares in 1997 and
3,518,297 shares in 1996)................................. (95,221) (51,498)
Net unrealized (loss) gain on securities available for sale,
net of taxes.............................................. (9,534) 22
Unearned compensation....................................... (1,012) (612)
----------- -----------
Total stockholders' equity........................ 1,314,858 1,022,337
----------- -----------
Total liabilities and stockholders' equity.................. $21,848,000 $18,870,108
=========== ===========

See accompanying notes to consolidated financial statements.

F-2
53

DIME BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------

INTEREST INCOME
Residential real estate loans............................... $ 660,505 $ 558,248 $ 485,340
Commercial real estate loans................................ 191,111 159,019 162,712
Consumer loans.............................................. 63,222 63,679 71,124
Business loans.............................................. 5,052 3,163 3,250
Mortgage-backed securities.................................. 406,781 508,342 567,885
Other securities............................................ 23,774 31,910 32,596
Money market investments.................................... 32,370 26,337 34,224
---------- ---------- ----------
Total interest income.............................. 1,382,815 1,350,698 1,357,131
---------- ---------- ----------
INTEREST EXPENSE
Deposits.................................................... 559,359 531,216 524,452
Borrowed funds.............................................. 340,394 358,187 423,053
---------- ---------- ----------
Total interest expense............................. 899,753 889,403 947,505
---------- ---------- ----------
Net interest income................................ 483,062 461,295 409,626
Provision for loan losses................................... 49,000 41,000 39,650
---------- ---------- ----------
Net interest income after provision for loan
losses........................................... 434,062 420,295 369,976
---------- ---------- ----------
NON-INTEREST INCOME
Loan servicing fees and charges............................. 74,038 47,863 47,773
Banking service fees........................................ 31,796 28,056 22,569
Securities and insurance brokerage fees..................... 23,737 21,064 15,532
Net gains (losses) on sales activities...................... 12,036 (12,716) (12,415)
Other....................................................... 3,684 1,711 1,253
---------- ---------- ----------
Total non-interest income.......................... 145,291 85,978 74,712
---------- ---------- ----------
NON-INTEREST EXPENSE
General and administrative expense:
Compensation and employee benefits...................... 157,851 139,358 131,721
Occupancy and equipment, net............................ 63,582 52,662 58,285
Other................................................... 115,689 100,775 95,895
---------- ---------- ----------
Total general and administrative expense........... 337,122 292,795 285,901
Amortization of mortgage servicing assets................... 29,751 19,382 20,652
Other real estate owned expense, net........................ 4,341 10,072 12,892
Savings Association Insurance Fund recapitalization
assessment................................................ -- 26,280 --
Restructuring and related expense........................... 9,931 3,504 15,331
---------- ---------- ----------
Total non-interest expense......................... 381,145 352,033 334,776
---------- ---------- ----------
Income before income tax expense and extraordinary item..... 198,208 154,240 109,912
Income tax expense.......................................... 75,034 49,984 47,727
---------- ---------- ----------
Income before extraordinary item............................ 123,174 104,256 62,185
Extraordinary item -- loss on early extinguishment of debt,
net of income tax benefit of $895......................... (1,460) -- --
---------- ---------- ----------
Net income.................................................. $ 121,714 $ 104,256 $ 62,185
========== ========== ==========
EARNINGS PER COMMON SHARE
Basic:
Income before extraordinary item ....................... $ 1.15 $ 1.00 $ 0.63
Extraordinary item...................................... (0.01) -- --
---------- ---------- ----------
Net income......................................... $ 1.14 $ 1.00 $ 0.63
========== ========== ==========
Diluted:
Income before extraordinary item........................ $ 1.13 $ 0.96 $ 0.57
Extraordinary item...................................... (0.01) -- --
---------- ---------- ----------
Net income.............................................. $ 1.12 $ 0.96 $ 0.57
========== ========== ==========

See accompanying notes to consolidated financial statements.

F-3
54

DIME BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- --------

COMMON STOCK
Balance at beginning of year............................ $ 1,083 $ 997 $ 986
Common stock issued in connection with acquisition...... 120 -- --
Common stock issued upon exercise of stock warrant...... -- 84 --
Common stock issued under employee benefit plans........ -- 2 11
---------- ---------- --------
Balance at end of year............................. 1,203 1,083 997
---------- ---------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year............................ 914,386 915,210 910,036
Common stock issued in connection with acquisition...... 215,879 -- --
Common stock issued under employee benefit plans........ 545 1,089 5,174
Treasury stock issued in connection with acquisition.... 4,780 -- --
Treasury stock issued under employee benefit plans...... (4,780) -- --
Fair value adjustment on stock options issued in
connection with acquisition........................... 21,389 -- --
Other................................................... 6,022 (1,913) --
---------- ---------- --------
Balance at end of year............................. 1,158,221 914,386 915,210
---------- ---------- --------
COMMON STOCK DEFERRED INCENTIVE SHARES
Balance at beginning of year............................ -- -- 2,994
Deferred incentive shares granted, net.................. -- -- 33
Deferred incentive shares distributed................... -- -- (3,027)
---------- ---------- --------
Balance at end of year............................. -- -- --
---------- ---------- --------
RETAINED EARNINGS
Balance at beginning of year............................ 158,956 65,981 3,796
Net income.............................................. 121,714 104,256 62,185
Cash dividends declared on common stock ($0.12 per
share)................................................ (12,892) -- --
Treasury stock issued under employee benefit plans...... (6,577) (11,281) --
---------- ---------- --------
Balance at end of year............................. 261,201 158,956 65,981
---------- ---------- --------
TREASURY STOCK, AT COST
Balance at beginning of year............................ (51,498) -- --
Treasury stock purchased................................ (200,354) (70,456) --
Treasury stock issued in connection with acquisition.... 130,326 -- --
Treasury stock issued under employee benefit plans...... 26,305 18,958 --
---------- ---------- --------
Balance at end of year............................. (95,221) (51,498) --
---------- ---------- --------
NET UNREALIZED (LOSS) GAIN ON SECURITIES AVAILABLE FOR
SALE, NET OF TAXES
Balance at beginning of year............................ 22 (5,468) (12,612)
Net change in estimated fair value of securities
available for sale, net of taxes...................... (9,556) 5,490 7,144
---------- ---------- --------
Balance at end of year............................. (9,534) 22 (5,468)
---------- ---------- --------
UNEARNED COMPENSATION
Balance at beginning of year............................ (612) (190) (75)
Restricted stock activity, net.......................... (1,126) (545) (181)
Amortization of unearned compensation, net.............. 726 123 66
---------- ---------- --------
Balance at end of year............................. (1,012) (612) (190)
---------- ---------- --------
Total stockholders' equity.............................. $1,314,858 $1,022,337 $976,530
========== ========== ========

See accompanying notes to consolidated financial statements.

F-4
55

DIME BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 121,714 $ 104,256 $ 62,185
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provisions for loan and other real estate owned
losses................................................ 50,514 45,799 46,529
Depreciation and amortization of premises and
equipment............................................. 20,152 16,706 17,899
Other amortization and accretion, net................... 65,815 59,871 69,038
Provision for deferred income tax expense............... 64,270 35,666 43,032
Net securities losses................................... 17,794 11,265 29,044
Gains on sales of mortgage servicing rights............. (6,888) -- (738)
Loss on early extinguishment of debt.................... 2,355 -- --
Net gains on sales of branches.......................... -- -- (18,637)
Net (increase) decrease in loans held for sale.......... (760,523) 24,045 (122,749)
Other, net.............................................. 110,020 6,626 (14,277)
----------- ----------- -----------
Net cash (used) provided by operating activities... (314,777) 304,234 111,326
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale.................. (1,196,330) (1,722,633) (55,391)
Purchases of securities held to maturity.................... (80,411) (238,674) (2,144,475)
Proceeds from sales of securities available for sale........ 1,720,817 2,290,279 25,279
Proceeds from sales of securities held to maturity.......... -- -- 187,342
Proceeds from maturities of securities available for sale
and held to maturity...................................... 1,505,518 1,842,349 1,920,144
Net (purchases) redemptions of Federal Home Loan Bank of New
York stock................................................ (31,111) 52,446 (53,104)
Loans receivable originated and purchased, net of principal
payments.................................................. (1,827,121) (997,241) (632,133)
Proceeds from sales of loans receivable..................... 9,645 13,510 42,344
Acquisitions, net of cash and cash equivalents acquired..... (41,234) (1,284) (7,914)
Investment in bank-owned life insurance program............. (150,000) -- --
Repurchases of assets sold with recourse.................... (16,675) (36,855) (35,946)
Proceeds from bulk sales of non-performing assets........... 93,434 -- --
Proceeds from sales of other real estate owned.............. 42,383 50,681 66,763
Purchases of mortgage servicing assets...................... (23,049) (15,942) (13,993)
Proceeds from sales of mortgage servicing rights............ 63,427 -- 2,022
Purchases of premises and equipment, net.................... (29,011) (12,775) (22,493)
----------- ----------- -----------
Net cash provided (used) by investing activities... 40,282 1,223,861 (721,555)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits.................................... 292,887 284,536 42,678
Net cash paid upon sale of deposits......................... -- -- (262,512)
Net increase (decrease) in borrowings with original
maturities of three months or less........................ 126,164 (1,382,173) 300,797
Proceeds from issuance of guaranteed preferred beneficial
interests in Holding Company's junior subordinated
deferrable interest debentures............................ 196,122 -- --
Proceeds from other borrowings.............................. 1,296,510 1,111,804 1,365,000
Repayments of other borrowings.............................. (1,174,045) (1,529,043) (809,549)
Proceeds from issuance of common and treasury stock......... 14,332 8,311 2,014
Purchases of treasury stock................................. (200,354) (70,456) --
Cash dividends paid on common stock......................... (12,892) -- --
Other....................................................... 3,781 (1,913) --
----------- ----------- -----------
Net cash provided (used) by financing activities... 542,505 (1,578,934) 638,428
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 268,010 (50,839) 28,199
Cash and cash equivalents at beginning of year.............. 184,517 235,356 207,157
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 452,527 $ 184,517 $ 235,356
=========== =========== ===========

See accompanying notes to consolidated financial statements.

F-5
56

DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and financial reporting policies applied by Dime Bancorp,
Inc. (the "Holding Company"), a unitary savings and loan holding company, and
its subsidiaries (the "Company") conform with generally accepted accounting
principles and prevailing practices within the financial services industry. The
principal subsidiary of the Holding Company is The Dime Savings Bank of New
York, FSB (the "Bank"), which is engaged in banking operations and, at December
31, 1997, operated through 91 branches, primarily located in the greater New
York City metropolitan area. The Bank has subsidiaries that are engaged in
various businesses, including mortgage banking, securities brokerage services
and insurance brokerage services. At December 31, 1997, the Company operated
over 200 residential real estate loan production offices located in 36 states.

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
statement of financial condition and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

The following is a description of significant accounting and financial
reporting policies of the Company.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
the Holding Company and its wholly-owned subsidiaries, after the elimination of
all significant intercompany balances and transactions. Certain amounts in the
consolidated financial statements and accompanying notes for prior years have
been reclassified to conform with the current year presentation.

Securities

Securities that the Company has the positive intent and ability to hold to
maturity are classified as held to maturity and are carried at amortized cost.
As further discussed in Note 4, the Company, during the fourth quarter of 1997,
transferred its entire portfolio of securities held to maturity to its portfolio
of securities available for sale. Securities held for sale in the near term in
connection with mortgage banking activities are classified as trading securities
and are carried at estimated fair value with unrealized gains and losses
recognized in operations. The Company did not maintain a trading securities
portfolio at December 31, 1997 or 1996. Securities not otherwise classified as
held to maturity or trading are classified as available for sale and are carried
at estimated fair value with unrealized gains and losses, net of the related
income tax effect, reported as a separate component of stockholders' equity.

The amortization of premiums and accretion of discounts on securities is
recognized in income using the interest method over the lives of the securities,
adjusted, in the case of mortgage-backed securities ("MBS"), for actual
prepayments. Gains and losses on sales of securities are recognized using the
specific identification method.

For debt securities transferred from the held to maturity portfolio to the
available for sale portfolio, unrealized holding gains or losses at the transfer
date, net of the related income tax effect, are recognized as a separate
component of stockholders' equity.

The carrying value of a security is reduced through a write-down charged to
income in the event the Company determines that an other than temporary
impairment in value has occurred.

F-6
57
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loans

Loans held for sale are carried at the lower of cost or market value, as
determined on an aggregate basis. Net unrealized losses are recognized in a
valuation allowance by charges to income. Premiums, discounts and certain
origination fees and costs on loans held for sale are deferred and recognized as
a component of the gain or loss on sale. Gains and losses on sales of loans held
for sale are recognized at the settlement dates and are determined by the
difference between the sales proceeds and the carrying value of the loans.

Loans receivable are generally carried at unpaid principal balances
adjusted for unamortized premiums, unearned discounts and deferred loan
origination fees and costs, which are recognized as yield adjustments over the
lives of the loans using the interest method.

Loans are placed on non-accrual status upon becoming 90 days contractually
past due as to principal or interest, or at an earlier date if the full
collectability of principal or interest is doubtful. Interest income previously
accrued but not collected at the date a loan is placed on non-accrual status is
reversed against interest income. Cash receipts on a non-accrual loan are
applied to principal and interest in accordance with its contractual terms
unless full payment of principal is not expected, in which case cash receipts,
whether designated as principal or interest, are applied as a reduction of the
carrying value of the loan. A non-accrual loan is generally returned to accrual
status when principal and interest payments are current, full collectability of
principal and interest is reasonably assured and a consistent record of
performance has been demonstrated.

A loan is deemed a troubled debt restructuring ("TDR") by the Company when
modifications of a concessionary nature are made to the loan's original
contractual terms due to a deterioration in the borrower's financial condition.

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," as amended, the Company
considers a loan falling within its scope impaired when, based upon current
information and events, it is probable that it will be unable to collect all
amounts due, both principal and interest, according to the contractual terms of
the loan agreement. SFAS No. 114 does not apply to loans held for sale or those
large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment, which, for the Company, include residential real
estate loans receivable that have not been modified in a TDR and consumer loans
receivable. Loans reviewed by the Company for impairment are limited to
residential real estate loans receivable modified in a TDR, business loans
receivable, and commercial real estate loans receivable. Specific factors used
in the impaired loan identification process include, but are not limited to,
delinquency status, loan-to-value ratio, the condition of the underlying
collateral, credit history, and debt coverage. At a minimum, loans reviewed for
impairment by the Company are classified as impaired when delinquent more than
six months. Impaired loans are principally measured using the present value of
expected future cash flows discounted at the loan's effective interest rate or
the fair value of the collateral for collateral dependent loans. For impaired
loans on non-accrual status, cash receipts are applied, and interest income
recognized, pursuant to the discussion above for non-accrual loans. For all
other impaired loans, cash receipts are applied to principal and interest in
accordance with the contractual terms of the loan and interest income is
recognized on the accrual basis.

Allowance for Loan Losses

An allowance for losses is maintained for losses inherent in the Company's
loans receivable portfolio. The allowance is increased by loss provisions
charged to operations and decreased by charge-offs (net of recoveries). In
determining the appropriate level of the allowance for loan losses, the Company
reviews its loans receivable portfolio on at least a quarterly basis, taking
into account its impaired loans, the size, composition and risk profile of the
portfolio, delinquency levels, historical loss experience, cure rates on
delinquent loans, economic conditions and other pertinent factors, such as
assumptions and projections of future conditions.

F-7
58
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

While the Company considers its allowance for loan losses to be adequate
based on information currently available, additions to the allowance may be
necessary due to future events, including changes in economic conditions in the
Company's lending areas. In addition, the Federal Deposit Insurance Corporation
("FDIC") and the Office of Thrift Supervision ("OTS"), as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examinations.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the lesser of the terms of their respective
leases or estimated useful lives. Maintenance, repairs, and minor improvements
are charged to operations in the period incurred, while major improvements are
capitalized.

Mortgage Servicing Assets

The Company recognizes, as separate assets, the rights to service mortgage
loans, whether those rights are acquired through loan purchase or loan
origination activities. Mortgage servicing assets are amortized in proportion to
and over the period of estimated net servicing income. On a quarterly basis,
mortgage servicing assets are assessed for impairment based upon their estimated
fair value. For purposes of such assessments, the Company stratifies its
mortgage servicing assets by underlying loan type (i.e., adjustable-rate,
fixed-rate and balloon) and interest rate. Impairment of mortgage servicing
assets is recognized through a valuation allowance for each impaired stratum
with the individual allowances adjusted in subsequent periods to reflect changes
in the measurement of impairment. The estimated fair value of each strata is
determined through a discounted cash flow analysis of future cash flows
incorporating numerous assumptions including servicing income, servicing costs,
market discount rates, prepayment speeds, and default rates.

Other Real Estate Owned ("ORE")

ORE, which consists of real estate acquired in satisfaction of loans, is
carried at the lower of cost or estimated fair value less estimated selling
costs. Write-downs required at time of acquisition are charged to the allowance
for loan losses. Subsequent to acquisition, the Company maintains an allowance
for actual and potential future declines in value. ORE is included in the
accompanying Consolidated Statements of Financial Condition under the caption
"Other Assets."

Goodwill

Goodwill is generally amortized using the straight-line method over periods
ranging from 15 to 25 years. Goodwill is reviewed for possible impairment when
events or changes in circumstances indicate that the carrying amount may not be
recoverable.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. If necessary, deferred tax assets are
reduced to the amount that, based on available evidence, will more than likely
be realized.

F-8
59
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Treasury Stock

Common stock of the Holding Company ("Common Stock") repurchased for
treasury is recorded at cost. Upon reissuance, the treasury stock account is
reduced by the cost of such stock on the first-in, first-out basis.

Stock-Based Compensation

The Company, effective as of January 1, 1996, adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value-based method of accounting for stock-based compensation arrangements with
employees, but permits an entity to continue utilizing the intrinsic value-based
method prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for such arrangements.
In implementing SFAS No. 123, the Company elected to continue using the
intrinsic value-based method. Under this method, compensation cost is measured
by the excess, if any, of the quoted market price of the Common Stock at date of
grant, or other measurement date, over the amount an employee is required to pay
to acquire the Common Stock.

Earnings Per Common Share

The Company, during the fourth quarter of 1997, adopted SFAS No. 128,
"Earnings per Share," which supercedes APB Opinion No. 15, "Earnings per Share."
SFAS No. 128 replaces the primary and fully diluted earnings per common share
presentations previously required by APB Opinion No. 15 with basic and diluted
earnings per common share presentations. As required by SFAS No. 128, all prior
period earnings per common share have been restated. Basic earnings per common
share have been computed by dividing net income by the weighted average number
of shares of Common Stock outstanding during the period. Diluted earnings per
common share have been computed by dividing net income by the sum of the
weighted average number of shares of Common Stock and dilutive Common Stock
equivalents outstanding (using the treasury stock method) during the period.

Consolidated Statements of Cash Flows

For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents are defined as those amounts included in the Consolidated Statements
of Financial Condition under the captions "Cash and due from banks" and "Money
market investments." Money market investments consist of highly-liquid
investments with original maturities of three months or less.

Cash flows associated with derivative financial instruments used by the
Company are classified in the accompanying Consolidated Statements of Cash Flows
in the same category as the cash flows from the asset or liability being hedged.

Derivative Financial Instruments

The Company uses a variety of derivative financial instruments as part of
its interest rate risk-management strategy and to manage certain risks
associated with its mortgage banking activities. Derivative financial
instruments used for these purposes must be designated as a hedge at their
inception and must remain effective as a hedge throughout their contractual
terms. Derivative financial instruments used by the Company principally include
interest rate swaps, interest rate caps, interest rate floors, forward
contracts, and options.

For those derivative financial instruments used to modify the interest rate
characteristics of designated interest-earning assets or interest-bearing
liabilities, net amounts payable or receivable on the instruments are accrued as
an adjustment to interest income or interest expense of the designated assets or
liabilities. The estimated fair values of such derivative financial instruments
are not reflected in the Company's consolidated

F-9
60
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial statements unless designated to securities available for sale, in
which case the derivative financial instruments are carried at estimated fair
value with unrealized gains and losses, net of related income taxes, reflected
as a component of stockholders' equity.

For forward contracts and options used in connection with the Company's
mortgage banking activities, realized gains and losses are recognized in net
gains (losses) on sales activities in the period settlement occurs. Unrealized
gains and losses on such derivative financial instruments are included in the
computation of the lower of cost or market valuation of loans held for sale.

Unrealized gains and losses on interest rate swaps and interest rate floors
used to hedge mortgage servicing assets are considered in the determination of
the estimated fair value of such assets.

Premiums paid on derivative financial instruments are deferred as a
component of the carrying value of the designated assets or liabilities and
amortized against income over the terms of the contracts.

In the event of the early termination of a derivative financial instrument
contract, any resulting gain or loss is deferred, as an adjustment of the
carrying value of the designated assets or liabilities, and recognized in
operations over the shorter of the remaining life of the designated assets or
liabilities or the derivative financial instrument agreement. If the designated
assets or liabilities are subsequently sold or otherwise disposed of, any
remaining deferred gains or losses are recognized in operations.

If the balance of a hedged asset or liability declines below the notional
value of the related derivative financial instrument, the Company may
redesignate, at fair value, the derivative financial instrument to other assets
or liabilities or discontinue hedge accounting with respect to the portion of
the notional amount that exceeds the balance. When hedge accounting is
discontinued, derivative financial instruments are marked-to-market with the
resulting gains or losses recognized in operations.

NOTE 2 -- MERGER AND ACQUISITION ACTIVITIES

On October 15, 1997, prior to its opening for business, North American
Mortgage Company ("NAMC"), a mortgage banking company headquartered in Santa
Rosa, California, was acquired by the Company (the "NAMC Acquisition"). At the
date of acquisition, NAMC serviced approximately $12 billion of loans for others
and operated in 30 states. NAMC, subsequent to the acquisition, is operating
under that name as a subsidiary of the Bank. In connection with the NAMC
Acquisition, each share of NAMC's common stock outstanding immediately prior to
the closing of the NAMC Acquisition was converted into 1.37 shares of Common
Stock (the "NAMC Exchange Ratio"), and each outstanding option issued by NAMC to
acquire NAMC's common stock was converted, after giving effect to the NAMC
Exchange Ratio, into an option to purchase Common Stock. As a result, the
Holding Company issued 19,437,741 shares of Common Stock (of which 7,479,664
were issued from treasury) and options to purchase 1,862,087 shares of Common
Stock at an average exercise price of $14.18 per share. The purchase price of
NAMC was approximately $351 million based on the average price per share of the
Common Stock for the three business days prior to and subsequent to June 22,
1997, the date of the related merger agreement. The NAMC Acquisition was
accounted for under the purchase method of accounting. Accordingly, its impact
is only reflected in the Company's consolidated financial statements beginning
on October 15, 1997. Goodwill arising from the NAMC Acquisition amounted to
$185.9 million and is being amortized on a straight-line basis over 25 years.
The amount of goodwill may change as certain estimates are finalized, although
any such adjustments are not currently expected to be material.

The allocation of the purchase price of NAMC included a restructuring
liability of $9.8 million for personnel-related costs, primarily severance
benefits. Personnel-related costs paid and charged to the restructuring
liability during 1997 amounted to $5.3 million. In addition, the allocation of
the purchase price of NAMC included a restructuring liability in the amount of
$7.1 million for transaction fees and other costs, the balance of which amounted
to $2.6 million at December 31, 1997. It is expected that the cash payments

F-10
61
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

associated with the restructuring liabilities will be substantially completed by
the end of the second quarter of 1998. In connection with the NAMC Acquisition,
the Company incurred expenses during 1997 of $9.9 million associated with its
employees and operations. Such expenses are reflected in the accompanying
Consolidated Statements of Income under the caption "Restructuring and related
expense."

After the close of business on April 30, 1997, the Company acquired BFS
Bankorp, Inc. ("BFS Bankorp") and its wholly-owned subsidiary, Bankers Federal
Savings FSB ("Bankers Federal" and, together with BFS Bankorp, "BFS"), for $93.3
million in cash (the "BFS Acquisition"). At that time, BFS Bankorp was
liquidated and Bankers Federal was merged with and into the Bank. The purchase
price was funded from the normal cash flows of the Company. Goodwill arising
from the BFS Acquisition amounted to $41.6 million and is being amortized over
15 years using the straight-line method. In connection with the BFS Acquisition,
the Company acquired loans receivable, net, of $574.5 million and assumed
deposits in five New York City branches of $447.1 million. Because this
acquisition was accounted for under the purchase method of accounting, its
impact is only reflected in the Company's consolidated financial statements
beginning on May 1, 1997.

The following table sets forth certain unaudited pro forma combined
financial information of the Company, NAMC and BFS for the years shown. This
information was prepared as if the NAMC Acquisition and the BFS Acquisition had
occurred as of the beginning of the first year presented and is based on the
historical financial statements of the Company, NAMC and BFS after giving effect
to the NAMC Acquisition and the BFS Acquisition under the purchase method of
accounting.

FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Total revenues.............................................. $901,856 $872,623
Income before extraordinary item............................ 126,397 133,766
Net income.................................................. 124,937 133,766
Earnings per common share:
Basic:
Income before extraordinary item....................... 1.00 1.09
Net income............................................. 0.99 1.09
Diluted:
Income before extraordinary item....................... 0.98 1.04
Net income............................................. 0.97 1.04

Excluding the after-tax impact of the $9.9 million of restructuring and
related expense incurred by the Company during 1997 in connection with the NAMC
Acquisition, the Company's unaudited pro forma income before extraordinary item
for 1997 would have been $132.6 million, or basic and diluted earnings per share
of $1.05 and $1.03, respectively, and its unaudited pro forma net income for
1997 would have been $131.1 million, or basic and diluted earnings per share of
$1.04 and $1.02, respectively.

The unaudited pro forma combined financial information set forth above is
intended for informational purposes only and is not necessarily indicative of
future results of operations of the combined companies, or of the results of the
combined companies that would have actually occurred had the acquisitions been
consummated as of the beginning of the first year presented.

In the fourth quarter of 1995, the Bank, in transactions accounted for as
purchases, acquired the assets and assumed the liabilities relating to the
residential real estate loan origination businesses of National Mortgage
Investments Co., Inc., which was headquartered in Griffin, Georgia, and James
Madison Mortgage

F-11
62
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Co., which was headquartered in Fairfax, Virginia (the "National Mortgage
Acquisition" and the "Madison Mortgage Acquisition," respectively). The assets
acquired and the liabilities assumed in connection with these acquisitions were
not material. The Bank paid $4.8 million in cash in connection with the National
Mortgage Acquisition (including, as discussed below, certain contingent
payments) and $5.3 million in cash in connection with the Madison Mortgage
Acquisition. Goodwill arising from the National Mortgage Acquisition and the
Madison Mortgage Acquisition amounted to $4.5 million and $4.6 million,
respectively, and is being amortized on a straight-line basis over 15 years.
Pursuant to the terms of the asset purchase agreement associated with the
National Mortgage Acquisition, the Bank was contingently liable for certain
additional payments on specified dates through the third quarter of 1997 based
on the attainment of certain loan origination targets related to the purchased
assets. Such contingent payments amounted to $2.2 million and were charged to
goodwill.

For additional information concerning the above acquisitions, see Note 26.

On January 13, 1995, Anchor Bancorp, Inc. ("Anchor Bancorp") and its
wholly-owned savings bank subsidiary, Anchor Savings Bank FSB ("Anchor Savings"
and, together with Anchor Bancorp, "Anchor"), were merged with and into the
Holding Company and the Bank, respectively, which were the surviving entities.
(These mergers are collectively referred to as the "Anchor Merger.") The Anchor
Merger was accounted for as a pooling-of-interests. Accordingly, the financial
information of the Company for periods prior to the Anchor Merger was restated
to include Anchor. Upon consummation of the Anchor Merger, 41,760,503
newly-issued shares of Common Stock were exchanged for all of the shares of
common stock of Anchor Bancorp outstanding at the time of the Anchor Merger,
based on an exchange ratio of 1.77 shares of Common Stock for each share of
Anchor Bancorp common stock (the "Anchor Exchange Ratio"). In addition,
56,842,168 newly-issued shares of Common Stock were exchanged on a one-for-one
basis for all the shares of Common Stock outstanding at the time of the Anchor
Merger.

In connection with the Anchor Merger, the Company established restructuring
liabilities aggregating $65.5 million, of which $24.6 million was for personnel
costs, $21.8 million for facilities, equipment and systems costs, and $19.1
million for transaction fees and other costs. Of the total restructuring
liabilities, $0.8 million, $6.4 million and $58.3 million were charged to income
during 1996, 1995 and 1994, respectively. The remaining restructuring
liabilities at December 31, 1997 amounted to $3.2 million and represented the
net present value of future lease obligations associated with facilities no
longer being utilized in the Company's operations. Cash payments associated with
the personnel-related restructuring liability were substantially completed by
the end of 1996. Cash payments for transaction fees and other costs were
completed by the end of 1995. The Company also incurred expenses of $2.7 million
in 1996 and $8.9 million in 1995 associated with the Anchor Merger that were not
charged to the restructuring liability. Such expenses, as well as the provisions
for the restructuring liabilities, are reflected in the accompanying
Consolidated Statements of Income under the caption "Restructuring and related
expense."

NOTE 3 -- MONEY MARKET INVESTMENTS

Money market investments were comprised of the following at December 31:

1997 1996
-------- -------
(IN THOUSANDS)

Federal funds........................................... $150,000 $10,000
Interest-earning deposits in banks...................... 5,095 5,627
Securities purchased under agreements to resell......... 2,063 9,550
Other................................................... -- 587
-------- -------
Total money market investments.......................... $157,158 $25,764
======== =======

F-12
63
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

It is the Company's policy to take possession of securities purchased under
agreements to resell. The average balance of securities purchased under
agreements to resell during 1997 and 1996 was $34.5 million and $8.2 million,
respectively. The maximum month-end balance of securities purchased under
agreements to resell was $284.3 million during 1997 and $28.7 million during
1996.

NOTE 4 -- SECURITIES

The amortized cost and estimated fair value of securities available for
sale and securities held to maturity, as well as related gross unrealized gains
and losses, are summarized as follows at December 31:

1997 1996
------------------------------------------- -------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED AMORTIZED ----------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE
---------- ------- ------- ---------- ---------- ------- ------- ----------
(IN THOUSANDS)

SECURITIES AVAILABLE FOR SALE
MBS:
Pass-through securities:
Privately-issued................. $2,875,982 $ 8,617 $33,592 $2,851,007 $1,232,276 $13,399 $17,411 $1,228,264
Federal National Mortgage
Association ("FNMA")........... 395,756 6,750 410 402,096 916,452 2,936 42 919,346
Federal Home Loan Mortgage
Corporation ("FHLMC").......... 178,538 2,809 249 181,098 165,540 1,974 441 167,073
Government National Mortgage
Association.................... 15,277 252 12 15,517 185,166 1,841 1 187,006
Collateralized mortgage
obligations:
Privately-issued................. 1,335,225 2,581 1,116 1,336,690 -- -- -- --
FNMA............................. 91,349 87 -- 91,436 -- -- -- --
FHLMC............................ 23,863 57 -- 23,920 -- -- -- --
Interest-only...................... 1,555 -- 426 1,129 1,850 -- 559 1,291
---------- ------- ------- ---------- ---------- ------- ------- ----------
Total MBS.................... 4,917,545 21,153 35,805 4,902,893 2,501,284 20,150 18,454 2,502,980
---------- ------- ------- ---------- ---------- ------- ------- ----------
Other debt securities:
U. S. government and federal
agency........................... 8,552 86 -- 8,638 18,117 -- 148 17,969
State and municipal................ 36,997 112 818 36,291 44,322 86 1,101 43,307
Domestic corporate................. 34,844 575 60 35,359 15,467 2 141 15,328
Other.............................. 500 -- -- 500 -- -- -- --
---------- ------- ------- ---------- ---------- ------- ------- ----------
Total other debt
securities................. 80,893 773 878 80,788 77,906 88 1,390 76,604
---------- ------- ------- ---------- ---------- ------- ------- ----------
Equity securities.................... 9,243 133 753 8,623 10,343 107 462 9,988
---------- ------- ------- ---------- ---------- ------- ------- ----------
Total securities available for
sale............................... $5,007,681 $22,059 $37,436 $4,992,304 $2,589,533 $20,345 $20,306 $2,589,572
========== ======= ======= ========== ========== ======= ======= ==========
SECURITIES HELD TO MATURITY
MBS:
Pass-through securities:
Privately-issued................. $ -- $ -- $ -- $ -- $2,520,013 $ 2,033 $57,206 $2,464,840
FHLMC............................ -- -- -- -- 44,711 231 -- 44,942
Collateralized mortgage
obligations:
Privately-issued................. -- -- -- -- 1,670,983 -- 26,863 1,644,120
FNMA............................. -- -- -- -- 94,412 -- 763 93,649
FHLMC............................ -- -- -- -- 30,089 -- 441 29,648
---------- ------- ------- ---------- ---------- ------- ------- ----------
Total MBS.................... -- -- -- -- 4,360,208 2,264 85,273 4,277,199
---------- ------- ------- ---------- ---------- ------- ------- ----------
Other debt securities................ -- -- -- -- 3,763 -- 1,025 2,738
---------- ------- ------- ---------- ---------- ------- ------- ----------
Total securities held to maturity.... $ -- $ -- $ -- $ -- $4,363,971 $ 2,264 $86,298 $4,279,937
========== ======= ======= ========== ========== ======= ======= ==========

F-13
64
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1997, $3.8 billion of securities available for sale were
pledged as collateral for borrowed funds and other purposes.

The following table sets forth, at December 31, 1997, the amortized cost,
estimated fair value and weighted average yield of debt securities available for
sale by period to contractual maturity.

WEIGHTED
AMORTIZED ESTIMATED AVERAGE
COST FAIR VALUE YIELD
---------- ---------- --------
(DOLLARS IN THOUSANDS)

MBS:
Due in one year or less................................ $ 2,185 $ 2,180 6.41%
Due after one through five years....................... 19,941 19,996 6.88
Due after five through ten years....................... 242,898 242,850 6.44
Due after ten years.................................... 4,652,521 4,637,867 7.08
---------- ----------
Total MBS...................................... 4,917,545 4,902,893 7.05
---------- ----------
Other debt securities:
Due in one year or less................................ 5,886 5,890 6.46
Due after one through five years....................... 10,183 10,273 6.64
Due after five through ten years....................... 13,281 13,283 6.49
Due after ten years.................................... 51,543 51,342 7.52
---------- ----------
Total other debt securities.................... 80,893 80,788 7.16
---------- ----------
Total debt securities available for sale................. $4,998,438 $4,983,681 7.05
========== ==========

Information concerning sales of securities available for sale and
securities held to maturity is summarized below for the year ended December 31:

1997 1996 1995
---------- ---------- --------
(IN THOUSANDS)

Securities available for sale:
Proceeds from sales................... $1,720,817 $2,290,279 $ 25,279
Gross realized gains.................. 20,800 8,589 6
Gross realized losses................. 11,890 15,554 13
Securities held to maturity:
Proceeds from sales................... -- -- 187,342
Gross realized losses................. -- -- 717

During December 1997, the Company, primarily as a result of a reassessment
of its asset/liability management strategy, transferred its entire portfolio of
securities held to maturity to its portfolio of securities available for sale.
At the date of transfer, the securities held to maturity portfolio had an
amortized cost of $3.6 billion and net unrealized pretax losses of approximately
$51 million. In connection with this transfer, the Company identified certain of
the transferred MBS that it expects will be sold during 1998. At December 31,
1997, these MBS had an amortized cost of $1.4 billion and unrealized pretax
gains of $2.2 million. During December 1997, the Company had recognized a pretax
loss of $25.2 million associated with the write-down to estimated fair value of
those transferred MBS with unrealized losses expected to be sold in 1998.

As permitted under guidelines issued in a special report by the Financial
Accounting Standards Board in November 1995, the Company, in December 1995,
transferred securities with an amortized cost of $3.6 billion from the held to
maturity portfolio to the available for sale portfolio. Net unrealized pretax
losses at the date of transfer of the securities amounted to $29.4 million. In
connection with a decision made at the time of transfer to sell approximately $1
billion of the transferred securities, the Company, during December 1995, wrote-
down those securities with unrealized losses to estimated fair value and
recognized a pretax loss of $23.6 million. The sales of the securities
designated for sale were consummated during the first quarter of

F-14
65
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1996. In addition, during 1995, the Company, for interest rate risk-management
purposes following the Anchor Merger, transferred securities with an amortized
cost of $12.9 million and an estimated fair value of $12.5 million from the held
to maturity portfolio to the available for sale portfolio and sold securities
held to maturity with an amortized cost of $188.1 million and realized a loss of
$0.7 million.

During 1997, 1996 and 1995, the Company recognized other than temporary
impairment in value losses on certain privately-issued MBS of $1.5 million, $4.7
million and $3.3 million, respectively. These losses were necessitated by the
depletion of the underlying credit enhancements as a result of losses incurred
on the loans underlying the securities, coupled with the Company's projections
of estimated future losses on the securities.

NOTE 5 -- LOANS RECEIVABLE, NET

A summary of loans receivable, net, is as follows at December 31:

1997 1996
----------- -----------
(IN THOUSANDS)

Residential real estate loans:
Principal balances:
Permanent.............................................. $ 9,779,559 $ 8,016,699
Construction (net of loans in process of $725 in 1997
and $2,428 in 1996)................................... 2,453 3,697
----------- -----------
Total principal balances.......................... 9,782,012 8,020,396
Net deferred yield adjustments............................ 66,581 54,509
----------- -----------
Total residential real estate loans............... 9,848,593 8,074,905
----------- -----------
Commercial real estate loans:
Principal balances:
Permanent (net of loans in process of $2,000 in
1997)................................................. 2,214,620 1,856,563
Construction (net of loans in process of $65,087 in
1997 and $31,224 in 1996)............................. 57,152 33,046
----------- -----------
Total principal balances.......................... 2,271,772 1,889,609
Net deferred yield adjustments............................ (8,749) (3,876)
----------- -----------
Total commercial real estate loans................ 2,263,023 1,885,733
----------- -----------
Consumer loans:
Principal balances:
Home equity............................................ 617,041 527,442
Manufactured home...................................... 44,432 60,965
Secured by deposit accounts............................ 40,992 39,684
Automobile............................................. 6,298 43,661
Other.................................................. 46,400 51,923
----------- -----------
Total principal balances.......................... 755,163 723,675
Net deferred yield adjustments............................ 18,654 10,606
----------- -----------
Total consumer loans.............................. 773,817 734,281
----------- -----------
Business loans:
Principal balances........................................ 99,110 43,138
Net deferred yield adjustments............................ (36) --
----------- -----------
Total business loans.............................. 99,074 43,138
----------- -----------
Allowance for loan losses................................... (104,718) (106,495)
----------- -----------
Total loans receivable, net................................. $12,879,789 $10,631,562
=========== ===========

F-15
66
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loans receivable in the amount of $4.1 billion were pledged as collateral
for borrowed funds at December 31, 1997.

At December 31, 1997, the Company's residential real estate loans
receivable were principally concentrated in the states of New York (34.2%),
Connecticut (9.4%), New Jersey (8.7%), and California (8.0%). At that date, the
Company's commercial real estate loans receivable were principally concentrated
in the states of New York (84.5%) and New Jersey (6.1%).

Activity in the allowance for loan losses is summarized as follows for the
year ended December 31:

1997 1996 1995
-------- -------- --------
(IN THOUSANDS)

Balance at beginning of year............... $106,495 $128,295 $170,383
Allowance acquired in the BFS
Acquisition.............................. 13,249 -- --
Provision charged to operations(1)......... 49,000 41,000 39,650
Charge-offs(1)............................. (71,608) (71,296) (92,088)
Recoveries................................. 7,582 8,496 10,350
-------- -------- --------
Net charge-offs....................... (64,026) (62,800) (81,738)
-------- -------- --------
Balance at end of year..................... $104,718 $106,495 $128,295
======== ======== ========

- ---------------
(1) For 1997, the provision charged to operations and charge-offs included $14.0
million and $35.8 million, respectively, associated with bulk sales of
approximately $113 million of non-accrual residential real estate loans
receivable in May 1997.

NOTE 6 -- NON-PERFORMING ASSETS, LOANS MODIFIED IN A TDR, AND IMPAIRED LOANS

Non-performing assets were comprised of the following at December 31:

1997 1996
-------- --------
(IN THOUSANDS)

Non-accrual loans:
Residential real estate.............................. $ 90,998 $163,791
Commercial real estate............................... 21,760 21,047
Consumer............................................. 5,719 6,645
Business............................................. 511 107
-------- --------
Total non-accrual loans...................... 118,988 191,590
-------- --------
ORE, net:
Residential real estate.............................. 20,228 36,182
Commercial real estate............................... 9,255 20,367
Allowance for losses................................. (1,722) (3,294)
-------- --------
Total ORE, net............................... 27,761 53,255
-------- --------
Total non-performing assets............................ $146,749 $244,845
======== ========

F-16
67
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity in the allowance for losses on ORE is summarized as follows for
the year ended December 31:

1997 1996 1995
------- ------- --------
(IN THOUSANDS)

Balance at beginning of year................. $ 3,294 $ 3,070 $ 7,247
Provision charged to operations.............. 1,514 4,799 6,879
Charge-offs.................................. (4,272) (5,572) (12,270)
Recoveries................................... 1,186 997 1,214
------- ------- --------
Balance at end of year....................... $ 1,722 $ 3,294 $ 3,070
======= ======= ========

The following table sets forth loans that have been modified in a TDR,
excluding those classified as non-accrual loans, at December 31:

1997 1996
------- --------
(IN THOUSANDS)

Residential real estate loans........................... $37,532 $ 42,684
Commercial real estate loans............................ 46,677 170,323
------- --------
Total loans modified in a TDR........................... $84,209 $213,007
======= ========

The amount of interest income that would have been recorded on non-accrual
loans and loans modified in a TDR, if such loans had been current in accordance
with their original terms, was $18.7 million, $34.1 million and $40.2 million
for 1997, 1996 and 1995, respectively. The amount of interest income that was
recorded on these loans was $11.5 million, $18.9 million and $20.2 million for
1997, 1996 and 1995, respectively.

The following table sets forth information regarding the Company's impaired
loans at December 31:

1997 1996
----------------------------------- -----------------------------------
RELATED RELATED
ALLOWANCE ALLOWANCE
RECORDED FOR LOAN NET RECORDED FOR LOAN NET
INVESTMENT LOSSES INVESTMENT INVESTMENT LOSSES INVESTMENT
---------- --------- ---------- ---------- --------- ----------
(IN THOUSANDS)

Residential real estate loans:
With a related allowance..... $ 2,403 $ (150) $ 2,253 $ 3,290 $ (206) $ 3,084
Without a related
allowance................. 4,835 -- 4,835 11,322 -- 11,322
------- ------- ------- ------- ------- -------
Total residential
real estate
loans.............. 7,238 (150) 7,088 14,612 (206) 14,406
------- ------- ------- ------- ------- -------
Commercial real estate loans:
With a related allowance..... 26,275 (2,739) 23,536 39,388 (3,919) 35,469
Without a related
allowance................. 1,585 -- 1,585 8,752 -- 8,752
------- ------- ------- ------- ------- -------
Total commercial real
estate loans....... 27,860 (2,739) 25,121 48,140 (3,919) 44,221
------- ------- ------- ------- ------- -------
Business loans:
With a related allowance..... 511 (220) 291 107 (53) 54
------- ------- ------- ------- ------- -------
Total impaired loans........... $35,609 $(3,109) $32,500 $62,859 $(4,178) $58,681
======= ======= ======= ======= ======= =======

The Company's average recorded investment in impaired loans for 1997, 1996
and 1995 was approximately $46.7 million, $76.8 million and $83.6 million,
respectively. Interest income recognized on such loans for 1997, 1996 and 1995
amounted to approximately $4.2 million, $3.9 million and $4.6 million,
respectively.

F-17
68
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- PREMISES AND EQUIPMENT, NET

Premises and equipment, net, consisted of the following at December 31:

1997 1996
--------- ---------
(IN THOUSANDS)

Land................................................. $ 12,368 $ 7,594
Buildings............................................ 84,950 64,941
Leasehold improvements............................... 54,250 46,683
Furniture, fixtures and equipment.................... 126,489 95,043
--------- ---------
Total cost................................. 278,057 214,261
Accumulated depreciation and amortization............ (127,252) (110,720)
--------- ---------
Total premises and equipment, net.................... $ 150,805 $ 103,541
========= =========

Depreciation and amortization of premises and equipment charged to expense
amounted to $20.2 million, $16.7 million and $17.9 million for 1997, 1996 and
1995, respectively.

NOTE 8 -- LOAN SERVICING

At December 31, 1997, 1996 and 1995, the Company owned the servicing rights
to loans owned by others with principal balances of $22.0 billion, $11.0 billion
and $9.5 billion, respectively. Such loans are not included in the Company's
Consolidated Statements of Financial Condition.

During December 1997, the Company sold the servicing rights to loans owned
by others with principal balances of approximately $3 billion. The Company is
subservicing these loans for a fee pending the transfer of the servicing
responsibility to the purchaser, which is expected to be consummated by no later
than August 1998. The carrying value of the related mortgage servicing assets at
the date of sale was $56.5 million.

The estimated fair value of the Company's mortgage servicing assets was
approximately $396 million at December 31, 1997, as compared with a carrying
value at that date of $341.9 million. Mortgage servicing assets capitalized
during 1997 amounted to $278.5 million, including $180.9 million acquired in
connection with the NAMC Acquisition. During 1996 and 1995, mortgage servicing
assets of $48.0 million and $17.4 million, respectively, were capitalized.

At December 31, 1997, the Company was not required to maintain a valuation
allowance for impairment of its mortgage servicing assets. The balance in the
valuation allowance for impairment of mortgage servicing assets at December 31,
1996, and the activity in this allowance during 1997 and 1996, was not material.
The Company was not required to maintain a valuation allowance for impairment of
mortgage servicing assets during 1995.

NOTE 9 -- DEPOSITS

The following table sets forth the composition of deposits at December 31:

1997 1996
----------- -----------
(IN THOUSANDS)

Demand............................................ $ 1,572,797 $ 1,130,863
Savings........................................... 2,431,812 2,460,367
Money market...................................... 1,971,081 2,007,448
Time.............................................. 7,871,585 7,258,061
----------- -----------
Total deposits.................................... $13,847,275 $12,856,739
=========== ===========

F-18
69
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Scheduled maturities of time deposits at December 31, 1997 were as follows:

WEIGHTED
AVERAGE
INTEREST
AMOUNT RATE
---------- ---------
(DOLLARS IN THOUSANDS)

Year ending December 31:
1998................................................ $6,783,767 5.45%
1999................................................ 722,424 5.65
2000................................................ 198,548 5.78
2001................................................ 101,380 5.58
2002................................................ 52,234 5.29
Thereafter.......................................... 13,232 5.77
----------
Total time deposits................................... $7,871,585 5.48
==========

The following table sets forth the scheduled maturities of time deposits
with balances of $100,000 or more at December 31, 1997.

AMOUNT
--------------
(IN THOUSANDS)

Maturing in:
Three months or less...................................... $ 249,039
Over three through six months............................. 249,854
Over six months through one year.......................... 376,363
Over one year............................................. 162,256
----------
Total....................................................... $1,037,512
==========

At December 31, 1996, time deposits with balances of $100,000 or more
amounted to $663.9 million.

NOTE 10 -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Information concerning securities sold under agreements to repurchase is
summarized in the table below at or for the year ended December 31:

1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Balance at year end:
Repurchase liability......................... $2,980,781 $3,557,145 $1,632,453
Unamortized premiums on interest rate caps... (5,007) (6,911) --
---------- ---------- ----------
Balance at year end............................ $2,975,774 $3,550,234 $1,632,453
========== ========== ==========
Average balance during the year................ $3,628,681 $2,672,859 $1,398,041
Maximum month-end balance during the year...... 4,265,905 3,629,357 1,824,363
Accrued interest payable at year end(1)........ 21,049 15,153 5,343
Weighted average interest rate at year end..... 5.85% 5.64% 5.82%
Weighted average interest rate during the
year......................................... 5.70 5.52 6.03
MBS pledged as collateral at year end:
Carrying value............................... $3,119,359 $3,797,628 $1,682,301
Estimated fair value......................... 3,119,359 3,744,227 1,670,958

- ---------------
(1) Included under the caption "Other liabilities" in the Consolidated
Statements of Financial Condition.

All securities sold under agreements to repurchase at December 31, 1997
matured during January 1998.

F-19
70
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The MBS pledged as collateral for securities sold under agreements to
repurchase were delivered to the broker-dealers who arranged the transactions.
The broker-dealers may have loaned the securities to other parties in the normal
course of their operations and agreed to resell to the Company the identical MBS
sold.

NOTE 11 -- FEDERAL HOME LOAN BANK OF NEW YORK ("FHLBNY") ADVANCES

Information concerning FHLBNY advances is summarized in the table below at
or for the year ended December 31:

1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Balance at year end............................ $2,786,751 $ 925,139 $4,602,983
Average balance during the year................ 1,539,079 3,081,743 4,963,392
Maximum month-end balance during the year...... 2,837,646 4,652,965 5,921,644
Weighted average interest rate at year end..... 6.05% 5.76% 6.07%
Weighted average interest rate during the
year......................................... 5.93 5.82 6.11

At December 31, 1997, FHLBNY advances were collateralized by the Bank's
investment in FHLBNY stock and by certain MBS and residential real estate loans
receivable.

The scheduled maturities of FHLBNY advances for the five years subsequent
to December 31, 1997 were $2.6 billion in 1998, $125.0 million in 1999, $10.0
million in 2000, $10.1 million in 2001, and $20.0 million in 2002.

NOTE 12 -- SENIOR NOTES

Senior notes, which are unsecured general obligations of the Holding
Company, were comprised of the following at December 31:

1997 1996
-------------------- --------------------
PAR CARRYING PAR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------

Due July 2003; 8.9375% stated
interest rate................. $ 44,370 $ 43,594 $100,000 $ 98,789
Due November 2005; 10.50% stated
interest rate................. 100,000 98,881 100,000 98,795
-------- -------- -------- --------
Total senior notes.............. $144,370 $142,475 $200,000 $197,584
======== ======== ======== ========

The 8.9375% senior notes due July 2003 (the "8.9375% Senior Notes"),
interest on which is payable semi-annually, were issued in 1993 and are
redeemable at the option of the Holding Company, in whole or in part, at any
time on or after July 9, 1998 at specified redemption prices. During November
1997, the Holding Company purchased $55.6 million in principal amount of the
8.9375% Senior Notes. In connection therewith, an extraordinary loss of $1.5
million, net of an income tax benefit of $0.9 million, was recognized.

The 10.50% senior notes due November 2005 (the "10.50% Senior Notes"),
interest on which is payable quarterly, were issued in 1994. The 10.50% Senior
Notes are redeemable at the option of the Holding Company, in whole or in part,
at any time on or after November 15, 1998 at specified redemption prices.

The 8.9375% Senior Notes and the 10.50% Senior Notes were each issued
pursuant to an indenture which includes covenants with respect to limitations
on, among other things: (i) dividends and other distributions; (ii) funded
indebtedness, as defined; and (iii) mergers, consolidations and sales of assets
and subsidiary stock.

F-20
71
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the terms of the indenture governing the 8.9375% Senior Notes, the
Holding Company is prohibited from declaring or paying any dividends on, or
purchasing, redeeming or otherwise acquiring or retiring for value any of its
capital stock, or returning any capital to holders of its capital stock (each a
"Distribution"), except that the Holding Company may declare and pay dividends
in capital stock of the Holding Company and make a Distribution in cash or
property (other than the Holding Company's capital stock) if the amount of such
Distribution, together with the amount of all previous Distributions, does not
exceed in the aggregate the sum of (i) $10 million, plus (ii) 75% of the
Company's consolidated net income for each fiscal quarter after June 30, 1993
(but reduced by 100% of the net losses incurred in any quarter), plus (iii) 100%
of the net proceeds received by the Holding Company upon issuance of its capital
stock subsequent to September 1, 1993.

Pursuant to the terms of the indenture governing the 10.50% Senior Notes,
the Holding Company is subject to a limitation on the payment of dividends or
other distributions on the Common Stock, as well as purchases, redemptions and
acquisitions of such stock and payments in respect of subordinated debt of the
Holding Company ("Restricted Distributions") until such time as the 10.50%
Senior Notes have been rated "investment grade" for a period of three calendar
months. In general, the Holding Company is not permitted to make Restricted
Distributions if, or to the extent that, at such time or after giving effect
thereto, (a) the Holding Company is in default with respect to the 10.50% Senior
Notes, (b) the Bank fails to meet any of its OTS capital requirements or (c) the
aggregate amount of dividends or other distributions on the Common Stock
subsequent to December 17, 1994 exceeds the sum of (i) $5 million, plus (ii) 50%
of the Holding Company's consolidated net income from that date (but reduced by
100% of the losses incurred during that period), plus (iii) an amount equal to
the net proceeds received by the Holding Company from any sales of its capital
stock from that date.

NOTE 13 -- GUARANTEED PREFERRED BENEFICIAL INTERESTS IN HOLDING COMPANY'S JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES

On May 6, 1997, Dime Capital Trust I ("Dime Capital"), a Delaware statutory
business trust that was formed by the Holding Company, issued $200.0 million
aggregate liquidation amount of 9.33% Capital Securities, Series A (the "Series
A Capital Securities"), representing preferred beneficial interests in Dime
Capital, in an underwritten public offering and $6.2 million aggregate
liquidation amount of common beneficial interests represented by its common
securities to the Holding Company (the "Common Securities," and together with
the Series A Capital Securities, the "Dime Capital Securities"). In connection
therewith, Dime Capital purchased $206.2 million aggregate principal amount of
9.33% Junior Subordinated Deferrable Interest Debentures, Series A, due May 6,
2027 (the "Series A Subordinated Debentures") issued by the Holding Company,
which amount is equal to the aggregate liquidation amount of the Dime Capital
Securities. Dime Capital is wholly-owned by the Holding Company and exists for
the sole purpose of issuing the Dime Capital Securities and investing the
proceeds thereof in the Series A Subordinated Debentures. The Series A
Subordinated Debentures, which are, and will be, the sole assets of Dime
Capital, are subordinate and junior in right of payment to all present and
future senior indebtedness of the Holding Company. The Holding Company, through:
(i) a guarantee agreement, between the Holding Company and The Chase Manhattan
Bank ("Chase"), as trustee; (ii) a trust agreement, among the Holding Company,
as depositor, Chase, as property trustee, Chase Manhattan Bank Delaware, as
Delaware trustee, certain employees or officers of the Holding Company, as
administrative trustees, and the holders from time to time of the Dime Capital
Securities; (iii) an expense agreement, between the Holding Company and Dime
Capital; (iv) the Series A Subordinated Debentures; and (v) an indenture
regarding the Series A Subordinated Debentures, between the Holding Company and
Chase, as trustee, when taken in the aggregate, has fully and unconditionally
guaranteed all of Dime Capital's obligations under the Series A Capital
Securities. The Series A Capital Securities are subject to mandatory redemption,
in whole or in part, upon the repayment of the Series A Subordinated Debentures
at their stated maturity or earlier redemption. Distributions on the Series A
Capital

F-21
72
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Securities are payable semi-annually and are reflected in the Company's
Consolidated Statements of Income under the caption "Interest expense on
borrowed funds."

NOTE 14 -- OTHER BORROWED FUNDS

Other borrowed funds consisted of the following at December 31:

1997 1996
-------- --------
(IN THOUSANDS)

Collateralized Real Yield Securities ("Reals") due 2008;
stated interest rates of 5.17% (1997) and 5.96% (1996);
unamortized discounts of $561 (1997) and $614 (1996)...... $ 77,439 $ 77,386
Medium term notes:
Due 1998; stated interest rates of 5.78% to 5.84%;
unamortized discounts of $18........................... 24,982 --
Due 2000; stated interest rates of 6.27% to 6.53%;
unamortized premiums of $47............................ 25,047 --
Due 2003; stated interest rates of 7.29% to 7.34%;
unamortized premiums of $1,123......................... 27,123 --
-------- --------
Total medium term notes........................... 77,152 --
-------- --------
Bonds, loans and preferred stocks transferred in put
transactions due 1998 through 2016; stated interest rates
of 4.08% to 8.40%......................................... 44,159 55,110
Other due 1998 through 2020; stated interest rates of 5.50%
to 8.25% (1997) and 5.37% to 6.83% (1996)................. 19,425 9,738
-------- --------
Total other borrowed funds.................................. $218,175 $142,234
======== ========

The scheduled maturities of borrowed funds included in the above table for
the five years subsequent to December 31, 1997 were $31.3 million in 1998, $2.8
million in 1999, $29.1 million in 2000, $5.3 million in 2001, and $2.2 million
in 2002.

The Reals, which were issued in August 1988, are not redeemable prior to
their maturity; however, the holders of the Reals have the option of electing
early repayment, at par value, in August 1998 or 2003. Interest on the Reals is
payable quarterly at a rate reset quarterly based on the sum of 3.00% plus the
percentage change, if any, in the Consumer Price Index for all Urban Consumers
during the preceding twelve-month period. At December 31, 1997, the Reals were
secured by certain MBS.

The medium term notes, all of which were assumed in connection with the
NAMC Acquisition, are unsecured. The terms of the medium term notes provide for
semi-annual interest payments and a single principal payment at maturity.

From 1983 to 1985, the Bank had entered into various borrowing agreements
under which it transferred certain tax-exempt bonds, tax-exempt loans and
preferred stocks to certain unit investment trusts and others, accompanied by
put options. During the terms of the agreements, the holders are entitled to
return the assets to the Bank under various circumstances at specified prices.
The underlying bonds, loans and preferred stocks transferred in the put
transactions had aggregate carrying values of approximately $30.0 million, $8.9
million and $5.3 million, respectively, at December 31, 1997. At that date, the
borrowing agreements were further collateralized by designated MBS.

F-22
73
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15 -- STOCKHOLDERS' EQUITY

Common and Treasury Stock

The Holding Company is authorized to issue 200 million shares of Common
Stock, par value $0.01 per share. At December 31, 1997, 9.7 million shares of
Common Stock were reserved for future issuance under the Company's stock-based
employee benefit plans.

The following table sets forth the number of shares of Common Stock newly
issued, purchased for treasury and issued from treasury during the years
indicated.

COMMON SHARES
----------------------------------------
HELD IN
ISSUED TREASURY OUTSTANDING
----------- ---------- -----------

Balance at December 31, 1994......................... 98,601,115 -- 98,601,115
Issued under employee benefit plans.................. 1,104,616 -- 1,104,616
----------- ---------- -----------
Balance at December 31, 1995.................... 99,705,731 -- 99,705,731
Purchased for treasury............................... -- (5,025,900) (5,025,900)
Issued upon exercise of stock warrant................ 8,407,500 -- 8,407,500
Issued under employee benefit plans.................. 148,985 1,507,603 1,656,588
----------- ---------- -----------
Balance at December 31, 1996.................... 108,262,216 (3,518,297) 104,743,919
Purchased for treasury............................... -- (9,287,100) (9,287,100)
Issued in connection with the NAMC Acquisition....... 11,958,077 7,479,664 19,437,741
Issued under employee benefit plans.................. 36,166 1,427,601 1,463,767
----------- ---------- -----------
Balance at December 31, 1997......................... 120,256,459 (3,898,132) 116,358,327
=========== ========== ===========

In May 1996, the FDIC exercised its warrant to acquire 8,407,500 shares of
Common Stock at $0.01 per share (the "FDIC Warrant") and sold the underlying
shares in a secondary public offering. This warrant had been issued originally
in July 1993 in accordance with the terms of an agreement between Anchor Bancorp
and the FDIC. Pursuant to this agreement, Anchor Bancorp exchanged $157.0
million of its Class A cumulative preferred stock for $71.0 million of its
newly-issued 8.9375% Senior Notes and a warrant to acquire, at an exercise price
of $0.01 per share, 4,750,000 shares of Anchor Bancorp's common stock (which was
converted to a warrant to acquire 8,407,500 shares of Common Stock at $0.01 per
share upon consummation of the Anchor Merger). In this exchange, the FDIC also
relinquished its claim to $47.2 million of accumulated but undeclared and unpaid
dividends with respect to the Class A cumulative preferred stock.

The Holding Company repurchased 14.3 million shares of Common Stock for
treasury during 1996 and 1997 in connection with repurchase programs announced
in January 1996, December 1996 and June 1997, all of which have been completed.
During the first quarter of 1998, the Holding Company repurchased an additional
3.0 million shares of Common Stock, completing a program announced in December
1997. No repurchases of Common Stock were made under this program during 1997.

Dividend Restrictions

The Holding Company's ability to pay dividends on the Common Stock is
limited by restrictions imposed by Delaware law and, as discussed in Note 12,
the indentures associated with the 8.9375% Senior Notes and the 10.50% Senior
Notes. In general, dividends may be paid out of the Holding Company's surplus,
as defined by Delaware law, or in the absence of such surplus, out of its net
profits for the current and/or immediately preceding fiscal year.

F-23
74
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The funding of any future dividend payments on the Common Stock by the
Holding Company may be dependent on dividends it receives from the Bank. The
ability of the Bank to pay dividends to the Holding Company is subject to
federal regulations and income tax consequences.

Generally, the Bank may not make a capital distribution, which includes
cash dividends, at any time when, after such distribution, its regulatory
capital would be below the regulatory capital requirements of the OTS or below
the standards established by the prompt corrective action ("PCA") provisions of
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") for
an institution to be deemed adequately capitalized.

Under OTS regulations, a savings institution that exceeds its fully
phased-in capital requirements, both before and after a proposed distribution,
and that has not been advised by the OTS that it is in need of more than normal
supervision, may, after prior notice to, but without the approval of the OTS,
make capital distributions during a calendar year up to the higher of (i) 100%
of its net income to date during the calendar year plus the amount that would
reduce by one-half its surplus capital ratio (the percentage by which an
institution's ratio of total capital to assets exceeds the ratio of its fully
phased-in capital to assets) at the beginning of the calendar year or (ii) 75%
of its net income over the most recent four-quarter period.

Upon its conversion from mutual to stock form, the Bank was required to
establish a liquidation account for the benefit of certain account holders who
continued to maintain their savings accounts with the Bank after the conversion,
in an amount equal to its retained income prior to conversion. The liquidation
account is reduced annually in proportion to the reduction of eligible savings
account balances. Anchor Savings was similarly required to establish a
liquidation account upon its conversion from mutual to stock form. The
liquidation accounts were not changed in any respect by the Anchor Merger or the
formation of the Holding Company or Anchor Bancorp. The Bank may not declare or
pay a cash dividend on, or repurchase any of, its capital stock if the effect
thereof would be to cause its regulatory capital to be reduced below the minimum
amount required for the liquidation account.

In addition, to the extent that distributions by the Bank to the Holding
Company exceed the Bank's accumulated earnings and profits and current earnings
and profits (as computed for federal income tax purposes), such amounts may be
treated for tax purposes as distributions of previously accumulated preferential
bad debt deductions.

Stockholder Protection Rights Plan

On October 20, 1995, the board of directors of the Holding Company (the
"Board") adopted a Stockholder Protection Rights Plan (the "Rights Plan"). Under
the Rights Plan, which expires in November 2005, the Board declared a dividend
of one right on each outstanding share of Common Stock, which was paid on
November 6, 1995 to stockholders of record on that date (the "Rights"). Until it
is announced that a person or group has acquired 20% or more of the outstanding
Common Stock (an "Acquiring Person") or has commenced a tender offer that could
result in their owning 20% or more of Common Stock, the Rights will be evidenced
solely by the Holding Company's common stock certificates, will automatically
trade with the Common Stock and will not be exercisable. Following any such
announcement, separate Rights would be distributed, with each Right entitling
its owner to purchase participating preferred stock of the Holding Company
having economic and voting terms similar to those of one share of Common Stock
for an exercise price of $50.

Upon announcement that any person or group has become an Acquiring Person
and unless the Board acts to redeem the Rights, then ten business days
thereafter (or such earlier or later date, not beyond 30 days, as the Board may
decide) (the "Flip-in Date"), each Right (other than Rights beneficially owned
by any Acquiring Person or transferee thereof, which become void) will entitle
the holder to purchase, for the $50 exercise price, a number of shares of Common
Stock having a market value of $100. In addition, if, after an

F-24
75
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Acquiring Person gains control of the Board, the Holding Company is involved in
a merger or sells more than 50% of its assets or assets generating more than 50%
of its operating income or cash flow, or has entered into an agreement to do any
of the foregoing (or an Acquiring Person is to receive different treatment than
all other stockholders), each Right will entitle its holder to purchase, for the
$50 exercise price, a number of shares of common stock of the Acquiring Person
having a market value of $100. If any person or group acquires between 20% and
50% of the outstanding Common Stock the Board may, at its option, exchange one
share of such Common Stock for each Right. The Rights may also be redeemed by
the Board for $0.01 per Right prior to the Flip-in Date.

NOTE 16 -- REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Bank's and the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
PCA, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's regulatory
capital amounts and classification are also subject to qualitative judgments by
regulators about components, risk weightings and other factors.

Quantitative measures established by regulation by the OTS to ensure
capital adequacy (the "Capital Adequacy Regulations") require the Bank to
maintain, as set forth in the table below, specified minimum amounts and ratios
of leverage ("tier 1") and tangible capital to adjusted total assets and of
risk-based capital to risk-weighted assets. Management believes that, as of
December 31, 1997, the Bank was in compliance with the Capital Adequacy
Regulations.

Pursuant to FDICIA, the OTS adopted PCA regulations ("PCA Regulations")
which established five capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To be categorized as well capitalized, the Bank
must maintain the minimum risk-based, tier 1 risk-based and leverage capital
ratios set forth in the table below. As of December 31, 1997, the most recent
notification from the OTS categorized the Bank as well capitalized under the
regulatory framework for PCA. There are no conditions or events since that
notification that the Bank believes have changed its category.

F-25
76
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes, at December 31 for the years shown, the
Bank's actual regulatory capital amounts and ratios, as well as its minimum
requirements under the Capital Adequacy Regulations and under the PCA
Regulations for it to be deemed well capitalized.

MINIMUM CAPITAL REQUIREMENTS PURSUANT TO
-----------------------------------------
PCA REGULATIONS
ACTUAL BANK CAPITAL ADEQUACY TO BE DEEMED
REGULATORY CAPITAL REGULATIONS WELL CAPITALIZED
------------------ ------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- --------- ------ ----------- ------
(DOLLARS IN THOUSANDS)

1997:
Leverage capital.................. $1,216,417 5.64% $646,893 3.00% $1,078,155 5.00%
Tangible capital.................. 1,216,417 5.64 323,447 1.50
Risk-based capital................ 1,321,135 11.17 946,114 8.00 1,182,642 10.00
Tier 1 risk-based capital......... 1,216,417 10.29 709,585 6.00

1996:
Leverage capital.................. 1,139,443 6.06 563,671 3.00 939,452 5.00
Tangible capital.................. 1,139,443 6.06 281,836 1.50
Risk-based capital................ 1,245,938 13.08 762,076 8.00 952,594 10.00
Tier 1 risk-based capital......... 1,139,443 11.96 571,557 6.00

NOTE 17 -- NET GAINS (LOSSES) ON SALES ACTIVITIES

Details of net gains (losses) on sales activities were as follows for the
year ended December 31:

1997 1996 1995
-------- -------- --------
(IN THOUSANDS)

Net gains (losses) on:
Sales, calls and other than temporary impairment in value
of securities......................................... $(17,794) $(11,265) $(29,044)
Sales of loans held for sale............................. 23,219 2,630 2,344
Sales of loan servicing rights........................... 6,888 -- 738
Sales of branches........................................ -- -- 18,637
Other.................................................... (277) (4,081) (5,090)
-------- -------- --------
Total net gains (losses) on sales activities............... $ 12,036 $(12,716) $(12,415)
======== ======== ========

NOTE 18 -- EMPLOYEE BENEFIT PLANS

Pension Plans

The Company currently maintains a non-contributory, qualified, defined
benefit pension plan (the "Qualified Pension Plan") covering, except as noted,
substantially all salaried employees of the Company who meet certain age and
length of service requirements. NAMC personnel are generally covered by a plan
maintained by NAMC (see "Other Plans"). Benefits under the Qualified Pension
Plan are based on years of credited service and average base salary for the
final three years of service. Contributions are made to the Qualified Pension
Plan to the extent required and deductible under federal income tax regulations.
The Qualified Pension Plan assets primarily consist of equity and debt
securities. The Company also maintains various non-qualified, defined benefit
pension plans (the "Non-Qualified Pension Plans"). Benefits under these plans
have not been prefunded by the Company.

F-26
77
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the funded status of the Qualified Pension
Plan and the Non-Qualified Pension Plans and amounts recognized in the
Consolidated Statements of Financial Condition at December 31:

1997 1996
-------------------------- --------------------------
QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED
PENSION PENSION PENSION PENSION
PLAN PLANS PLAN PLANS
--------- ------------- --------- -------------
(IN THOUSANDS)

Actuarial present value of benefit
obligation:
Accumulated benefit obligation -- vested
benefits............................. $ 133,962 $ 15,853 $ 115,266 $ 13,404
Accumulated benefit
obligation -- non-vested benefits.... 3,791 2,049 8,710 1,525
--------- -------- --------- --------
Accumulated benefit obligation............ $ 137,753 $ 17,902 $ 123,976 $ 14,929
========= ======== ========= ========
Projected benefit obligation for service
rendered to date........................ $(152,421) $(18,300) $(140,556) $(15,155)
Plan assets at fair value................. 154,117 -- 142,841 --
--------- -------- --------- --------
Plan assets in excess of (less than)
projected benefit obligation............ 1,696 (18,300) 2,285 (15,155)
Unrecognized net transition (asset)
obligation.............................. (3,457) 392 (4,382) 472
Unrecognized net loss (gain).............. 10,923 109 10,869 (1,190)
Unrecognized prior service cost........... 992 4,285 1,164 3,367
Minimum liability adjustment.............. -- (4,388) -- (2,423)
--------- -------- --------- --------
Prepaid (accrued) pension cost............ $ 10,154 $(17,902) $ 9,936 $(14,929)
========= ======== ========= ========

Net pension (income) expense associated with the Qualified Pension Plan and
the Non-Qualified Pension Plans included the following components for the year
ended December 31:

1997 1996 1995
------------------------- ------------------------- -------------------------
QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED
PENSION PENSION PENSION PENSION PENSION PENSION
PLAN PLANS PLAN PLANS PLAN PLANS
--------- ------------- --------- ------------- --------- -------------
(IN THOUSANDS)

Service cost -- benefits
earned....................... $ 4,129 $ 656 $ 4,859 $1,046 $ 3,809 $ 730
Interest cost on projected
benefit obligation........... 10,091 1,180 10,055 961 9,568 869
Actual return on plan assets... (20,078) -- (15,010) -- (28,659) --
Net amortization and
deferral..................... 5,356 91 533 2,072 16,238 809
Other.......................... -- -- -- -- -- 1,101
-------- ------ -------- ------ -------- ------
Net pension (income) expense... $ (502) $1,927 $ 437 $4,079 $ 956 $3,509
======== ====== ======== ====== ======== ======

In determining the projected benefit obligation for the Qualified Pension
Plan and the Non-Qualified Pension Plans, the weighted average discount rate
utilized was 7.00% in 1997 and 7.75% in 1996 and the rate of increase in future
compensation levels was 4.00% in 1997 and 5.00% in 1996. The expected long-term
rate on plan assets used in computing net pension (income) expense for the
Qualified Pension Plan was 10.00% in each of 1997, 1996 and 1995.

Postretirement Health Care and Life Insurance Plans

The Company currently sponsors unfunded postretirement health care and life
insurance plans covering, except as noted, substantially all salaried employees
of the Company who meet certain age and length of

F-27
78
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

service requirements. Employees of NAMC, with certain exceptions, are not
covered under these plans. In general, the Company's postretirement health care
plan requires contributions from participants. Benefits under the Company's
postretirement life insurance plan are provided to participants on a
non-contributory basis. The estimated cost of providing postretirement health
care and life insurance benefits to an employee and the employee's beneficiaries
and covered dependents is accrued during the years that the employee renders the
necessary service.

The following table sets forth the composition of the accrued
postretirement health care and life insurance benefits recognized in the
Company's Consolidated Statements of Financial Condition at December 31:

1997 196
-------- --------
(IN THOUSANDS)

Accumulated benefit obligation:
Retirees.................................................. $ 47,924 $ 36,958
Fully eligible active plan participants................... 870 6,944
Other active plan participants............................ 3,852 3,958
-------- --------
Accumulated benefit obligation.............................. 52,646 47,860
Unrecognized net gain....................................... 687 3,178
Unrecognized transition obligation being amortized over 20
years..................................................... (28,771) (30,681)
-------- --------
Accrued postretirement health care and life insurance
benefits.................................................. $ 24,562 $ 20,357
======== ========

In determining the accumulated benefit obligation for the postretirement
health care and life insurance plans, the weighted average discount rate
utilized was 7.00% in 1997 and 7.75% in 1996 and the rate of increase in future
compensation levels was 4.00% in 1997 and 5.00% in 1996.

Postretirement health care and life insurance benefits expense included the
following components for the year ended December 31:

1997 1996 1995
------ ------ ------
(IN THOUSANDS)

Service cost -- benefits earned............................. $ 462 $1,340 $ 770
Interest cost on accumulated benefit obligation............. 3,630 3,415 3,888
Amortization of transition obligation....................... 1,910 1,910 1,952
Amortization of unrecognized prior service cost............. -- -- 50
------ ------ ------
Postretirement health care and life insurance benefits
expense................................................... $6,002 $6,665 $6,660
====== ====== ======

As of December 31, 1997, the average annual rate of increase in the per
capita cost of covered health care benefits for 1998 was assumed to be 10.00%
for participants less than 65 years old and 7.00% for all other participants
and, in each case, was assumed to decline 1.00% per year until a floor of 5.00%
was reached. Increasing the assumed health care cost trend rates by 1.00% in
each year would increase the accumulated benefit obligation at December 31, 1997
by $2.2 million and the aggregate of the service and interest cost components of
postretirement health care benefits expense for 1997 by $0.2 million.

Other Plans

The Company maintains a savings plan, the Retirement 401(k) Investment
Plan, which covers substantially all employees of the Company, other than those
eligible to participate in a defined contribution benefit plan assumed by the
Company in connection with the NAMC Acquisition. Under the Retirement 401(k)
Investment Plan, participants may contribute up to 15% of their base pay on a
before- or after-tax basis, up to legal limits. The Company currently makes
matching contributions equal to 100% of the first 6% of participant
contributions. Participants vest immediately in their own contributions and over
a period of

F-28
79
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

five years for the Company's contributions. Each member's contributions and
matching contributions are invested, in accordance with the member's directions,
in one or any combination of available investment options, including in a fund
that purchases Common Stock.

In connection with the NAMC Acquisition, the Company assumed NAMC's 401(k)
Savings and Retirement Plan. This plan covers substantially all NAMC personnel,
except those employees of NAMC covered under the Qualified Pension Plan or the
Retirement 401(k) Investment Plan. The provisions of the 401(k) savings
component of this plan provide for contributions by participants of up to 15% of
their total pay on a before-tax basis, up to legal limits, and matching
contributions by the Company of up to 1.5% of a participant's eligible
compensation. Participants vest immediately in their own contributions and over
a period of four years for the Company's contributions. Under the provisions of
the retirement benefit component of the 401(k) Savings and Retirement Plan,
contributions are made by the Company equal to 4% of the participant's eligible
pay. Participants vest in such contributions over a period of seven years.
Contributions to the 401(k) Savings and Retirement Plan are invested, in
accordance with the participant's direction, in one or any combination of
available investment options.

The Company also maintains non-qualified arrangements under which
supplemental amounts in excess of those allocated under the Retirement 401(k)
Investment Plan are allocated with respect to certain employees and upon which
earnings are credited. These amounts include supplemental allocations based upon
the amounts that would otherwise be contributed as matching contributions under
the Retirement 401(k) Investment Plan on base pay that exceeds the amount for
which matching contributions are permitted to be made under the Retirement
401(k) Investment Plan.

The aggregate expense recognized by the Company in connection with the
above plans was $4.9 million, $4.3 million and $3.4 million for 1997, 1996 and
1995, respectively.

NOTE 19 -- STOCK PLANS

Stock Incentive and Option Plans

The Company, during 1997, adopted its Pride Shares Program, a broad-based
stock option plan under which there was a grant in May 1997 of an option to each
eligible full-time employee and each eligible part-time employee to purchase 150
shares and 75 shares, respectively, of Common Stock. Options awarded under this
plan have an exercise price equal to the grant date market price of the Common
Stock and expire 11 years from the grant date. Vesting of options awarded under
the Pride Shares Program generally occurs at the earlier of five years after the
date of grant or the date the Common Stock price reaches a specified target
price (as established at the date of grant) and its closing price stays at, or
rises above, that target price for five consecutive trading days. The options
granted during 1997 under the Pride Shares Program, all of which vested during
the year, had a target price of $20.00. Under the Pride Shares Program, the
Company expects to grant, during 1998 and 1999, an option to each eligible
full-time employee to purchase 150 shares and 200 shares, respectively, of
Common Stock and an option to each eligible part-time employee to purchase 75
shares and 100 shares, respectively, of Common Stock. Shares of Common Stock
initially reserved for issuance under the Pride Shares Program amounted to
2,000,000. At December 31, 1997, options to purchase 1,587,425 shares of Common
Stock were available for future grants under the Pride Shares Program.

Also in 1997, the Company adopted a broad-based stock incentive plan (the
"1997 Stock Incentive Plan"), under which all employees, excluding certain
officers, are eligible to receive options to purchase Common Stock. The number
of shares of Common Stock initially reserved for issuance under this plan
amounted to 300,000. At December 31, 1997, options to purchase 8,825 shares of
Common Stock were available for future grants under the 1997 Stock Incentive
Plan. The 1997 Stock Incentive Plan does not have an established termination
date, but may be terminated at any time by the Board. The options to purchase
Common Stock awarded during 1997 under the 1997 Stock Incentive Plan have an
exercise price equal to the

F-29
80
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market price of the Common Stock at the date of grant, vest over three years and
may be exercised over a period not in excess of eleven years.

A new stock incentive plan for outside directors ("the 1997 Stock Incentive
Plan for Outside Directors") was approved by the Holding Company's stockholders
during 1997, replacing a predecessor plan that had been adopted in 1987 (the
"1987 Stock Incentive Plan for Outside Directors") and which terminated by its
terms during 1996. Under the 1997 Stock Incentive Plan for Outside Directors,
which terminates in May 2007, 350,000 shares of Common Stock were initially
reserved for future issuance. The 1997 Stock Incentive Plan for Outside
Directors currently provides for: (i) an automatic one-time grant to each
individual who first becomes an outside director of the Holding Company on or
after January 1, 1997 of an option to purchase 3,000 shares of Common Stock and
the right to purchase 1,000 shares of restricted Common Stock at $1.00 per
share; (ii) automatic annual awards, during its term, to each outside director
of the Holding Company of an option to purchase 1,500 shares of Common Stock;
and (iii) similar discretionary awards of options to purchase Common Stock and
restricted Common Stock to outside directors of eligible direct and indirect
subsidiaries of the Holding Company. Options awarded under the 1997 Stock
Incentive Plan for Outside Directors have a term of 11 years, generally vest
over a three-year period and have an exercise price equal to the market price of
the Common Stock on the date granted. Restrictions on restricted Common Stock
sold under the 1997 Stock Incentive Plan for Outside Directors generally lapse
one-third each year on each of the third, fourth and fifth anniversaries of the
grant. At December 31, 1997, 323,500 shares of Common Stock remained available
to be awarded under the 1997 Stock Incentive Plan for Outside Directors.

The 1987 Stock Incentive Plan for Outside Directors, prior to its
termination, provided for a one-time only grant to each outside director of the
Holding Company of an option to purchase 3,000 shares of Common Stock, a tandem
stock appreciation right ("SAR"), which may only be exercised upon change in
control of the Company, and the right to purchase 1,000 shares of restricted
Common Stock at $1.00 per share. This plan also provided for similar
discretionary stock-based compensation awards to directors of eligible direct
and indirect subsidiaries of the Holding Company. Awards granted under this plan
prior to its termination remain in effect in accordance with its terms. Stock
options and SARs granted under the 1987 Stock Incentive Plan for Outside
Directors have an exercise price equal to the market price of the Common Stock
at the date of grant, generally vested over three years and may be exercised
over a period not in excess of eleven years. Restrictions on restricted Common
Stock sold to outside directors under the 1987 Stock Incentive Plan for Outside
Directors generally lapse after a five-year vesting period. At the date of the
Anchor Merger, all restrictions on restricted Common Stock previously sold under
the 1987 Stock Incentive Plan for Outside Directors lapsed.

The Company also adopted stock incentive plans in 1986 and 1991 (the "1986
Stock Incentive Plan" and the "1991 Stock Incentive Plan," respectively). The
1986 Stock Incentive Plan, which terminated by its terms during 1996, provided
for grants to key employees of Common Stock-based awards, including stock
options, SARs, and restricted Common Stock. Awards granted under this plan prior
to its termination remain in effect in accordance with its terms. The 1991 Stock
Incentive Plan, which terminates in February 2004, provides for grants to all
employees of Common Stock-based awards including stock options, SARs, restricted
Common Stock, deferred Common Stock, certain loans, and tax offset payments.
Under the 1991 Stock Incentive Plan, participants may be granted one or more
types of awards, which may be granted independently or in tandem. All SARs
granted under these plans have been awarded in tandem with stock options and may
only be exercised upon a change in control of the Company. Stock options and
SARs that have been granted under the 1986 and 1991 Stock Incentive Plans have
an exercise price equal to the market price of the Common Stock at the date of
grant, generally vest over three years and may be exercised over a period not in
excess of eleven years. In general, the per share price of restricted Common
Stock sold in connection with these plans has been $1.00 and related
restrictions lapse at the rate of one-third per year after each of the third,
fourth and fifth years from date of grant. At the date of the Anchor Merger, all
unvested options outstanding under the 1991 Stock Incentive Plan became
exercisable and all restrictions on restricted Common Stock sold

F-30
81
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

under this plan lapsed. At December 31, 1997, 1,079,527 shares of Common Stock
remained available to be awarded under the 1991 Stock Incentive Plan.

In connection with the Anchor Merger, the Holding Company assumed stock
option plans that had previously been adopted by Anchor Bancorp in 1990 and 1992
(the "1990 Stock Option Plan" and the "1992 Stock Option Plan," respectively).
Upon consummation of the Anchor Merger, the number of outstanding options under
these plans was multiplied by, and the per share exercise price divided by, the
Anchor Exchange Ratio.

The 1990 Stock Option Plan, which terminated by its terms during 1996,
provided for options to key employees, while the 1992 Stock Option Plan provides
for options to all employees to purchase shares of Common Stock over a period
not in excess of ten years, or in certain circumstances, ten years and one day.
Awards granted under the 1990 Stock Option Plan prior to its termination remain
in effect in accordance with its terms. All options granted under the 1990 and
1992 Stock Options Plans have, as applicable, an exercise price equal to the
market price of the Common Stock at the date of grant or the market price of
Anchor Bancorp's common stock at the date of grant as adjusted for the Anchor
Exchange Ratio. The vesting period of options granted under the 1990 and 1992
Stock Option Plans is generally three years. Upon consummation of the Anchor
Merger, all unvested options outstanding under the 1990 Stock Option Plan and
substantially all of the unvested options outstanding under the 1992 Stock
Option Plan became exercisable. The 1992 Stock Option Plan does not have an
established termination date, but may be terminated at any time by the Board. At
December 31, 1997, options to purchase 429,823 shares of Common Stock were
available for future grant under the 1992 Stock Option Plan.

A summary of the status of the Company's stock incentive and stock option
plans at December 31, 1997, 1996 and 1995, and changes during the years ended on
those dates, is presented in the table below.

1997 1996 1995
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------

Outstanding at beginning of year............ 3,934 $ 8.96 4,698 $ 6.86 4,836 $ 5.93
Exchanged in connection with the NAMC
Acquisition............................... 1,862 14.18 -- -- -- --
Granted(1).................................. 1,257 18.92 950 12.76 728 9.40
Exercised................................... (1,331) 10.16 (1,614) 5.04 (727) 2.68
Forfeited................................... (168) 13.64 (100) 9.64 (139) 9.49
------ ------ ------
Outstanding at end of year.................. 5,554 12.53 3,934 8.96 4,698 6.86
====== ====== ======
Exercisable at end of year.................. 4,335 11.27 2,754 7.74 3,719 6.29

- ---------------
(1) The weighted average grant-date fair value was $7.09 in 1997, $6.02 in 1996
and $5.28 in 1995.

F-31
82
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 1997.

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
AVERAGE
WEIGHTED REMAINING WEIGHTED
AVERAGE CONTRACTUAL AVERAGE
NUMBER EXERCISE LIFE NUMBER EXERCISE
RANGE OF EXERCISE PRICES (IN THOUSANDS) PRICE (IN YEARS) (IN THOUSANDS) PRICE
------------------------ -------------- -------- ----------- -------------- --------

$ 1.13 - $ 4.91..................... 563 $ 2.54 4.4 563 $ 2.54
5.61 - 9.75..................... 1,479 8.15 6.3 1,410 8.12
10.09 - 14.75..................... 1,457 12.38 7.0 1,111 12.52
15.00 - 18.89..................... 1,686 17.18 8.3 1,224 17.58
20.00 - 28.00..................... 369 24.70 10.5 27 20.73
----- -----
1.13 - 28.00..................... 5,554 12.53 7.2 4,335 11.27
===== =====

During 1997, 1996 and 1995, shares of restricted Common Stock purchased
amounted to 95,640, 40,000 and 28,000, respectively. The weighted average
grant-date fair value of these shares was $15.76 in 1997, $11.66 in 1996 and
$8.74 in 1995.

Compensation expense recognized in operations in connection with the
Company's stock incentive and stock option plans was $0.7 million in 1997, $0.2
million in 1996 and $0.1 million in 1995.

Employee Stock Purchase Plan

In 1993, the Company adopted an employee stock purchase plan (the "Employee
Stock Purchase Plan"), effective in the first quarter of 1994, reserving
1,000,000 shares of Common Stock for purchase by eligible employees of the
Company. As amended, this plan permits a per share purchase price of between 85%
and 100%, as established by the Compensation Committee of the Board (the
"Compensation Committee"), of the market price of the Common Stock on the first
date of the relevant purchase period. The Compensation Committee also
establishes the purchase period and number of shares made available to each
eligible participant during a specified purchase period. During 1997, 60,602
shares of Common Stock were purchased by employees under the Employee Stock
Purchase Plan at a per share price of $12.13, which was equal to the Common
Stock market price on the first date of the purchase period. No shares of Common
Stock were purchased during 1996 or 1995 under the Employee Stock Purchase Plan.
In addition, during 1997, shares of Common Stock were made available for
purchase in March 1998 under the Employee Stock Purchase Plan at a per share
price of $15.38, which was equal to the Common Stock market price on the first
date of the purchase period. The number of such shares subscribed to amounted to
81,108 at December 31, 1997. Shares of Common Stock available for future
purchase under the Employee Stock Purchase Plan amounted to 715,253 at December
31, 1997. The grant-date fair value of each purchase right granted in 1997 and
1996 under the Employee Stock Purchase Plan was $2.16 and $1.51, respectively.

F-32
83
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro Forma Data

Had compensation expense for the Company's stock-based compensation plans
been recognized consistent with the fair value-based method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below for the year ended December 31:

1997 1996 1995
---------- ---------- ---------
(IN THOUSANDS, EXPECT PER SHARE DATA)

Net income:
As reported.................................... $121,714 $104,256 $62,185
Pro forma...................................... 117,914 102,510 61,782
Basic earnings per share:
Net income:
As reported.................................... $ 1.14 $ 1.00 $ 0.63
Pro forma...................................... 1.11 0.99 0.62
Diluted earnings per share:
Net income:
As reported.................................... $ 1.12 $ 0.96 $ 0.57
Pro forma...................................... 1.09 0.94 0.56

In preparing the pro forma information, the grant-date fair value of each
stock option granted under the Company's stock option and stock incentive plans
and each purchase right granted under the Employee Stock Purchase Plan was
estimated on the date of grant using the Black-Scholes option-pricing model. For
stock options, the following weighted-average assumptions were used for the
years ended December 31, 1997, 1996 and 1995, respectively: risk-free interest
rates of 6.30%, 5.97% and 6.63%; expected life of 5.4 years, 6.0 years and 6.0
years; volatility of 32%, 45% and 50%; and dividend yields of 0.83%, 0.00% and
0.00%. For rights under the Employee Stock Purchase Plan, the following
assumptions were used for the years ended December 31, 1997 and 1996,
respectively: risk-free interest rates of 6.12% and 5.44%; expected life of one
year and one year; volatility of 30% and 25%; and dividend yields of 1.04% and
0.00%.

NOTE 20 -- OTHER GENERAL AND ADMINISTRATIVE EXPENSE

Details of other general and administrative expense were as follows for the
year ended December 31:

1997 1996 1995
-------- -------- -------
(IN THOUSANDS)

Data processing and communications.......................... $ 27,292 $ 20,344 $15,910
Marketing and promotional................................... 15,831 14,202 8,964
Professional services....................................... 13,179 14,770 14,254
Postage and messenger services.............................. 8,781 7,013 7,266
Stationery, printing and supplies........................... 7,881 6,927 5,691
Amortization of goodwill.................................... 4,501 1,177 844
FDIC deposit insurance premiums............................. 3,943 8,625 21,373
Other....................................................... 34,281 27,717 21,593
-------- -------- -------
Total other general and administrative expense.............. $115,689 $100,775 $95,895
======== ======== =======

F-33
84
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21 -- INCOME TAXES

Income tax expense attributable to income before extraordinary item
consisted of the following for the year ended December 31:

1997 1996 1995
------- ------- -------
(IN THOUSANDS)

Current income tax expense:
Federal................................................... $ 4,432 $ 3,286 $ 1,851
State and local........................................... 6,332 11,032 2,844
------- ------- -------
Total current income tax expense.................. 10,764 14,318 4,695
------- ------- -------
Deferred income tax expense:
Federal................................................... 62,494 27,605 31,426
State and local........................................... 1,776 8,061 11,606
------- ------- -------
Total deferred income tax expense................. 64,270 35,666 43,032
------- ------- -------
Total income tax expense attributable to income before
extraordinary item........................................ $75,034 $49,984 $47,727
======= ======= =======

The following is a reconciliation of expected income tax expense
attributable to income before extraordinary item, computed at the statutory
federal income tax rate of 35.0%, to the actual income tax expense attributable
to income before extraordinary item for the year ended December 31:

1997 1996 1995
------- -------- -------
(IN THOUSANDS)

Expected federal income tax expense at statutory rate....... $69,373 $ 53,984 $38,469
State and local income taxes, net of federal income tax
benefit................................................... 5,270 12,410 9,392
Non-deductible amortization of goodwill..................... 1,334 178 196
Adjustment of federal deferred taxes upon resolution of tax
filing positions.......................................... -- (17,602) --
Other, net.................................................. (943) 1,014 (330)
------- -------- -------
Total income tax expense attributable to income before
extraordinary item........................................ $75,034 $ 49,984 $47,727
======= ======== =======

In connection with an extraordinary loss during 1997 on the early
extinguishment of debt, the Company recognized an income tax benefit of $0.9
million. The aggregate income tax (expense) benefit reflected in stockholders'
equity in connection with securities available for sale and stock-based
compensation plans amounted to $8.1 million, $(4.1) million and $(5.2) million
in 1997, 1996 and 1995, respectively.

F-34
85
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The combined federal, state and local income tax effects of temporary
differences that gave rise to significant portions of the Company's deferred tax
assets and deferred tax liabilities were as follows at December 31:

1997 1996 1995
-------- -------- --------
(IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforward.......................... $ 73,093 $109,611 $116,200
Excess tax basis and potential bad debt deductions
relating to non-performing assets..................... 54,029 54,138 74,186
Securities............................................... 18,192 -- 12,350
Financial statement reserves not yet realized for tax
purposes.............................................. 12,311 9,968 11,602
Postretirement benefits other than pensions.............. 10,336 9,536 7,575
Federal alternative minimum tax and general business tax
credit carryforwards.................................. 9,855 5,976 2,787
Premises and equipment................................... 2,706 5,395 3,389
Other, net............................................... 12,478 7,871 6,340
-------- -------- --------
Gross deferred tax assets........................ 193,000 202,495 234,429
-------- -------- --------
Deferred tax liabilities:
Mortgage servicing assets................................ (67,079) (9,104) (8,638)
Loans receivable......................................... (23,790) (9,491) (2,328)
Securities............................................... -- (228) --
-------- -------- --------
Gross deferred tax liabilities................... (90,869) (18,823) (10,966)
-------- -------- --------
Net deferred tax assets.................................... $102,131 $183,672 $223,463
======== ======== ========

At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $209 million, substantially all of
which are available to reduce future federal income taxes through the year 2009.
In addition, at that date, the Company had general business tax credit
carryforwards of $5.9 million which are available to reduce future federal
income taxes, of which $1.0 million expire in 2009, $1.5 million expire in 2010,
$1.6 million expire in 2011, and $1.8 million expire in 2012. The Company also
had federal alternative minimum tax credit carryforwards of $4.0 million at
December 31, 1997 which are available to reduce future federal income taxes
without expiration. As a result of the issuance of Common Stock in connection
with the NAMC Acquisition, the Holding Company underwent an "ownership change,"
as defined in section 382 of the Internal Revenue Code of 1986, as amended.
Accordingly, the Company's utilization of its net operating loss carryforwards
and equivalent tax credit carryforwards is limited to no more than $143 million
per calendar year.

During 1996, federal legislation was enacted that generally eliminates the
potential recapture of federal income tax deductions arising from commonly used
methods of calculating bad debt reserves for periods prior to 1988 if an
institution with a thrift charter (such as the Bank) were to change to a
commercial bank charter. In addition, this legislation repealed the reserve
method of tax accounting for bad debts used by the Bank and other "large" thrift
institutions, effective for taxable years beginning after 1995. The legislation
also contains provisions that require the recapture in future periods of tax
reserves for periods after 1987, but such provisions are not expected to have a
material impact on the Company's consolidated financial statements. Further, New
York State legislation was enacted during 1996, and New York City legislation
was enacted in March 1997, allowing thrift institutions to continue to use the
reserve method of tax accounting for bad debts and to determine a deduction for
bad debts in a manner similar to prior law.

F-35
86
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1997, the Bank had approximately $209 million of bad debt
reserves for New York income tax purposes for which no provision for income tax
has been made, of which approximately $80 million are subject to recapture upon
distribution to the Holding Company of these tax reserves. Any charge to a bad
debt reserve for other than bad debts on loans would create income for tax
purposes only, which would be subject to the then current corporate tax rate.
For federal tax purposes, approximately $176 million of the Bank's previously
accumulated bad debt deductions are subject to recapture upon its distribution
to the Holding Company. It is not the Bank's intention to make any distributions
to the Holding Company, or use the reserve in any manner, which would create
income tax liabilities for the Bank.

In order for the Bank to be permitted to maintain a New York tax bad debt
reserve for thrifts, certain thrift definitional tests must be met, including
maintaining at least 60% of its assets in qualifying assets, as defined for tax
purposes, and maintaining a thrift charter. If the Bank failed to meet these
definitional tests, the transition to the reserve method permitted commercial
banks would result in an increase in the New York tax provision as a deferred
tax liability would be established to reflect the eventual recapture of some or
all of the New York bad debt reserve. The Bank's percentage of qualifying assets
at December 31, 1997 was significantly in excess of the minimum threshold. The
Bank does not anticipate failing the thrift definitional tests for New York tax
purposes.

NOTE 22 -- EARNINGS PER COMMON SHARE

The following table sets forth the computations of basic and diluted
earnings per common share for the year ended December 31:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Numerators:
Income before extraordinary item......................... $123,174 $104,256 $ 62,185
Extraordinary item....................................... (1,460) -- --
-------- -------- --------
Net income............................................... $121,714 $104,256 $ 62,185
======== ======== ========
Denominators:
Denominator for basic earnings per common
share -- weighted average number of common shares
outstanding........................................... 106,585 103,742 99,356
Common equivalent shares due to:
Stock options......................................... 2,012 2,074 1,987
Employee stock purchase rights........................ 16 4 --
FDIC Warrant.......................................... -- 3,277 8,399
-------- -------- --------
Denominator for diluted earnings per common
share.......................................... 108,613 109,097 109,742
======== ======== ========
Earnings per common share:
Basic:
Income before extraordinary item...................... $ 1.15 $ 1.00 $ 0.63
Extraordinary item.................................... (0.01) -- --
-------- -------- --------
Net income............................................ $ 1.14 $ 1.00 $ 0.63
======== ======== ========
Diluted earnings per common share:
Income before extraordinary item...................... $ 1.13 $ 0.96 $ 0.57
Extraordinary item.................................... (0.01) -- --
-------- -------- --------
Net income............................................ $ 1.12 $ 0.96 $ 0.57
======== ======== ========

F-36
87
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23 -- DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses various derivative financial instruments as part of its
overall interest rate risk-management strategy and to manage certain risks
associated with its mortgage banking activities. Derivative financial
instruments have not been used by the Company for trading activity purposes.

The following table summarizes, by category of item being hedged, the
notional amounts and estimated fair values of the Company's outstanding
derivative financial instruments at December 31:

1997 1996
----------------------- -----------------------
ESTIMATED ESTIMATED
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- ---------- ---------
(IN THOUSANDS)

Interest rate risk-management instruments:
Interest rate swaps hedging:
Residential real estate loans
receivable............................ $ 924,549 $ (9,391) $ 438,432 $ 414
Commercial real estate loans
receivable............................ 475,323 (12,434) 221,784 (3,408)
MBS available for sale.................. 52,483 (247) -- --
Securities sold under agreements
to repurchase......................... 60,000 (590) 420,000 1,241
FHLBNY advances......................... -- -- 30,000 (690)
---------- -------- ---------- -------
Total interest rate swaps.......... 1,512,355 (22,662) 1,110,216 (2,443)
---------- -------- ---------- -------
Interest rate caps hedging:
Residential real estate loans
receivable............................ 315,118 6 424,484 527
MBS available for sale.................. 333,273 7 192,153 239
MBS held to maturity.................... -- -- 256,787 319
Securities sold under agreements
to repurchase......................... 361,000 1,172 361,000 4,647
---------- -------- ---------- -------
Total interest rate caps........... 1,009,391 1,185 1,234,424 5,732
---------- -------- ---------- -------
Options hedging residential real estate
loans receivable........................ 40,000 119 -- --
---------- -------- ---------- -------
Total interest rate risk-management
instruments...................... 2,561,746 (21,358) 2,344,640 3,289
---------- -------- ---------- -------
Mortgage banking risk-management instruments:
Interest rate floors hedging mortgage
servicing assets........................ 2,384,514 30,377 996,498 77
Interest rate swaps hedging mortgage
servicing assets........................ 400,000 2,829 -- --
Forward contracts hedging loans held for
sale originations....................... 1,725,910 (4,760) 136,770 575
Options hedging loans held for sale
originations............................ 107,000 205 40,000 64
---------- -------- ---------- -------
Total mortgage banking
risk-management instruments...... 4,617,424 28,651 1,173,268 716
---------- -------- ---------- -------
Total derivative financial instruments....... $7,179,170 $ 7,293 $3,517,908 $ 4,005
========== ======== ========== =======

The $1.5 billion of interest rate swap agreements used by the Company at
December 31, 1997 for purposes of interest rate risk-management are in the form
where, based on an agreed-upon notional amount, the Company agrees to make
periodic fixed-rate payments, while the counterparty agrees to make periodic
variable-rate payments that are tied substantially to the one-month London
Interbank Offered Rate ("LIBOR"). The use of these derivative financial
instruments allows the Company to achieve interest income

F-37
88
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

or expense similar to that which would exist if it had changed the interest rate
of designated assets from a fixed-rate to a variable-rate and had changed the
interest rate of designated liabilities from a variable-rate to a fixed-rate.

The following table summarizes the Company's interest rate risk
management-related interest rate swap activity (notional amounts) for the year
ended December 31:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Balance at beginning of year........... $1,110,216 $1,290,747 $1,703,280
New agreements......................... 904,837 584,722 415,210
Matured agreements..................... (385,515) (700,469) (800,000)
Terminated agreements.................. -- (7,908) --
Amortization........................... (117,183) (56,876) (27,743)
---------- ---------- ----------
Balance at end of year................. $1,512,355 $1,110,216 $1,290,747
========== ========== ==========

The following table sets forth, at December 31, 1997, the contractual
maturities of interest rate swap agreements used for interest rate
risk-management purposes, as well as the related weighted average interest rates
receivable and payable at that date. Variable-rates in the table are assumed to
remain constant at their December 31, 1997 levels; however, actual repricings of
these interest rate swaps will be based on the applicable interest rates in
effect at the actual repricing dates.

WEIGHTED AVERAGE
---------------------------
NOTIONAL VARIABLE-RATE FIXED-RATE
AMOUNT RECEIVABLE PAYABLE
---------- ------------- ----------
(DOLLARS IN THOUSANDS)

Year ending December 31:
1998................................. $ 396,928 5.98% 6.42%
1999................................. 344,977 5.96 6.57
2000................................. 147,437 5.98 6.65
2001................................. 278,123 5.98 6.58
2002................................. 136,158 5.99 6.72
Thereafter........................... 208,732 5.98 6.59
----------
Total.................................. $1,512,355 5.98 6.56
==========

Under each of its outstanding interest rate cap agreements at December 31,
1997, the Company, in return for a premium paid to the counterparty at
inception, receives cash payments from the counterparty at specified dates in
the amount by which a specified market interest rate is higher than a designated
cap interest rate, as applied to the notional amount of the agreement. The
Company, at December 31, 1997, had outstanding interest rate cap agreements with
a notional amount of $648.4 million that were entered into in order to hedge the
periodic and lifetime interest rate caps embedded in certain of its
adjustable-rate residential real estate loans receivable and MBS. Each such
agreement provides for the Company to receive cash payments from the
counterparty when the weekly average yield of the one-year constant maturity
Treasury index ("CMT") rises above a designated cap interest rate. At December
31, 1997, the weighted average designated cap interest rate on these agreements
was 8.00%. In addition, at the end of 1997, the Company had interest rate cap
agreements outstanding with a notional amount of $361.0 million that were
entered into for the purpose of locking-in maximum interest costs on certain of
its securities sold under agreements to repurchase. These interest rate cap
agreements provide for the Company to receive cash payments when the one-month
LIBOR rises above a designated cap interest rate. At December 31, 1997, the
weighted average designated cap interest rate on these agreements was 7.04%. The
expected maturities of the notional amounts of the Company's

F-38
89
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding interest rate cap agreements at year-end 1997 were $439.4 million in
1998, $374.0 million in 1999 and $196.0 million in 2001.

The following table summarizes the Company's interest rate cap activity
(notional amounts) for the year ended December 31:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Balance at beginning of year........... $1,234,424 $1,243,179 $ --
New agreements......................... -- 361,000 1,300,000
Amortization........................... (225,033) (369,755) (56,821)
---------- ---------- ----------
Balance at end of year................. $1,009,391 $1,234,424 $1,243,179
========== ========== ==========

At December 31, 1997, the Company used both interest rate swaps and
interest rate floors in order to minimize the impact of the potential loss of
net future servicing revenues associated with certain of the Company's mortgage
servicing assets as a result of an increase in loan prepayments, which is
generally triggered by declining interest rates.

Interest rate swaps used by the Company at year-end 1997 to hedge mortgage
servicing assets had a notional amount of $400.0 million. Under these
agreements, all of which were entered into during 1997, the Company, based on
the notional amount, agrees to make periodic variable-rate payments that are
tied to the one-month LIBOR, while the counterparty agrees to make periodic
fixed-rate payments. The weighted average fixed rate on these interest rate swap
agreements is 6.22%. The scheduled maturities of the notional amounts of these
interest rate swap agreements were $200.0 million in 2002 and $200.0 million in
2007.

Under each of its interest rate floor agreements used to hedge mortgage
servicing assets, the Company, in return for a premium paid to the counterparty
at inception, receives cash payments from the counterparty when either the five-
or ten-year CMT declines below a designated floor interest rate. Of the $2.4
billion notional amount of interest rate floor agreements outstanding at the end
of 1997, $143.6 million were indexed to the five-year CMT and had a weighted
average designated floor interest rate of 5.30%. The remaining interest rate
floor agreements outstanding at December 31, 1997 were indexed to the ten-year
CMT and had a weighted average designated floor interest rate of 5.66%. The
expected maturities of the notional amounts of the Company's outstanding
interest rate floor agreements at December 31, 1997 were $0.4 billion in 1998,
$0.4 billion in 1999 and $1.6 billion in 2002.

The following table summarizes the Company's interest rate floor activity
(notional amounts) for the year ended December 31:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Balance at beginning of year........... $ 996,498 $1,219,776 $1,366,685
New agreements......................... 1,585,000 -- --
Amortization........................... (196,984) (223,278) (146,909)
---------- ---------- ----------
Balance at end of year................. $2,384,514 $ 996,498 $1,219,776
========== ========== ==========

The forward contracts used by the Company at December 31, 1997 hedge its
exposure to interest rate risk associated with loans held for sale origination
activities. These contracts represent firm commitments to deliver MBS or loans
at a specified price at a specified future date. The Company must deliver the
MBS or loans in accordance with the requirements of the contracts or, if it
cannot fulfill its contractual obligations, pair-off the commitments and
recognize the gain or loss based on the change in the price of the underlying
contract (i.e., the specified price minus the repurchase price multiplied by the
notional amount).

F-39
90
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options give the holder the right, but not the obligation, to purchase from
or to sell to the counterparty a designated financial instrument at a specified
price during an agreed upon period of time or on a specific date. The buyer of
an option pays a premium for this right. A put option gives the buyer the right
to sell the underlying financial instrument, while a call option gives the buyer
the right to purchase the underlying financial instrument, at a specified price
during a specified period of time or on a specified date. The buyer of a put
option generally benefits if the price of the underlying financial instrument
declines. The buyer of a call option generally benefits if the price of the
underlying financial instrument rises. At December 31, 1997, the Company had
options to enter into $40.0 million notional amount of interest rate swap
agreements for interest rate risk-management purposes. In addition, at the end
of 1997, the Company had $67.0 million notional amount of put options to sell
MBS and $40.0 million notional amount of put options to sell interest rate
futures for mortgage banking risk-management purposes.

Certain of the Companies outstanding derivative financial instruments
require that the Company or its counterparty, to the extent that the market
value of the position for that party is negative, must maintain collateral,
subject to a minimum call, with the other party. If the Company is subject to an
initial collateral requirement, the amount of the initial collateral modifies
the collateral maintenance level.

For a discussion of the credit risk associated with the Company's
derivative financial instruments, reference is made to Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Credit Risk -- Derivative Financial Instruments."

NOTE 24 -- COMMITMENTS AND CONTINGENT LIABILITIES

The Company has entered into non-cancelable lease agreements with respect
to Company premises and equipment that expire at various dates through the year
2013. Certain leases contain escalation clauses, which correspond with increased
real estate taxes and other operating expenses, and renewal options calling for
increased rents. There are no restrictions imposed by any lease agreement
regarding the payment of dividends, additional debt financing or entering into
further lease agreements. Net rent expense was $23.7 million, $17.7 million, and
$20.0 million for 1997, 1996 and 1995, respectively.

At December 31, 1997, the projected minimum future rental payments required
under the terms of non-cancelable leases with terms of one year or more were
$24.8 million in 1998, $22.1 million in 1999, $19.5 million in 2000, $17.5
million in 2001, $15.3 million in 2002, and $68.3 million in years thereafter.
The projected minimum future rental payments have not been reduced by projected
sublease rentals of $12.2 million.

The Company had the following commitments to extend credit and purchase
loans at December 31:

1997 1996
---------- --------
(IN THOUSANDS)

Commitments to extend credit:
Residential real estate loans............................. $ 632,098 $267,150
Commercial real estate loans.............................. 115,560 61,854
Consumer loans............................................ 481,871 427,234
Business loans............................................ 73,247 47,912
---------- --------
Total commitments to extend credit................ 1,302,776 804,150
Commitments to purchase residential real estate loans....... 708,131 24,508
---------- --------
Total commitments to extend credit and purchase loans....... $2,010,907 $828,658
========== ========

Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Such
commitments generally have fixed expiration dates or termination

F-40
91
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

clauses and may require payment of a fee. Since certain of the commitments are
expected to expire without being drawn upon, the total commitment amounts may
not represent future cash requirements. The Company evaluates the
creditworthiness of these transactions through its lending policies. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on the Company's credit evaluation of the borrower. The
Company's maximum exposure to credit loss for commitments to extend credit as a
result of non-performance by the counterparty is the contractual notional
amount.

The Company had letters of credit outstanding at December 31, 1997 and 1996
of $23.7 million and $22.4 million, respectively. Letters of credit represent
agreements whereby the Company guarantees the performance of a customer to a
third party. The Company requires collateral to support such agreements based on
the Company's evaluation of the creditworthiness of the customer. The credit
risk associated with letters of credit is similar to that incurred by the
Company in its lending activities.

At December 31, 1997 and 1996, the Company did not have any commitments
outstanding to purchase securities. The Company did not have any commitments to
sell securities available for sale at December 31, 1997. At year-end 1996, the
Company had commitments to sell $165.7 million of securities available for sale.

The Company is obligated under various limited recourse provisions
associated with certain residential and commercial real estate loans sold in
past years. The principal balance of loans sold with limited recourse and
related maximum potential recourse exposure amounted to approximately $648
million and $181 million, respectively, at December 31, 1997 and approximately
$752 million and $196 million, respectively, at December 31, 1996. The Company's
exposure to credit loss on loans sold with recourse is similar to the credit
risk associated with the Company's on-balance sheet loans receivable.

Certain other claims, suits, complaints and investigations involving the
Company, arising in the ordinary course of business, have been filed or are
pending. The Company is of the opinion, after discussion with legal counsel
representing the Company in these proceedings, that the aggregate liability or
loss, if any, arising from the ultimate disposition of these matters would not
have a material adverse effect on the Company's consolidated financial position
or results of operations.

F-41
92
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 25 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. These estimates do not reflect any possible tax
ramifications, estimated transaction costs, or any premium or discount that
could result from offering for sale at any one time the Company's entire
holdings of a particular financial instrument. Because no active market exists
for a certain portion of the Company's financial instruments, the fair value
estimates for such financial instruments are based on judgments regarding, among
other factors, future cash flows, future loss experience, current economic
conditions and risk characteristics. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could significantly
affect these estimates. The Company has not included certain material items in
its disclosure as such items, which the Company believes have significant value,
are not considered financial instruments.

The following table summarizes the carrying values and estimated fair
values of the Company's financial instruments at December 31:

1997 1996
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)

On-balance sheet financial assets:
Cash and cash equivalents........... $ 452,527 $ 452,527 $ 184,517 $ 184,517
Securities available for sale....... 4,992,304 4,992,304 2,589,572 2,589,572
Securities held to maturity......... -- -- 4,363,971 4,279,937
FHLBNY stock........................ 303,287 303,287 266,244 266,244
Loans held for sale................. 1,841,862 1,851,657 115,325 115,325
Loans receivable, net............... 12,879,789 12,981,229 10,631,562 10,641,164
Accrued interest receivable......... 106,829 106,829 106,041 106,041
On-balance sheet financial
liabilities:
Deposits............................ 13,847,275 13,866,022 12,856,739 12,875,158
Securities sold under agreements to
repurchase....................... 2,975,774 2,980,199 3,550,234 3,551,972
FHLBNY advances..................... 2,786,751 2,789,042 925,139 925,833
Senior notes........................ 142,475 153,410 197,584 210,500
Guaranteed preferred beneficial
interests in Holding Company's
junior subordinated deferrable
interest debentures.............. 196,137 230,937 -- --
Other borrowed funds................ 218,175 213,017 142,234 145,018
Accrued interest payable............ 50,981 50,981 32,700 32,700
Off-balance sheet financial
instruments:
Derivative financial instruments
used for:
Interest rate risk management.... 3,173 (21,358) 10,493 3,289
Mortgage banking risk
management..................... 22,043 28,651 866 716

The following methodologies and assumptions were used by the Company in
estimating the fair values of its financial instruments at December 31, 1997 and
1996.

F-42
93
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents. The carrying value of cash and cash equivalents
was deemed to be a reasonable estimate of their fair value due to the short-term
nature of these items and because they do not present significant credit
concerns.

Loans Held for Sale. The estimated fair value of loans held for sale was
estimated using the quoted market prices for securities backed by similar types
of loans and current dealer commitments to purchase loans.

Securities Available for Sale and Held to Maturity. The estimated fair
values of securities available for sale and held to maturity were determined by
use of quoted market prices or dealer quotes.

FHLBNY Stock. The fair value of FHLBNY stock was estimated to be its
carrying value, which is indicative of its redemption price.

Loans Receivable. For purposes of computing the fair value of its loans
receivable, the Company grouped performing loans with similar characteristics
and applied prices available in the secondary market as a reference and adjusted
for differences in servicing and credit quality. When a secondary market rate
was not available, and for non-performing loans, fair value was estimated using
a discounted cash flow analysis that utilized a discount rate commensurate with
the credit and interest rate risk inherent in the loans.

Accrued Interest Receivable and Payable. The estimated fair values of
accrued interest receivable and payable have been determined to equal their
carrying amounts as these amounts are generally due or payable within 90 days.

Deposits. The estimated fair value of deposits without a specified
maturity, which includes demand, savings and money market deposits, was the
amount payable on the valuation date. For fixed-maturity time deposits, fair
value was estimated based on the discounted value of contractual cash flows
using current market interest rates offered for deposits with similar remaining
maturities.

Borrowed Funds. The estimated fair values of borrowed funds maturing or
repricing within 90 days were deemed to be equal to their carrying values. The
estimated fair values of all other borrowed funds were based on quoted market
prices or on the discounted value of contractual cash flows using current market
interest rates for borrowings with similar terms and remaining maturities.

Derivative and Off-Balance Sheet Financial Instruments. The fair values of
the Company's derivative financial instruments were based upon quoted market
prices, dealer quotes or pricing models.

With regard to its loans sold with recourse, the fair value of such
recourse guarantees would be based on fees currently charged to terminate them
or otherwise settle the obligations with the counterparties. The Company has
determined that it is not practicable to determine the fair value of such
recourse arrangements.

The Company has reviewed its outstanding commitments to extend credit,
commitments to purchase loans and letters of credit at December 31, 1997 and
1996 and has determined that their estimated fair values are not material.

F-43
94
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 26 -- SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- -------- ----------
(IN THOUSANDS)

Supplemental cash flow information:
Interest payments on deposits and borrowed funds...... $ 883,423 $891,102 $ 941,483
Income tax refunds, net............................... 381 847 11,758
Supplemental non-cash investing and financing
information:
Securities held to maturity transferred to securities
available for sale................................. 3,587,063 -- 3,616,445
Loans receivable transferred to other real estate
owned.............................................. 17,996 39,216 49,768
In connection with the:
NAMC Acquisition:
Issuance of Common Stock......................... 215,999 -- --
Issuance of treasury stock....................... 135,106 -- --
Fair value of stock options issued............... 21,389 -- --
Fair value of assets acquired, excluding cash and
cash equivalents received..................... 1,499,076 -- --
Cash and cash equivalents received............... 45,231 -- --
Cash paid........................................ 11 -- --
Fair value of liabilities assumed................ 1,357,727 -- --
Goodwill......................................... 185,925 -- --
BFS Acquisition:
Fair value of assets acquired, excluding cash and
cash equivalents received..................... 625,543 -- --
Cash and cash equivalents received............... 7,796 -- --
Cash paid........................................ 93,325 -- --
Fair value of liabilities assumed................ 581,595 -- --
Goodwill......................................... 41,581 -- --
National Mortgage Acquisition:
Fair value of assets acquired.................... -- -- 757
Cash paid........................................ 925 1,284 2,634
Fair value of liabilities assumed................ -- -- 365
Goodwill......................................... 925 1,284 2,242
Madison Mortgage Acquisition:
Fair value of assets acquired.................... -- -- 1,678
Cash paid........................................ -- -- 5,280
Fair value of liabilities assumed................ -- -- 1,032
Goodwill......................................... -- -- 4,634

F-44
95
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 27 -- PARENT COMPANY FINANCIAL INFORMATION

Condensed financial statements of the Holding Company (parent company only)
are set forth below.

CONDENSED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31,
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)

Assets:
Cash and cash equivalents:
Cash and due from banks................................ $ 2,701 $ 4,449
Interest-earning deposits in the Bank.................. 54,330 --
---------- ----------
Total cash and cash equivalents................... 57,031 4,449
Securities available for sale............................. 29,317 --
Securities held to maturity............................... -- 1,006
Receivables from the Bank................................. 102,475 2,594
Investment in the Bank.................................... 1,445,766 1,202,026
Investment in Dime Capital................................ 6,274 --
Other assets.............................................. 24,954 15,429
---------- ----------
Total assets................................................ $1,665,817 $1,225,504
========== ==========

Liabilities and stockholders' equity:
Liabilities:
Senior notes........................................... $ 142,475 $ 197,584
Series A Subordinated Debentures....................... 202,323 --
Other liabilities...................................... 6,161 5,583
---------- ----------
Total liabilities................................. 350,959 203,167
---------- ----------
Stockholders' equity...................................... 1,314,858 1,022,337
---------- ----------
Total liabilities and stockholders' equity.................. $1,665,817 $1,225,504
========== ==========

F-45
96
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)

Income:
Dividends from the Bank................................... $159,000 $ 88,000 $30,000
Dividends from Dime Capital............................... 289 -- --
Interest on deposits in the Bank.......................... 6,584 -- --
Interest on securities.................................... 403 87 213
Gains on sales of securities.............................. 23 -- --
-------- -------- -------
Total income...................................... 166,299 88,087 30,213
-------- -------- -------
Expense:
Interest on borrowed funds................................ 31,758 19,638 19,621
Other..................................................... 3,348 3,071 5,536
-------- -------- -------
Total expense..................................... 35,106 22,709 25,157
-------- -------- -------
Income before income tax benefit, equity in
(overdistributed) undistributed net income of subsidiaries
and extraordinary item.................................... 131,193 65,378 5,056
Income tax benefit.......................................... 10,736 10,283 10,762
-------- -------- -------
Income before equity in (overdistributed) undistributed net
income of subsidiaries and extraordinary item............. 141,929 75,661 15,818
Equity in (overdistributed) undistributed net income of
subsidiaries.............................................. (18,755) 28,595 46,367
-------- -------- -------
Income before extraordinary item............................ 123,174 104,256 62,185
Extraordinary item -- loss on early extinguishment of debt,
net of income tax benefit of $895......................... (1,460) -- --
-------- -------- -------
Net income.................................................. $121,714 $104,256 $62,185
======== ======== =======

F-46
97
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)

Cash flows from operating activities:
Net income.............................................. $ 121,714 $104,256 $ 62,185
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Equity in overdistributed (undistributed) net
income of subsidiaries.......................... 18,755 (28,595) (46,367)
Gains on sales of securities....................... (23) -- --
Loss on early extinguishment of debt............... 2,355 -- --
Other, net......................................... (5,808) (9,700) (19,902)
--------- -------- --------
Net cash provided (used) by operating
activities.................................... 136,993 65,961 (4,084)
--------- -------- --------
Cash flows from investing activities:
Investments in subsidiaries............................. (6,186) -- --
Purchases of securities available for sale.............. (29,497) -- --
Proceeds from sales of securities available for sale.... 1,597 -- --
Proceeds from maturities of securities available for
sale and held to maturity............................ 181 1,630 764
--------- -------- --------
Net cash (used) provided by investing
activities.................................... (33,905) 1,630 764
--------- -------- --------
Cash flows from financing activities:
Repayment of senior notes............................... (57,681) -- --
Proceeds from issuance of the Series A Subordinated
Debentures........................................... 202,308 -- --
Proceeds from issuance of Common Stock and treasury
stock................................................ 14,332 8,311 2,014
Purchases of treasury stock............................. (200,354) (70,456) --
Cash dividends paid on Common Stock..................... (12,892) -- --
Other................................................... 3,781 (1,913) --
--------- -------- --------
Net cash (used) provided by financing
activities.................................... (50,506) (64,058) 2,014
--------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 52,582 3,533 (1,306)
Cash and cash equivalents at beginning of year............ 4,449 916 2,222
--------- -------- --------
Cash and cash equivalents at end of year.................. $ 57,031 $ 4,449 $ 916
========= ======== ========
Supplemental non-cash flow information:
Contribution of preferred stock of the Bank to the
capital of
the Bank............................................. $ -- $ -- $100,000
Securities held to maturity transferred to securities
available
for sale............................................. 840 -- --

F-47
98
DIME BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 28 -- CONDENSED QUARTERLY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

1997 1996
----------------------------------------- -----------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Interest income................ $368,106 $350,870 $338,968 $324,871 $338,804 $335,551 $332,815 $343,528
Interest expense............... 241,581 230,703 219,871 207,598 220,641 220,832 218,737 229,193
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income.......... 126,525 120,167 119,097 117,273 118,163 114,719 114,078 114,335
Provision for loan losses...... 8,000 8,000 23,000 10,000 10,000 10,250 10,250 10,500
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan
losses..................... 118,525 112,167 96,097 107,273 108,163 104,469 103,828 103,835
Non-interest income:
Loan servicing fees and
charges.................... 36,321 12,856 12,978 11,883 13,099 11,709 11,401 11,654
Banking service fees......... 8,635 8,695 7,543 6,923 7,181 7,309 6,840 6,726
Securities and insurance
brokerage fees............. 6,777 5,142 5,767 6,051 4,712 6,045 5,633 4,674
Net gains (losses) on sales
activities................. 4,309 2,845 2,799 2,083 (723) (10,548) (1,906) 461
Other........................ 2,128 742 149 665 90 48 1,520 53
-------- -------- -------- -------- -------- -------- -------- --------
Total non-interest
income................. 58,170 30,280 29,236 27,605 24,359 14,563 23,488 23,568
-------- -------- -------- -------- -------- -------- -------- --------
Non-interest expense:
General and administrative
expense.................... 117,471 73,580 73,690 72,381 75,603 76,165 70,833 70,194
Amortization of mortgage
servicing assets........... 14,034 5,248 5,267 5,202 4,861 4,300 4,796 5,425
ORE (income) expense, net.... (643) 351 1,581 3,052 3,016 2,404 2,159 2,493
Savings Association Insurance
Fund recapitalization
assessment................. -- -- -- -- -- 26,280 -- --
Restructuring and related
expense.................... 9,931 -- -- -- -- -- -- 3,504
-------- -------- -------- -------- -------- -------- -------- --------
Total non-interest
expense................ 140,793 79,179 80,538 80,635 83,480 109,149 77,788 81,616
-------- -------- -------- -------- -------- -------- -------- --------
Income before income tax
expense (benefit) and
extraordinary item........... 35,902 63,268 44,795 54,243 49,042 9,883 49,528 45,787
Income tax expense (benefit)... 12,943 23,741 17,023 21,327 17,724 (7,011) 20,539 18,732
-------- -------- -------- -------- -------- -------- -------- --------
Income before extraordinary
item......................... 22,959 39,527 27,772 32,916 31,318 16,894 28,989 27,055
Extraordinary item -- loss on
early extinguishment of debt,
net of income tax benefit of
$895......................... (1,460) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income..................... $ 21,499 $ 39,527 $ 27,772 $ 32,916 $ 31,318 $ 16,894 $ 28,989 $ 27,055
======== ======== ======== ======== ======== ======== ======== ========
Earnings per common share:
Basic:
Income before extraordinary
item..................... $ 0.20 $ 0.39 $ 0.27 $ 0.31 $ 0.29 $ 0.16 $ 0.28 $ 0.27
Net income................. 0.19 0.39 0.27 0.31 0.29 0.16 0.28 0.27
Diluted:
Income before extraordinary
item..................... $ 0.19 $ 0.38 $ 0.26 $ 0.31 $ 0.29 $ 0.16 $ 0.27 $ 0.25
Net income................. 0.18 0.38 0.26 0.31 0.29 0.16 0.27 0.25

F-48
99

EXHIBIT INDEX

EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------- -------------------------

2.1 Agreement and Plan of Merger, dated as December 3, 1996,
between the Holding Company, Fifth Avenue Property Corp. and
BFS Bankorp (incorporated by reference to Appendix 2 to the
Current Report filed by the Holding Company on Form 8-K with
the Commission on December 3, 1996).
2.2 Agreement and Plan of Combination, dated as of June 22,
1997, by and among NAMC, the Holding Company, the Bank and
47th Street Property Corporation, as amended and restated as
of July 31, 1997 (incorporated by reference to Appendix A to
the Proxy Statement-Prospectus included in the Holding
Company's Registration Statement on Form S-4, filed with the
Commission on September 12, 1997 (No. 333-35565)).
3(i) Amended and Restated Certificate of Incorporation of the
Holding Company (incorporated by reference to Appendix A to
the Joint Proxy Statement-Prospectus included in the Holding
Company's Registration Statement on Form S-4, filed with the
Commission on November 4, 1994 (No. 33-86002)).
3(ii) Amendment to the Amended and Restated Certificate of
Incorporation, dated June 14, 1995 (incorporated by
reference to Exhibit 3(ii) to the Holding Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995, filed with the Commission on April 1, 1996, as amended
on Form 10-K/A, filed with the Commission on May 15, 1996
(collectively, the "1995 10-K") (Commission file No.
1-13094)).
3(iii) By-laws of the Holding Company (incorporated by reference to
Exhibit 3 to the Holding Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission file No.
1-13094)).
4.1 Stockholder Protection Rights Agreement, dated as of October
20, 1995, between the Holding Company and the First National
Bank of Boston, as Rights Agent (incorporated by reference
to Exhibit (1) of the Registration Statement on Form 8-A of
the Holding Company filed with the Commission on November 3,
1995).
4.2 None of the outstanding instruments defining the rights of
holders of long-term debt of the Holding Company represent
long-term debt in excess of 10% of the total assets of the
Holding Company. The Holding Company hereby agrees to
furnish to the Commission, upon request, a copy of any such
instrument.
10.1* Employment Agreement, dated as of January 30, 1998, between
the Bank and Lawrence J. Toal.
10.2* Agreement providing for joint and several liability of the
Holding Company, dated as of January 30, 1998, between the
Holding Company and Lawrence J. Toal.
10.3* Employment Agreement, dated as of January 30, 1998, between
the Bank and Anthony R. Burriesci.
10.4* Agreement providing for joint and several liability of the
Holding Company, dated as of January 30, 1998, between the
Holding Company and Anthony R. Burriesci.
10.5* Letter Agreement regarding initial employment terms, dated
as of July 1, 1997 (the "Burriesci Letter Agreement"),
between the Bank and Anthony R. Burriesci.
10.6* Amendment of the Burriesci Letter Agreement, effective as of
July 24, 1997, between the Bank and Anthony R. Burriesci.
10.7* Employment Agreement, dated as of January 30, 1998, between
the Bank and Fred B. Koons.

97
100

EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------- -------------------------

10.8* Letter Agreement regarding initial employment terms, dated
as of December 6, 1996 (the "Koons Letter Agreement"),
between the Bank and Fred B. Koons (incorporated by
reference to Exhibit 10.31 to the Holding Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, filed with the Commission on March 31, 1997 (the "1996
10-K") (Commission file No. 1-13094)).
10.9* Amendment of the Koons Letter Agreement, effective as of May
12, 1997, between the Bank and Fred B. Koons.
10.10* Amendment of the Koons Letter Agreement, effective as of
July 24, 1997, between the Bank and Fred B. Koons.
10.11* Employment Agreement, dated as of January 30, 1998, between
the Bank and D. James Daras.
10.12* Employment Agreement, dated as of January 30, 1998, between
the Bank and Carlos R. Munoz.
10.13* Dime Bancorp, Inc. Stock Incentive Plan, as amended by an
amendment effective April 27, 1994 (the "Stock Incentive
Plan") (incorporated by reference to Exhibit 4.1 to the
Holding Company's Registration Statement on Form S-8, filed
with the Commission on January 18, 1995 (No. 33-88552)).
10.14* Amendment, effective September 19, 1997, to the Stock
Incentive Plan.
10.15* Dime Bancorp, Inc. 1991 Stock Incentive Plan, as amended and
restated effective February 29, 1996 (the "1991 Stock
Incentive Plan") (incorporated by reference to Exhibit 4.1
to the Holding Company's Registration Statement on Form S-8,
filed with the Commission on May 24, 1996 (No. 333-04477)).
10.16* Amendment, effective as of October 1, 1996, to the 1991
Stock Incentive Plan (incorporated by reference to Exhibit
10.9 to the 1996 10-K).
10.17* Amendment, effective September 19, 1997, to the 1991 Stock
Incentive Plan.
10.18* Dime Bancorp, Inc. Stock Incentive Plan for Outside
Directors (the "Outside Directors Plan"), as amended
effective April 27, 1994 (incorporated by reference to
Exhibit 4.1 to the Holding Company's Registration Statement
on Form S-8, filed with the Commission on January 18, 1995
(No. 33-88560)).
10.19* Amendment, effective September 19, 1997, to the Outside
Directors Plan.
10.20* The Dime Savings Bank of New York, FSB Deferred Compensation
Plan, as amended by the First Amendment through the Fourth
Amendment thereof (incorporated by reference to Exhibit
10.14 to the Holding Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, filed with the
Commission on March 31, 1995 (the "1994 10-K") (Commission
file No. 1-13094)).
10.21* Deferred Compensation Plan for Board Members of The Dime
Savings Bank of New York, FSB, as amended and restated
effective as of July 24, 1997.
10.22* Benefit Restoration Plan of The Dime Savings Bank of New
York, FSB, amended and restated effective as of October 1,
1996 (incorporated by reference to Exhibit 10.14 to the 1996
10-K).
10.23* Retainer Continuation Plan for Independent Directors of The
Dime Savings Bank of New York, FSB (the "Retainer
Continuation Plan") (incorporated by reference to Exhibit
10.24 to the Bank's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, filed with the
Commission on September 16, 1994 as Exhibit A to the Holding
Company's Report on Form 8-K dated that date (Commission
file No. 1-13094)).
10.24* Amendment, effective as of January 13, 1995, to the Retainer
Continuation Plan (incorporated by reference to Exhibit
10.13 to the 1995 10-K).

98
101

EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------- -------------------------

10.25* Amendment, effective as of December 31, 1996, to the
Retainer Continuation Plan (incorporated by reference to
Exhibit 10.17 to the 1996 10-K).
10.26* Amendment, effective March 1, 1997, to the Retainer
Continuation Plan (incorporated by reference to Exhibit
10.18 to the 1996 10-K).
10.27* Amendment, effective September 19, 1997, to the Retainer
Continuation Plan.
10.28* Key Executive Life Insurance/Death Benefit Plan of The Dime
Savings Bank of New York, FSB, amended and restated
effective as of July 24, 1997 (the "Key Life Plan").
10.29* Amendment, effective November 20, 1997, to the Key Life
Plan.
10.30* Dime Bancorp, Inc. 1990 Stock Option Plan (formerly Anchor
Bancorp, Inc. 1990 Stock Option Plan), as amended effective
as of January 13, 1995 (incorporated by reference to Exhibit
4.1 to the Holding Company's Registration Statement on Form
S-8, filed with the Commission on January 18, 1995 (No.
33-88554)).
10.31* Dime Bancorp, Inc. 1992 Stock Option Plan (formerly Anchor
Bancorp, Inc. 1992 Stock Option Plan), as amended effective
as of January 13, 1995 (the "1992 Stock Option Plan")
(incorporated by reference to Exhibit 4.1 to the Holding
Company's Registration Statement on Form S-8, filed with the
Commission on January 18, 1995 (No. 33-88556)).
10.32* Amendment, effective June 1, 1996, to the 1992 Stock Option
Plan (incorporated by reference to Exhibit 10.23 to the 1996
10-K).
10.33* Amendment, effective September 19, 1997, to the 1992 Stock
Option Plan.
10.34* Dime Bancorp, Inc. Supplemental Executive Retirement Plan
(the "SERP"), amended and restated effective as of December
2, 1997.
10.35* Amendment, effective January 29, 1998, to the SERP.
10.36* Dime Bancorp, Inc. Voluntary Deferred Compensation Plan, as
amended and restated effective as of July 24, 1997.
10.37* Dime Bancorp, Inc. Voluntary Deferred Compensation Plan for
Directors, as amended and restated effective as of July 24,
1997.
10.38* Dime Bancorp, Inc. Officer Incentive Plan, as amended and
restated effective as of July 24, 1997.
10.39* Anchor Savings Bank FSB Supplemental Executive Retirement
Plan, assumed by the Bank (incorporated by reference to
Exhibit 10.11 to the Anchor Bancorp Annual Report on Form
10-K for the fiscal year ended June 30, 1992 (Commission
file No. 33-37720)).
10.40* Dime Bancorp, Inc. 1997 Stock Incentive Plan for Outside
Directors, effective January 1, 1997 (the "1997 Outside
Director Plan").
10.41* Amendment, effective June 27, 1997, to the 1997 Outside
Director Plan.
10.42* Amendment, effective September 19, 1997, to the 1997 Outside
Director Plan.