UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

(Mark one)

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


For the quarterly period ended                September 30, 1996

                                       or

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

For the transition period from        N/A         to          N/A
Commission File Number:     333-4026

                    First Nationwide (Parent) Holdings Inc.
             (Exact name of registrant as specified in its charter)

           Delaware                                     13-3778550
-------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

   625 Madison Street, New York, NY                            10022
-------------------------------------------------------------------------------
(Address of principal executive offices)                      (Zip Code)

                                  212-572-8500
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                      N/A
-------------------------------------------------------------------------------
             (Former name, former address and former fiscal year,
                         if changed since last report)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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.  [X]  Yes     [ ] No

     The number of shares outstanding of registrant's classes of $1.00 par
value common stock, as of the close of business on November 13, 1996: 1,000
shares of common stock.

                               Page 1 of 48 pages
                           Exhibit index on page: 47







     
<PAGE>




                    FIRST NATIONWIDE (PARENT) HOLDINGS INC.
                     THIRD QUARTER 1996 REPORT ON FORM 10-Q
                               TABLE OF CONTENTS

                                                                       Page No.
PART I.       FINANCIAL INFORMATION

Item 1.      Consolidated Financial Statements

             Consolidated Statements of Financial Condition
             September 30, 1996 (unaudited) and December 31, 1995........  3

             Unaudited Consolidated Statements of Operations
             Nine Months Ended September 30, 1996 and 1995...............  4

             Unaudited Consolidated Statements of Operations
             Three Months Ended September 30, 1996 and 1995..............  5

             Unaudited Consolidated Statements of Cash Flows
             Nine Months Ended September 30, 1996 and 1995...............  6

             Notes to Consolidated Financial Statements..................  8

Item 2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations............... 15


PART II.          OTHER INFORMATION

Item 1.      Legal Proceedings........................................... 46

Item 2.      Changes in Securities....................................... 47

Item 3.      Defaults Upon Senior Securities............................. 47

Item 4.      Submission of Matters to a Vote of Security Holders......... 47

Item 5.      Other Information........................................... 47

Item 6.      Exhibits and Reports on Form 8-K............................ 47


                                     Page 2




     
<PAGE>




            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    SEPTEMBER 30, 1996 and DECEMBER 31, 1995
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                           September 30,          December 31,
                                                                               1996                   1995
                                                                               ----                   ----
                        Assets                                              (Unaudited)

<S>                                                                           <C>                 <C>
Cash and amounts due from banks                                               $   119,091         $   154,758
Interest-bearing deposits in other banks                                           24,788              32,778
Short-term investment securities                                                  127,339             125,035
                                                                              -----------         -----------
     Cash and cash equivalents                                                    271,218             312,571

Securities available for sale, at fair value                                      567,933             348,561
Securities held to maturity                                                         4,277               1,455
Mortgage-backed securities available for sale,
     at fair value                                                              1,660,140           1,477,514
Mortgage-backed securities held to maturity                                     1,700,387           1,524,488
Loans held for sale, net                                                          710,233           1,203,412
Loans receivable, net                                                          10,596,983           8,831,018
Covered assets                                                                         --              39,349
Investment in Federal Home Loan Bank
     ("FHLB") System                                                              217,529             109,943
Office premises and equipment, net                                                 92,088              93,509
Foreclosed real estate, net                                                        58,791              48,535
Accrued interest receivable                                                       110,811             100,604
Intangible assets                                                                 144,782              18,606
Mortgage servicing rights                                                         406,669             241,355
Other assets                                                                      444,962             295,325
                                                                              -----------         -----------
         Total assets                                                         $16,986,803         $14,646,245
                                                                              ===========         ===========

         Liabilities, Minority Interest and Stockholder's Equity

Deposits                                                                       $8,799,990         $10,241,628
Securities sold under agreements to repurchase                                  2,127,574             969,510
Borrowings                                                                      4,856,284           2,392,862
Other liabilities                                                                 430,364             279,099
                                                                              -----------         -----------
     Total liabilities                                                         16,214,212          13,883,099
                                                                              -----------         -----------

Minority interest                                                                 613,547             358,991

Stockholder's equity:
     Common stock, $1.00 par value, 1,000 shares
         authorized, issued and outstanding                                             1                   1
     Additional paid-in capital                                                        --             267,055
     Net unrealized holding gain on securities
         available for sale                                                        28,069              50,810
     Retained earnings (substantially restricted)                                 130,974              86,289
                                                                              -----------         -----------
         Total stockholder's equity                                               159,044             404,155
                                                                              -----------         -----------
         Total liabilities, minority interest
          and stockholder's equity                                            $16,986,803         $14,646,245
                                                                              ===========         ===========

</TABLE>

See accompanying notes to consolidated financial statements.





                                     Page 3




     
<PAGE>





            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                1996           1995
                                                                ----           ----
<S>                                                         <C>            <C>
Interest income:
     Loans receivable                                          $ 671,099    $ 603,814
     Mortgage-backed securities                                  191,602      156,440
     Covered assets                                                1,413        9,869
     Loans held for sale                                          45,424        6,959
     Securities and interest-bearing deposits in other banks      24,875       21,084
                                                               ---------    ---------
         Total interest income                                   934,413      798,166
                                                               ---------    ---------

Interest expense:
     Deposits                                                    323,246      328,879
     Securities sold under agreements to repurchase               89,923       77,994
     Borrowings                                                  226,205      142,323
                                                               ---------    ---------
         Total interest expense                                  639,374      549,196
                                                               ---------    ---------
         Net interest income                                     295,039      248,970

Provision for loan losses                                         29,700       18,000
                                                               ---------    ---------
     Net interest income after provision for loan losses         265,339      230,970
                                                               ---------    ---------

Noninterest income:
     Loan servicing fees, net                                     92,150       48,061
     Customer banking fees and service charges                    34,356       34,815
     Management fees                                               8,016       11,139
     Gain on sales of branches                                   363,012         --
     Gain/(loss) on sales of loans, net                           13,005       (1,113)
     Gain/(loss) on sales of assets                               38,396         (180)
     Other income                                                 46,526       12,534
                                                               ---------    ---------
         Total noninterest income                                595,461      105,256
                                                               ---------    ---------

Noninterest expense:
     Compensation and employee benefits                          155,976      117,897
     Occupancy and equipment                                      37,441       39,456
     Loan expense                                                 20,454        6,331
     Savings Association Insurance Fund ("SAIF")
          deposit insurance premium                               77,011       16,360
     Data processing                                               8,345        7,195
     Marketing                                                     7,697       11,308
     Professional fees                                            13,444        8,281
     Foreclosed real estate operations, net                       (6,841)        (232)
     Amortization of intangible assets                             6,877          460
     Other                                                        59,647       42,772
                                                               ---------    ---------
         Total noninterest expense                               380,051      249,828
                                                               ---------    ---------

Income before income taxes, extraordinary item and
     minority interest                                           480,749       86,398
Income tax (benefit) expense                                     (81,448)       7,429
                                                               ---------    ---------
Income before extraordinary item and minority interest           562,197       78,969
Extraordinary item - (loss)/gain on early
     extinguishment of debt, net                                  (1,586)       1,967
                                                               ---------    ---------
         Net income before minority interest                     560,611       80,936
Minority interest                                                143,535       33,157
                                                               ---------    ---------
         Net income available to common stockholder            $ 417,076    $  47,779
                                                               =========    =========

</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 4




     
<PAGE>




            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 THREE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                                 ----         ----
<S>                                                          <C>          <C>
Interest income:
     Loans receivable                                          $ 222,438    $ 206,328
     Mortgage-backed securities                                   61,180       51,809
     Covered assets                                                 --          1,044
     Loans held for sale                                          15,343        4,542
     Securities and interest-bearing deposits in other banks       9,176        6,860
                                                               ---------    ---------
         Total interest income                                   308,137      270,583
                                                               ---------    ---------

Interest expense:
     Deposits                                                    100,590      116,103
     Securities sold under agreements to repurchase               27,613       30,009
     Borrowings                                                   91,250       38,639
                                                               ---------    ---------
         Total interest expense                                  219,453      184,751
                                                               ---------    ---------
         Net interest income                                      88,684       85,832

Provision for loan losses                                          9,900        6,000
                                                               ---------    ---------
     Net interest income after provision for loan losses          78,784       79,832
                                                               ---------    ---------

Noninterest income:
     Loan servicing fees, net                                     31,385       16,776
     Customer banking fees and service charges                    10,550       12,628
     Management fees                                               2,306        3,488
     Loss on sales of branches                                      (238)        --
     Loss on sales of loans, net                                    (665)      (1,233)
     Loss on sales of assets                                         (62)        (153)
     Other income                                                 32,594        4,130
                                                               ---------    ---------
         Total noninterest income                                 75,870       35,636
                                                               ---------    ---------

Noninterest expense:
     Compensation and employee benefits                           45,110       36,122
     Occupancy and equipment                                      11,863       10,992
     Loan expense                                                  6,442        2,367
     SAIF deposit insurance premium                               65,427        5,749
     Data processing                                               2,520        2,112
     Marketing                                                     2,885        3,437
     Professional fees                                             3,979        2,192
     Foreclosed real estate operations, net                       (1,931)        (891)
     Amortization of intangible assets                             2,673          175
     Other                                                        18,475       14,718
                                                               ---------    ---------
         Total noninterest expense                               157,443       76,973
                                                               ---------    ---------

(Loss)/income before income taxes, extraordinary item
     and minority interest                                        (2,789)      38,495
Income tax expense                                                   527        4,005
                                                               ---------    ---------
Income before extraordinary item and minority interest            (3,316)      34,490
Extraordinary item - loss on early extinguishment
     of debt, net                                                 (1,586)        --
                                                               ---------    ---------
         Net (loss)/income before minority interest               (4,902)      34,490
Minority interest                                                  8,802       12,662
                                                               ---------    ---------
         Net (loss)/income available to common stockholder     $ (13,704)   $  21,828
                                                               =========    =========

</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 5




     
<PAGE>




            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                  1996          1995
                                                                  ----          ----
<S>                                                         <C>               <C>
Cash flows from operating activities:
     Net income                                               $   417,076    $    47,779
     Adjustments to reconcile net income to
       net cash provided by (used in)
       operating activities:
         Amortization of intangible assets                          6,877            460
         Accretion of premiums and discounts, net                 (11,094)        (4,344)
         Amortization of mortgage servicing rights                 65,482         19,836
         Provision for loan losses                                 29,700         18,000
         Provision for accrued termination and
              facilities cost                                        --           13,992
         (Gain) loss on sales of assets                           (38,396)           180
         Gain on sales of branches                               (363,012)          --
         Loss on sale of loans, net                                41,968          7,380
         Gain on sales of foreclosed real estate, net             (10,533)        (2,033)
         Extraordinary loss (gain) on early extinguishment
              of debt, net                                          1,586         (1,967)
         Depreciation and amortization                              9,972          7,206
         FHLB stock dividend                                       (3,585)        (5,216)
         Capitalization of originated mortgage
              servicing rights and excess servicing
              fees receivable                                     (54,973)        (6,267)
         Purchases and originations of loans held for sale     (3,554,652)      (621,565)
         Proceeds from the sale of loans held for sale          4,025,868        411,165
         Increase in other assets                                 (55,187)        (6,697)
         Decrease (increase) in accrued interest receivable        16,199        (14,735)
         Increase in other liabilities                             11,351         44,149
         Increase in minority interest                            111,363          7,219
                                                              -----------    -----------
              Total adjustments                                   228,934       (133,237)
                                                              -----------    -----------
              Net cash flows provided by (used in)
                  operating activities                            646,010        (85,458)
                                                              -----------    -----------

</TABLE>


                                     Page 6




     
<PAGE>




            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                    1996          1995
                                                                    ----          ----
<S>                                                            <C>             <C>
Cash flows from investing activities:
         Acquisitions:
              SFFed Acquisition                                $   (83,184)   $      --
              Home Federal Acquisition                              79,044           --
              Mortgage loan servicing operations                   (48,305)      (178,093)
              Retail banking branches and deposits                    --          363,224
         Purchases of securities available for sale               (322,569)          --
         Proceeds from maturities of securities
              available for sale                                   127,919           --
         Purchases of securities held to maturity                   (9,303)      (314,368)
         Proceeds from maturities of securities
              held to maturity                                       1,250        339,225
         Purchases of mortgage-backed securities
              available for sale                                  (149,724)          --
         Principal payments on mortgage-backed
              securities available for sale                        411,012           --
         Purchases of mortgage-backed securities held to
              maturity                                                --          (19,825)
         Principal payments on mortgage-backed
              securities held to maturity                          309,296        400,096
         Proceeds from sales of loans receivable                    65,393        247,364
         Net decrease (increase) in loans receivable             1,261,471       (454,401)
         Decrease in covered assets                                 39,349        307,946
         (Purchases) redemptions of FHLB stock, net                (65,753)         7,161
         Purchases of office premises and equipment                (28,445)       (19,440)
         Proceeds from disposal of office premises
              and equipment                                          4,097         10,071
         Proceeds from sales of foreclosed real estate             126,386         51,387
         Purchases of mortgage servicing rights                    (49,527)          (169)
                                                               -----------    -----------
              Net cash flows provided by investing
                  activities                                     1,668,407        740,178
                                                               -----------    -----------

Cash flows from financing activities:
         Branch Sales                                           (4,585,022)          --
         Net increase in deposits                                  238,230        571,310
         Proceeds from additional borrowings                     7,387,037      3,444,719
         Principal payments on borrowings                       (5,247,157)    (4,492,932)
         Net increase (decrease) in securities
              sold under agreements to repurchase                  341,736       (153,384)
         Proceeds from issuance of preferred stock                 144,249           --
         Capital contribution                                        1,658           --
         Capital distribution                                     (267,055)          --
         Dividends                                                (369,446)       (64,047)
                                                               -----------    -----------
              Net cash flows used in financing activities       (2,355,770)      (694,334)
                                                               -----------    -----------

Net change in cash and cash equivalents                            (41,353)       (39,614)
Cash and cash equivalents at beginning of period                   312,571        188,783
                                                               -----------    -----------
Cash and cash equivalents at end of period                     $   271,218    $   149,169
                                                               ===========    ===========

</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 7




     
<PAGE>




            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(1)      Basis of Presentation

     The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for meeting the requirements of
Regulation S-X, Article 10 and therefore do not include all disclosures
necessary for complete financial statements. In the opinion of management, all
adjustments have been made that are necessary for a fair presentation of the
financial position and results of operations and cash flows as of and for the
periods presented. All such adjustments are of a normal recurring nature. The
results of operations for the three and nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
entire fiscal year or any other interim period. Certain amounts for the three
and nine month periods in the prior year have been reclassified to conform with
the current period's presentation.

     The accompanying consolidated financial statements include the accounts of
First Nationwide (Parent) Holdings Inc. ("Parent Holdings" or the "Company"),
which owns directly 80% of the voting common stock of First Nationwide Holdings
Inc. ("FN Holdings"), which owns all of the common stock of First Nationwide
Bank, A Federal Savings Bank ("First Nationwide" or "Bank") and the Bank's
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

     Minority interest represents amounts attributable to the Preferred Stock
of the Bank, the Preferred Stock of FN Holdings and that portion of the results
of operations and equity of FN Holdings attributable to its class B common
stock. These financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Registration
Statement on Form S-1 filed May 15, 1996. All terms used but not defined
elsewhere herein have the meaning ascribed to them in such Registration
Statement.

     Earnings per share data is not presented due to the limited ownership of
the Company. Parent Holdings is a holding company whose only significant asset
is its indirect ownership of 80% of the common stock of the Bank, and therefore
all activities for the consolidated entity are carried out by the Bank and its
operating subsidiaries.

(2)      Acquisitions and Sales

     On February 28, 1995, the Bank (through its wholly owned mortgage bank
operating subsidiary, First Nationwide Mortgage Corporation ("FNMC")), acquired
a 1-4 unit residential mortgage loan servicing portfolio of approximately $11.4
billion and other assets and liabilities (the "Maryland Acquisition").

     In April 1995, the Bank acquired approximately $13 million in deposits
located in Tiburon, California from East-West Federal Bank, a federal savings
bank (the "Tiburon Purchase"). In August 1995, the Bank acquired three retail
branches

                                     Page 8




     
<PAGE>




located in Orange County, California with deposit accounts totalling
approximately $356 million from ITT Federal Bank, fsb (the "ITT Purchase"). On
December 8, 1995, the Bank acquired four retail branches located in Sonoma
County, California with associated deposit accounts of approximately $144
million from Citizens Federal Bank, a Federal Savings Bank (the "Sonoma
Purchase" and, collectively with the Tiburon and the ITT Purchases, the "Branch
Purchases").

     On October 2, 1995, FNMC purchased from Lomas Mortgage USA, Inc. ("LMUSA")
a loan servicing portfolio of approximately $11.1 billion (including a
sub-servicing portfolio of $3.1 billion), a $2.9 billion master servicing
portfolio in which FNMC monitors the performance and consolidates the reporting
and remittances of multiple servicers for various investors (a "master
servicing portfolio"), and other assets (the "LMUSA 1995 Purchase"). On January
31, 1996, FNMC purchased LMUSA's remaining $14.1 billion loan servicing
portfolio (including a sub-servicing portfolio of $2.4 billion), a master
servicing portfolio of $2.7 billion, $5.9 million in foreclosed real estate,
$46.8 million in net other servicing receivables, $2.6 million in mortgage
loans, and $6.2 million in net other assets (including $1.4 million in cash and
cash equivalents) for a purchase price of approximately $160.0 million payable
in installments (the "LMUSA 1996 Purchase" and, together with the LMUSA 1995
Purchase, the "LMUSA Purchases").

     On February 1, 1996, First Nationwide acquired SFFed Corp. ("SFFed") and
its wholly owned subsidiary, San Francisco Federal Savings and Loan Association
(the "SFFed Acquisition"). The following is a summary of the assets acquired
and liabilities assumed in connection with the SFFed Acquisition at February 1,
1996:
<TABLE>
<CAPTION>

                                                                                       Estimated
                                        SFFed                              Bank        Remaining
                                       Carrying         Fair Value       Carrying        Lives
                                         Value          Adjustments        Value       (in years)
                                         -----          -----------        -----       ----------
                                                  (dollars in thousands)

<S>                                  <C>               <C>              <C>           <C>
Cash and cash equivalents            $   181,061       $      --        $   181,061        --
Mortgage-backed securities               918,817            11,007          929,824        1-5
Loans receivable, net                  2,715,758           (23,245)       2,692,513        2-18
Office premises and equipment             20,581           (11,672)           8,909        3-10
Investment in FHLB System                 31,989              --             31,989        --
Foreclosed real estate, net               30,018              --             30,018        --
Accrued interest receivable               22,740              --             22,740        --
Mortgage servicing rights                  2,238            13,762           16,000        2-4
Other assets                              44,938            (7,773)          37,165        2-5
Deposits                              (2,678,692)          (10,950)      (2,689,642)       1-5
Securities sold under
     agreements to repurchase           (815,291)           (3,640)        (818,931)       --
Borrowings                              (227,203)           (8,831)        (236,034)       1-17
Other liabilities                        (50,805)           (5,898)         (56,703)       1-5
                                                       -----------      -----------       -------
                                                       $   196,149      $   (47,240)      148,909
                                                       ===========      ===========       =======
Purchase price                                                              264,245
Excess cost over fair value
     of net assets acquired                                             $   115,336
                                                                        ===========

</TABLE>

                                     Page 9




     
<PAGE>




     The purchase price for the SFFed Acquisition was financed with existing
cash of the Bank and other borrowings, some of which were repaid with the
$311.8 million of proceeds from the sale of consumer loans on February 23,
1996. In connection with the SFFed Acquisition, FN Holdings issued $140 million
of 9-1/8% Senior Subordinated Notes Due 2003 (the "Senior Sub Notes") and
contributed the net proceeds thereof of $133 million to the Bank as additional
paid-in capital, which augmented the Bank's regulatory capital to maintain its
"well-capitalized" status after the SFFed Acquisition.

     On June 1, 1996, the Bank acquired Home Federal Financial Corporation
("HFFC"), and its wholly-owned federally chartered savings association, Home
Federal Savings and Loan Association of San Francisco (the "Home Federal
Acquisition," and together with the SFFed Acquisition, the "1996
Acquisitions"). The aggregate consideration paid in connection with the Home
Federal Acquisition was approximately $67.8 million funded with existing cash.
The following is a summary of the assets acquired and liabilities assumed in
the Home Federal Acquisition at June 1, 1996:
<TABLE>
<CAPTION>

                                                                               Estimated
                                      HFFC                            Bank     Remaining
                                    Carrying       Fair Value       Carrying     Lives
                                      Value        Adjustments        Value    (in years)
                                      -----        -----------        -----    ----------
                                              (dollars in thousands)

<S>                                 <C>             <C>            <C>         <C>
Cash and cash equivalents           $ 146,867       $    --        $ 146,867        --
Mortgage-backed securities              4,053             (65)         3,988        1-5
Loans receivable, net                 538,722           3,983        542,705        2-18
Office premises and equipment           4,202          (2,165)         2,037        3-10
Investment in FHLB System               6,259            --            6,259
Foreclosed real estate, net             2,421            (198)         2,223        --
Accrued interest receivable             3,594            --            3,594        --
Mortgage servicing rights                 817           1,657          2,474        2-4
Other assets                           10,016            (202)         9,814        2-5
Deposits                             (632,399)         (1,875)      (634,274)       1-5
Borrowings                            (30,000)            241        (29,759)       1-17
Other liabilities                      (3,602)         (2,940)        (6,542)       1-5
                                    ---------       ---------      ---------
                                    $  50,950       $  (1,564)        49,386
                                    =========       =========
Purchase price                                                        67,823
Excess cost over fair value                                        ---------
     of net assets acquired                                        $  18,437
                                                                   =========
</TABLE>

     The 1996 Acquisitions and the LMUSA 1996 Purchase were accounted for as
purchases and, accordingly, their respective purchase prices were allocated to
the assets acquired and liabilities assumed in each transaction based on
estimates of fair values at the date of purchase. Since the respective dates of
purchase, the results of operations related to such assets and liabilities have
been included in the Company's consolidated statements of operations.



                                    Page 10




     
<PAGE>




     From September through December of 1995, First Nationwide entered into
contracts for the sale of its retail deposits ("Deposits") and the related
retail banking assets comprised of cash on hand, loans on deposits, and
facilities (collectively, "Assets") in the states of Ohio, New York, New Jersey
and Michigan (collectively, the "Branch Sale Agreements") at gross prices which
represent an average premium of 7.96% of the deposits sold. During the first
half of 1996, the Branch Sale Agreements were consummated in a series of
transactions, as follows (the "Branch Sales"):
<TABLE>
<CAPTION>

                                  Sale                                Carrying Value at
                              Consummation       Number of          Respective Sale Date             Pre-tax
Branch Location                  Date            Branches         Deposits           Assets           Gain
---------------                  ----            --------         --------           ------           ----
                                                                            (dollars in thousands)
<S>                            <C>                <C>        <C>                 <C>             <C>
New York                       1/12/96               7          $   416,476         $  5,997        $  32,991
Ohio                           1/19/96              28            1,392,561           20,480          130,660
New York                       2/23/96               3              270,046            1,838           17,027
New York                       3/15/96               5              615,572            8,083           48,933
New Jersey                     3/22/96               4              501,262            6,396           35,938
New York                       3/22/96              11              637,045            9,465           41,286
Michigan                       6/28/96              21              799,226           15,060           56,177
                                                    --           ----------          -------         --------
                                                    79           $4,632,188          $67,319         $363,012
                                                    ==           ==========          =======         ========
</TABLE>

     The Branch Sales were funded with short-term FHLB advances of $2.0 billion
with a weighted average rate of 5.47%, long-term FHLB advances of $.6 billion
with a weighted average rate of 5.41% maturing from April 1997 through March
1998 and securities sold under agreements to repurchase of $1.5 billion with a
weighted average rate of 5.45%, supplemented by cash from operations,
principally the maturity of and principal payments on securities.

     The following pro forma financial information combines the historical
results of the Company as if the SFFed Acquisition, LMUSA Purchases, Branch
Sales and the issuance of the Senior Sub Notes and Parent Senior Notes (as
defined herein) had occurred as of the beginning of the first period presented
(in thousands):
<TABLE>
<CAPTION>

                                                         Nine months ended September 30,
                                                               1996             1995
                                                               ----             ----
<S>                                                          <C>              <C>
     Net interest income                                     $281,432         $283,237
     Net income                                                69,248           83,142
                                                             ========         =========
</TABLE>

     The gains recognized related to the Branch Sales are excluded from the
above table. The pro forma information does not include the effect of the
Maryland Acquisition, the Home Federal Acquisition or the Branch Purchases
because such effect is not material. The pro forma results are not necessarily
indicative of the results which would have actually been obtained if the SFFed
Acquisition, LMUSA Purchases, Branch Sales and the issuance of the Senior Sub
Notes and Parent Senior Notes had been consummated in the past nor do they
project the results of operations in any future period.

     On July 27, 1996, FN Holdings entered into an agreement pursuant to which
the Bank will acquire 100% of the outstanding stock of Cal Fed Bancorp Inc.
("Cal Fed")

                                    Page 11




     
<PAGE>




for approximately $1.2 billion of cash consideration and a portion of
litigation interests owned by Cal Fed (the "Cal Fed Acquisition"). Cal Fed
Bancorp Inc., a savings and loan holding company, owns 100% of the common stock
of California Federal Bank, A Federal Savings Bank, which at June 30, 1996, had
total assets of approximately $14.0 billion and deposits of $8.8 billion, and
operated 118 branches in California and Nevada. The acquisition is subject to
Cal Fed shareholder and regulatory approval and is expected to close in the
first quarter of 1997.

     Pursuant to a merger agreement dated September 19, 1996 by and between FN
Holdings and FN Escrow (the "FN Escrow Merger"), FN Holdings will acquire the
net proceeds from the September 19, 1996 issuance of FN Escrow's $575 million
of 10-5/8% senior subordinated notes due 2003 (the "Notes"). FN Holdings
expects to use (i) the net proceeds of the Notes of approximately $555 million,
together with (ii) the $144.2 million net cash proceeds from the sale of $150
million aggregate liquidation value of Holdings Preferred Stock to a corporation
owned by Gerald J. Ford, Chairman of the Board, Chief Executive Officer and
Director of the Bank, and (iii) existing cash, to finance the Cal Fed
Acquisition. Upon consummation of the Cal Fed Acquisition, FN Escrow will be
merged with and into FN Holdings. Pursuant to the FN Escrow Merger, the
obligations of FN Escrow under the Notes will be assumed by FN Holdings.

     Upon receipt of the proceeds from the issuance of the Holdings Preferred
Stock to Special Purpose Corp., Holdings loaned to an affiliate approximately
$19 million. Such loan bears interest at the rate of 14% at September 30, 1996,
and is an unsecured subordinated obligation of the borrower, which obligation
to Holdings is evidenced by a promissory note. The loan is expected to be repaid
concurrently with the closing of the Cal Fed Acquisition and the FN Escrow
Merger. Management believes that the terms and conditions to such loan are at
least as favorable to Holdings as might have been obtained in a similar
transaction.

(3)      Cash, Cash Equivalents, and Statement of Cash Flows

     The Company uses the indirect method to present cash flows from operating
activities. Cash paid for interest for the nine months ended September 30, 1996
and 1995 was $619.5 million and $504.0 million, respectively.

     During the nine months ended September 30, 1996, noncash activity
consisted of transfers from loans receivable to foreclosed real estate of $87.4
million, and the transfers of certain consumer loans from loans held for sale
to loans receivable totaling $27.7 million.

     During the nine months ended September 30, 1995, noncash activity
consisted of the transfer of $58.5 million from loans receivable to foreclosed
real estate.

(4)      Issuance of Debt

     On January 31, 1996, FN Holdings issued $140 million of its Senior Sub
Notes. The net proceeds of this offering, totalling $133 million, were
contributed to the Bank as additional paid-in capital.


                                    Page 12




     
<PAGE>




     On April 17, 1996, Parent Holdings issued $455 million of its 12-1/2%
Senior Notes due 2003 ("Parent Senior Notes"). The net proceeds of this
offering totalling approximately $434 million were distributed to its parent.

(5)      Minority Interest - Issuance of Preferred Stock

     On September 19, 1996, FN Holdings issued 10,000 shares of Preferred Stock
("Holdings Preferred Stock") with a liquidation value of $150 million. Cash
dividends on the Holdings Preferred Stock are cumulative and are payable: (i) in
cash at an annual rate equal to the cost of funds to an affiliate of FN Holdings
under such affiliate's bank credit facility and (ii) in newly issued shares of
another series of Cumulative Perpetual Preferred Stock Holdings ("Additional
Preferred Stock") at an annual rate of 2% of the stated liquidation value of the
Holdings Preferred Stock, if, when, and as declared by the Board of Directors of
FN Holdings. The annual cash dividends on the 10,000 shares of Holdings
Preferred Stock, assuming such dividends have been declared by the Board of
Directors of FN Holdings, are expected to approximate $15 million per year.

(6)      Stockholder's Equity

     Dividends on the Company's common stock and capital distributions during
the nine months ended September 30, 1996 totalled $369.4 million and $267.1
million, respectively. Dividends on the Company's common stock during the nine
months ended September 30, 1995 totalled $64.0 million.

(7)      Gains on Sales of Assets

     On June 28, 1996, First Nationwide sold 2,000,000 shares of its investment
in common stock of Affiliated Computer Services, Inc. ("ACS") and acquired the
FDIC's interest in the remaining shares of ACS owned by the Bank. A pre-tax
gain of $40.4 million resulted from this transaction.

(8)      Termination of Assistance Agreement

     On August 19, 1996, the Bank and the FSLIC's successor, the FSLIC/RF,
executed an agreement which resulted in the termination of the Assistance
Agreement. As a result of the agreement, the FSLIC/RF paid the Bank the Covered
Asset balance of $39 million and, among other things, assumed the
responsibility for the disposition of several litigation matters involving
Covered Assets which had been retained by the Bank following the FDIC Purchase.
Accordingly, all accounts related to the Assistance Agreement, including
previously established allowances for losses, were extinguished, resulting in
additional noninterest income of $25.6 million.

(9)      Special SAIF Assessment

     On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act ("Act") of 1996 was enacted. The Act included a special
assessment ("Special SAIF Assessment") related to the recapitalization of the
SAIF, which was levied based on a rate of 65.7 cents per $100 of SAIF-insured
domestic deposits held as of March 31,

                                    Page 13




     
<PAGE>




1995. As a result of the Act, First Nationiwde recorded a pre-tax charge of
$60.1 million on September 30, 1996. The portion of the assessment related to
deposits sold in Ohio, New York, New Jersey and Michigan will be borne,
pursuant to each sales contract, by the respective purchasers and accordingly,
such amounts are not included in the expense recorded by First Nationwide.
Management expects the 1997 SAIF deposit premiums to decline to 6.4 cents per
$100 of SAIF-insured deposits per year from the prior rate of 23 cents.

(10)     Extraordinary Item

     On September 12, 1996, First Nationwide repurchased $44 million aggregate
principal amount of the $50 million in Senior Notes assumed in the SFFed
Acquisition, resulting in an extraordinary loss of $1.6 million, net of income
taxes, on the early extinguishment of such debt. In February 1995, First
Nationwide prepaid $250 million in Federal Home Loan Bank advances, resulting
in an extraordinary gain of $2.0 million, net of income taxes, on the early
extinguishment of such borrowings.

(11)     Newly Issued Accounting Pronouncements

     In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"). SFAS No. 121 provides guidance for the recognition and
measurement of impairment of long- lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used by an
entity and assets to be disposed of. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
adopted SFAS No. 121 effective January 1, 1996. Such adoption had no material
impact on the Company's consolidated financial statements.

     On June 28, 1996, FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings.

     SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
Management has not yet completed its analysis of SFAS No. 125 and is unable to
determine the effect, if any, implementation may have on the Company's
consolidated financial statements.


                                    Page 14




     
<PAGE>




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

     The principal business of Parent Holdings, through First Nationwide,
consists of operating retail deposit branches and originating and/or purchasing
residential real estate loans and, to a lesser extent, certain consumer loans,
for investment. First Nationwide actively manages its commercial real estate
loan portfolio and is also active in mortgage banking, loan servicing and
securities brokerage. Revenues are derived primarily from interest charged on
loans, interest received on securities and mortgage-backed securities, gains on
sales of loans, fees received in connection with loan servicing, securities
brokerage and other customer service transactions. Expenses primarily consist
of interest on customer deposit accounts, interest on short-term and long-term
borrowings, provisions for losses, general and administrative expenses
consisting of compensation and benefits, advertising and marketing, premises
and equipment, communications, deposit insurance assessments, data processing
and other general and administrative expenses.

     During the nine months ended September 30, 1996, the Bank made significant
progress in the implementation of its strategies to concentrate its retail
banking operations in California and to increase its mortgage banking
operations. On February 1, 1996, the Bank consummated the SFFed Acquisition
involving assets totalling $4.0 billion and retail deposits totalling $2.7
billion. On January 31, 1996, FNMC consummated the acquisition of a $14.1
billion loan servicing portfolio in the LMUSA 1996 Purchase. On June 3, 1996,
the Bank consummated the Home Federal Acquisition involving assets totalling
$.7 billion and retail deposits totalling $.6 billion. During the nine months
ended September 30, 1996, the Bank sold its retail branches in Ohio, New York,
New Jersey and Michigan with deposits totaling $4.6 billion, resulting in
pre-tax gains totaling $363.0 million.

     ACQUISITIONS AND SALES

     The period-to-period comparisons set forth below, including the changes in
magnitude of various items between periods, have been affected by the
significant growth of the Bank through acquisitions accounted for as purchases
during the periods involved and the restructuring of the Bank's retail deposit
network in California resulting in the sale of certain non-California deposits
funded with wholesale borrowings. See note 2 to the accompanying consolidated
financial statements for information regarding the Branch Purchases, LMUSA
Purchases, Branch Sales, and the 1996 Acquisitions.

     NET INCOME

     Parent Holdings reported net income for the nine months ended September
30, 1996 of $417.1 million compared with net income of $47.8 million for the
corresponding period in 1995. Net income for the nine months ended September
30, 1996 includes $363.0 million in pre-tax gains on sales of branches, $40.4
million in pre-tax gains from the sale of ACS stock, $25.6 million in pre-tax
income recognized in connection with the termination of the Assistance
Agreement and the recognition of a $125.0 million deferred tax benefit,
partially offset by a $60.1 million charge for the Special SAIF Assessment.
Parent Holdings reported a net loss of $13.7 million for

                                    Page 15




     
<PAGE>




the three months ended September 30, 1996 compared to $21.8 million of net
income for the similar period in 1995. The third quarter of 1996 includes the
charge for the Special SAIF Assessment, offset in part by the income recognized
in connection with the termination of the Assistance Agreement. Excluding the
aforementioned items, Incentive Plan charges and extraordinary loss on early
extinguishment of debt, the nine months and three months ended September 30,
1996 reported a net loss of $15.4 million and net income of $21.9 million,
respectively.

     Net interest income was $88.7 million and $295.0 million, respectively,
for the three and nine months ended September 30, 1996, compared with $85.8
million and $249.0 million for the same periods in 1995. The increases in 1996
over 1995 are primarily due to the increased volumes of interest-bearing assets
and liabilities acquired in the 1996 Acquisitions and increases in the net
interest margin during 1996 compared to 1995, partially offset by the increased
interest expense from the Parent Senior Notes and Senior Sub Notes.

     FINANCIAL CONDITION

     During the nine months ended September 30, 1996, consolidated total assets
increased $2.3 billion, to $17.0 billion, from December 31, 1995, due to the
assets acquired in the 1996 Acquisitions and the LMUSA 1996 Purchase. During
the same period, consolidated total liabilities increased $2.3 billion,
primarily due to additional liabilities assumed in the 1996 Acquisitions and
the issuance of the Parent Senior Notes and the Senior Sub Notes, offset
partially by a decrease in deposits related to the Branch Sales. Within total
liabilities, there has been a $3.6 billion increase in borrowings and
securities sold under agreements to repurchase, offset by a $1.4 billion
decrease in deposits related to the net impact of Branch Sales and the 1996
Acquisitions.

     During the nine months ended September 30, 1996, stockholder's equity
decreased by $245.1 million. The decrease in stockholder's equity is the net
result of $369.4 million in common stock dividends, $267.1 million in capital
distributions, $4.6 million in preferred stock issuance costs and a decrease in
the net unrealized gain on securities available for sale of $22.8 million,
partially offset by $417.1 million in net income for the period and a $1.7
million capital contribution. The decrease in the net unrealized gain on
securities available for sale is primarily due to the sale of the Bank's
portion of First Nationwide's ACS stock.

     The Company's non-performing assets, consisting of nonaccrual loans, net
of purchase accounting adjustments and specific allowances for loan losses, and
foreclosed real estate, net, increased to $228 million at September 30, 1996
compared with $220 million at December 31, 1995. Approximately $68.5 million,
or 30%, of the total non-performing assets at September 30, 1996 were acquired
in the 1996 Acquisitions. Total non-performing assets as a percentage of the
Bank's total assets decreased to 1.36% at September 30, 1996, from 1.50% of the
Bank's total assets at December 31, 1995.


                                    Page 16




     
<PAGE>




RESULTS OF OPERATIONS

     NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED
     SEPTEMBER 30, 1995

     The following table sets forth, for the periods and at the dates
indicated, information regarding the Company's consolidated average statements
of financial condition, together with the total dollar amounts of interest
income and interest expense and the weighted average interest rates for the
periods presented. Average balances are calculated on a daily basis. The
information presented represents the historical activity of the Company and
includes the impact of the SFFed and Home Federal Acquisitions from their
respective acquisition dates of February 1, 1996 and June 1, 1996.
<TABLE>
<CAPTION>

                                                                            Nine months ended
                                                                           September 30, 1996
                                                               Average                            Average
                                                               Balance          Interest           Rate
                                                               -------          --------           ----
                                                                          (dollars in millions)
<S>                                                          <C>               <C>               <C>
   ASSETS
     Interest-earning assets (1):
         Securities (2)(3)                                      $   569             $ 25            5.86%
         Mortgage-backed securities
              available for sale (3)                              1,723               88            6.81
         Mortgage-backed securities
              held to maturity (3)                                1,804              103            7.61
         Loans held for sale, net                                   850               46            7.22
         Loans receivable, net                                   11,103              671            8.06
         Covered assets                                              35                1            5.43
                                                                -------             ----            ----
              Total interest-earning assets                      16,084              934            7.74%
                                                                                    ----            ----

     Noninterest-earning assets                                   1,171
                                                                -------
              Total assets                                      $17,255
                                                                =======

   LIABILITIES, MINORITY INTEREST
          AND STOCKHOLDER'S EQUITY

     Interest-bearing liabilities:
         Deposits                                               $ 9,629             $323            4.48%
         Securities sold under
              agreements to repurchase                            2,118               90            5.68
         Borrowings (4)                                           4,354              226            6.93
                                                                -------             ----            ----
              Total interest-bearing
                  liabilities                                    16,101              639            5.30%
                                                                                    ----            ----
   Noninterest-bearing liabilities                                  357
   Minority interest                                                465
   Stockholder's equity                                             332
                                                                -------
     Total liabilities, minority
         interest and stockholder's
              equity                                            $17,255
                                                                =======
   Net interest income                                                              $295
                                                                                    ====
   Interest rate spread                                                                             2.44%
                                                                                                    ====
   Net interest margin                                                                              2.44%
                                                                                                    ====
   Average equity to average assets                                                                 1.92%
                                                                                                    ====
</TABLE>

                                    Page 17




     
<PAGE>


<TABLE>
<CAPTION>


                                                                            Nine months ended
                                                                           September 30, 1995
                                                               Average                            Average
                                                               Balance          Interest           Rate
                                                               -------          --------           ----
                                                                          (dollars in millions)
<S>                                                          <C>               <C>                <C>
   ASSETS
     Interest-earning assets (1):
         Securities (2)(3)                                      $   431             $ 21            6.53%
         Mortgage-backed securities
            available for sale (3)                                   --               --                --
         Mortgage-backed securities
            held to maturity (3)                                  2,996              156            6.94
         Loans held for sale, net                                   110                7            8.42
         Loans receivable, net                                   10,170              604            7.92
         Covered assets (5)                                         206               10            6.40
                                                                -------             ----            ----
              Total interest-earning
                  assets                                         13,913              798            7.65%
                                                                                    ----            ----
     Noninterest-earning assets                                     728
                                                                -------

              Total assets                                      $14,641
                                                                =======

   LIABILITIES, MINORITY INTEREST
      AND STOCKHOLDER'S EQUITY

     Interest-bearing liabilities:
         Deposits                                               $ 9,876             $329            4.45%
         Securities sold under
              agreements to repurchase                            1,554               78            6.71
         Borrowings (4)                                           2,278              142            8.35
                                                                -------             ----            ----
              Total interest-bearing
                  liabilities                                    13,708              549            5.36%
                                                                                    ----            ----
     Noninterest-bearing liabilities                                286
     Minority interest                                              327
     Stockholder's equity                                           320
                                                                -------
         Total liabilities, minority
              interest and stockholder's
                  equity                                        $14,641
                                                                =======
     Net interest income                                                            $249
                                                                                    ====
     Interest rate spread                                                                           2.29%
                                                                                                    ====
     Net interest margin                                                                            2.37%
                                                                                                    ====
     Average equity to average assets                                                               2.19%
                                                                                                    ====
</TABLE>

------------------

(1)  Nonaccruing assets are included in the average balances for the periods
     indicated.

(2)  Includes interest-bearing deposits in other banks and securities purchased
     under agreements to resell.

(3)  Prior to December 29, 1995, all U.S. government agency and mortgage-backed
     securities were classified in the held to maturity category. On December
     29, 1995, the Company reclassified $1.5 billion and $231.8 million,
     respectively, of securities and mortgage-backed securities from the
     held-to-maturity category to the available-for-sale category. The
     information presented in the "securities" line for 1996 includes
     securities held to maturity of $4 million and related interest of less
     than $.01 million with the remainder representing securities available for
     sale. Average balances presented for

                                    Page 18




     
<PAGE>




     1996 represent the original amortized cost of the securities without the
     effect of unrealized gains and losses recorded as a result of the
     available for sale classification.

(4)  Interest and Average Rate include the impact of interest rate swaps.

(5)  Includes unconsolidated subsidiaries covered by FSLIC/RF yield
     maintenance.

     The following table presents certain information regarding changes in
interest income and interest expense of the Company during the periods
indicated. The dollar amount of interest income and interest expense fluctuates
depending upon changes in the respective interest rates and upon changes in the
respective amounts (volume) of the Company's interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (changes in average outstanding balances multiplied by
the prior period's rate) and (ii) changes in rate (changes in average interest
rate multiplied by the prior period's volume). Changes attributable to both
volume and rate have been allocated proportionately.
<TABLE>
<CAPTION>

                                  Nine months ended September 30, 1996 vs. 1995
                                            Increase (Decrease) Due to
                                            --------------------------
                                             Volume     Rate     Net
                                             ------     ----     ---
                                                   (in millions)
<S>                                        <C>       <C>       <C>
INTEREST INCOME:
     Securities                               $   6    $  (2)   $   4
     Mortgage-backed securities
         available for sale                      88     --         88
     Mortgage-backed securities
         held to maturity                       (70)      17      (53)
     Loans held for sale, net                    40       (1)      39
     Loans receivable, net                       56       11       67
     Covered assets                              (8)      (1)      (9)
                                              -----    -----    -----
         Total                                  112       24      136
                                              -----    -----    -----

INTEREST EXPENSE:

     Deposits                                    (9)       3       (6)
     Securities sold under
         agreements to repurchase                21       (9)      12
     Borrowings                                 103      (19)      84
                                              -----    -----    -----
         Total                                  115      (25)      90
                                              -----    -----    -----
              Change in net interest income   $  (3)   $  49    $  46
                                              =====    =====    =====
</TABLE>

     The volume variances in total interest income and total interest expense
from the nine months ended September 30, 1995 to the corresponding period in
1996 are largely due to the additional $4.2 billion in interest-earning assets
acquired and $4.4 billion in interest-bearing liabilities assumed in the 1996
Acquisitions, and the issuance of the $455 million Parent Senior Notes and the
$140 million Senior Sub Notes. The positive total rate variance of $49 million
is attributed to increasing rates on adjustable-rate assets as such assets
repriced to their fully-indexed yields, and the decrease in overall market
rates on interest-bearing liabilities between the two periods, offset slightly
by the impact of the additional wholesale borrowings used to finance the Branch
Sales and the issuance of the Parent Senior Notes and the Senior Sub Notes.
During the nine months ended September 30, 1996, deposits totaling $4.6 billion
with a weighted average rate of 4.59% were sold and

                                    Page 19




     
<PAGE>




replaced with $4.1 billion of FHLB advance borrowings and securities sold under
agreements to repurchase with a weighted average rate of 5.45%.

     INTEREST INCOME. Total interest income was $934.4 million for the nine
months ended September 30, 1996, an increase of $136.2 million from the nine
months ended September 30, 1995. The interest-earning assets acquired in the
1996 Acquisitions resulted in total interest-earning assets for the nine months
ended September 30, 1996 averaging $16.1 billion, compared to $13.9 billion for
the corresponding period in 1995. In addition, the yield on total
interest-earning assets during the nine months ended September 30, 1996
increased to 7.74% from the 7.65% yield on total interest-earning assets for
the nine months ended September 30, 1995.

     Parent Holdings earned $671.1 million of interest income on loans
receivable for the nine months ended September 30, 1996, an increase of $67.3
million from the nine months ended September 30, 1995. The loans acquired in
the 1996 Acquisitions contributed most of the increased interest income in
1996, and resulted in an increase in the average balance of loans receivable to
$11.1 billion from $10.2 billion for the nine months ended September 30, 1995.
The weighted average yield on loans receivable increased to 8.06% for the nine
months ended September 30, 1996 from 7.92% for the same period in 1995 due to
upward rate adjustments on adjustable rate residential loans as such loans
repriced to their fully indexed rates, without the effect of teaser rates or
annual interest rate adjustment caps.

     Parent Holdings earned $45.4 million of interest income on loans held for
sale for the nine months ended September 30, 1996, an increase of $38.5 million
from the nine months ended September 30, 1995. The increased income is the net
effect of a higher average volume of loans held for sale due to increased
originations from the operations acquired in the Maryland Acquisition and the
LMUSA Purchases, partially offset by a decrease in the weighted average rate of
such loans. The average balance of loans held for sale was $850 million for the
nine months ended September 30, 1996, an increase of $740 million over the same
period in 1995. The weighted average yield on loans held for sale decreased to
7.22% for the nine months ended September 30, 1996 from 8.42% during the nine
months ended September 30, 1995 due to generally decreasing market rates during
the period and the portfolio consisting of a higher percentage of comparatively
lower-rate adjustable rate loans in 1996 compared to a higher fixed rate
portfolio in 1995.

     Interest income on all mortgage-backed securities, including the available
for sale portfolio and mortgage-backed securities held to maturity, was $191.6
million for the nine months ended September 30, 1996, an increase of $35.2
million from the nine months ended September 30, 1995. The average portfolio
balances increased $.5 billion, to $3.5 billion, during the nine months ended
September 30, 1996 compared to $3.0 billion during the nine months ended
September 30, 1995. The weighted average yield on all mortgage-backed
securities increased to 7.22% for the nine months ended September 30, 1996 from
6.94% for the corresponding period in 1995, primarily due to the upward rate
adjustments of adjustable rate mortgage-backed securities as the loans
underlying such securities repriced to their fully indexed rates, without the
effect of teaser rates or annual interest rate adjustment caps.

     The interest income from Covered Assets declined $8.5 million, to $1.4
million, for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995. This decline is due to a reduction in the
average volume of Covered Assets resulting from the FDIC Purchase in June 1995
and the termination of the Assistance Agreement.


                                    Page 20




     
<PAGE>




     Interest income from securities and interest-bearing deposits in banks was
$24.9 million for the nine months ended September 30, 1996, an increase of $3.8
million from the nine months ended September 30, 1995. The average portfolio
balances during the nine months ended September 30, 1996 and 1995 increased to
$569 million from $431 million, respectively, primarily due to assets acquired
in the SFFed Acquisition. The weighted average yield on these assets decreased
to 5.86% for the nine months ended September 30, 1996 from 6.53% for the nine
months ended September 30, 1995, primarily due to an overall decline in market
interest rates.

     INTEREST EXPENSE. Total interest expense was $639.4 million for the nine
months ended September 30, 1996, an increase of $90.2 million from the nine
months ended September 30, 1995. The increase is the result of additional
interest-bearing liabilities assumed in the 1996 Acquisitions, the issuance of
the Parent Senior Notes and the Senior Sub Notes, and incrementally higher
rates paid on the additional borrowings incurred to replace the retail deposits
sold in the Branch Sales.

     Interest expense on customer deposits, including brokered deposits, was
$323.2 million for the nine months ended September 30, 1996, a decrease of $5.6
million from the nine months ended September 30, 1995. The average balance of
customer deposits outstanding decreased from $9.9 billion to $9.6 billion for
the nine months ended September, 1995 and 1996, respectively. The $4.6 billion
in deposits sold in the Branch Sales decreased the average balance from period
to period by $3.4 billion while the deposits of approximately $3.8 billion
acquired in the 1996 Acquisitions and the Branch Purchases increased the
average balance from period to period by $3.2 billion due to the timing of such
acquisitions and sales. The overall weighted average cost of deposits increased
from 4.45% for the nine months ended September 30, 1995 to 4.48% for the nine
months ended September 30, 1996, due principally to the effect of the deposits
assumed in the 1996 Acquisitions having a weighted average rate of 5.08%, and
deposits sold in the Branch Sales having a weighted average rate of
approximately 4.59%, as well as slight increases in the market rates of
interest paid for brokered deposits, partially offset by the impact of higher
average balances of lower rate custodial transaction accounts related to the
additional loan servicing acquired in the Maryland Acquisition and LMUSA
Purchases.

     Interest expense on securities sold under agreements to repurchase
totalled $89.9 million for the nine months ended September 30, 1996, an
increase of $11.9 million from the nine months ended September 30, 1995. The
average balance of such borrowings for the nine months ended September 30, 1996
and 1995 was $2.1 billion and $1.6 billion, respectively. The increase is
attributed to $.8 billion of such liabilities acquired in the 1996 Acquisitions
together with $1.5 billion in additional short-term borrowings to fund the
Branch Sales during 1996, partially offset by maturities and payoffs that were
refinanced with deposits acquired from the Home Federal Acquisition and FHLB
advances. The weighted average interest rate on these instruments decreased to
5.68% during the nine months ended September 30, 1996 from 6.71% for the nine
months ended September 30, 1995, primarily due to the impact of decreases in
overall market interest rates for such borrowings.

     Interest expense on borrowings totalled $226.2 million for the nine months
ended September 30, 1996, an increase of $83.9 million from the nine months
ended September 30, 1995. The increase is attributed to the net effect of a
volume increase for borrowings assumed in the 1996 Acquisitions, the issuance
of the Parent Senior Notes and the Senior Sub Notes and additional borrowings
to replace the deposits sold in the Branch Sales, partially offset by the
impact of decreases in the rates paid on such borrowings largely due to the
shorter weighted average

                                    Page 21




     
<PAGE>




maturity of the borrowings at September 30, 1996 compared to September 30,
1995. The average balance outstanding for the nine months ended September 30,
1996 and 1995 was $4.4 billion and $2.3 billion, respectively. The weighted
average interest rate on these instruments decreased to 6.93% during the nine
months ended September 30, 1996 from 8.35% for the nine months ended September
30, 1995, primarily due to the impact of decreases in overall market interest
rates and the shorter average maturity of the portfolio, partially offset by
the higher rates on the Parent Senior Notes and the Senior Sub Notes.

     NET INTEREST INCOME. Net interest income was $295.0 million for the nine
months ended September 30, 1996, an increase of $46.1 million from the nine
months ended September 30, 1995. The interest rate spread increased to 2.44%
for the nine months ended September 30, 1996 from 2.29% for the nine months
ended September 30, 1995.

     NONINTEREST INCOME. Total noninterest income, consisting primarily of loan
servicing fees, customer banking fees, management fees and gains on the Branch
Sales and on sales of assets, was $595.5 million for the nine months ended
September 30, 1996, an increase of $490.2 million from the nine months ended
September 30, 1995. This increase includes (i) gains on sales of branches of
$363.0 million, (ii) gain from the sale of ACS stock of $40.4 million, and
(iii) the income recognized in connection with the termination of the
Assistance Agreement of $25.6 million.

     Loan servicing fees, net of amortization of mortgage servicing rights,
were $92.2 million for the nine months ended September 30, 1996, compared to
$48.1 million for the nine months ended September 30, 1995. This increase is
due to the addition of the mortgage servicing portfolios acquired in the
Maryland Acquisition, the LMUSA Purchases and the 1996 Acquisitions, as well as
servicing rights originated through the increased origination capacity provided
by these acquisitions. The single-family residential loan servicing portfolio,
excluding loans serviced for the Bank, increased from $7.4 billion at January
1, 1995 to $27.0 billion at January 1, 1996 and to $42.7 billion at September
30, 1996. During the nine months ended September 30, 1996, First Nationwide
sold $3.8 billion in single-family mortgage loans originated for sale as part
of its ongoing mortgage banking operations compared to $457.3 million of such
sales for the corresponding period in 1995.

     Fees and service charges related to retail banking operations, consisting
of depositor fees for transaction accounts, overdrafts, and miscellaneous other
fees, were $34.4 million for the nine months ended September 30, 1996, compared
to $34.8 million for the nine months ended September 30, 1995. The decrease is
attributed to the impact of decreased revenues associated with the Branch
Sales, partially offset by the increased revenues from the retail banking
operations acquired in the Branch Purchases and the 1996 Acquisitions.

     Management fees totalled $8.0 million for the nine months ended September
30, 1996, compared to $11.1 million for the nine months ended September 30,
1995. The decrease is attributed principally to the reduced number of assets
under management as a result of contracts with the Resolution Trust Corporation
and other third parties which have expired .

     Gain on sales of branches was $363.0 million for the nine months ended
September 30, 1996. See note 2 to the accompanying financial statements for
additional information regarding the Branch Sales.

     Gain on sales of loans was $13.0 million for the nine months ended
September 30, 1996, compared to a loss of $1.1 million for the nine months
ended September 30,

                                    Page 22




     
<PAGE>




1995. The increase is attributed in part to a gain of $7.5 million on the sale
of $298.0 million of consumer loans during the first quarter of 1996. In
addition, the Company experienced increased gains on sales of single-family
mortgage loans due to the adoption of Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights, an amendment to
Statement No. 65" ("SFAS No. 122"), which was adopted April 1, 1995. See
"--Mortgage Banking Operations."

     Gain on sales of assets was $38.4 million for the nine months ended
September 30, 1996. The gain is primarily the result of a $40.4 million gain
from the sale of ACS stock, partially offset by a writedown recorded on certain
collateralized mortgage obligations ("CMOs") in the mortgage-backed securities
available-for-sale portfolio determined to have a permanent impairment in
value.

     Other noninterest income was $46.5 million for the nine months ended
September 30, 1996, an increase of $34.0 million from the nine months ended
September 30, 1995. The increase is primarily attributed to $25.6 million
recognized in connection with the termination of the Assistance Agreement, $2.3
million of interest received related to the favorable outcome of an arbitration
hearing and an increase of $3.5 million in dividends on FHLB stock related to
an increase in the volume of such stock owned by the Bank.

     NONINTEREST EXPENSE. Total noninterest expense was $380.1 million for the
nine months ended September 30, 1996, an increase of $130.2 million from the
nine months ended September 30, 1995. The increase is principally due to
additional compensation, loan expense, deposit insurance premiums, and other
noninterest expenses, primarily related to the growth of the Company through
the various acquisitions in 1995 and the first half of 1996 and the Special
SAIF Assessment.

     Total compensation and employee benefits expense was $156.0 million for
the nine months ended September 30, 1996, an increase of $38.1 million from the
nine months ended September 30, 1995, primarily attributable to $33.6 million
of Incentive Plan accruals. The number of full time employees increased by 245
to 3,466 for the nine months ended September 30, 1996, compared to the nine
months ended September 30, 1995. This increase is primarily due to the net
impact of employee additions in the mortgage banking operations related to the
servicing portfolios acquired in the LMUSA Purchases and an increase in retail
banking employees attributed to the 1996 Acquisitions, partially offset by a
reduction in employees due to the Branch Sales and the Bank's cost reduction
program. The nine months ended September 30, 1995 includes accruals for
termination benefits of $6.6 million related to the cost reduction plan and the
relocation of loan servicing operations to Frederick, Maryland from Sacramento,
California.

     Occupancy and equipment expense was $37.4 million for the nine months
ended September 30, 1996, a decrease of $2.0 million from the nine months ended
September 30, 1995, attributed primarily to accruals established in 1995 for
facilities costs related to the relocation of the Bank's mortgage loan
servicing operations to Maryland, the closure of retail mortgage loan
production offices and the cost reduction project. In addition, the decrease in
occupancy includes the net effect of operations sold in the Branch Sales,
partially offset by increased expenses due to the Maryland Acquisition and 1996
Acquisitions.

     Loan expense was $20.5 million for the nine months ended September 30,
1996, an increase of $14.2 million from the nine months ended September 30,
1995. The increase relates to additional expenses associated with the higher
volume of loans serviced due to the LMUSA Purchases and the Maryland
Acquisition. Such expenses

                                    Page 23




     
<PAGE>




include subservicing fees paid on acquired servicing portfolios prior to
conversion to FNMC's systems and increased pass-through interest expense for
loan payoffs in serviced loan pools. In addition, such expenses also include
appraisal fees, inspection fees and provision for FHA and VA losses.

     SAIF deposit insurance premiums increased $60.7 million, to $77.0 million,
for the nine months ended September 30, 1996. The increase is due to a $60.1
million accrual for the Special SAIF Assessment.

     Data processing expense was $8.3 million for the nine months ended
September 30, 1996, an increase of $1.2 million from the nine months ended
September 30, 1995. The increase is attributed to the 1996 Acquisitions and
expenses associated with the higher volume of loans serviced in connection with
the LMUSA Purchases and the Maryland Acquisition.

     Marketing expense was $7.7 million for the nine months ended September 30,
1996, a decrease of $3.6 million from the nine months ended September 30, 1995,
due to reduced nationwide marketing efforts as a result of the Branch Sales.

     Professional fees increased $5.2 million, to $13.4 million, for the nine
months ended September 30, 1996. The increase includes additional expenses
related to the servicing portfolios acquired in the LMUSA Purchases, as well as
additional accruals for various legal and litigation expenses.

     Foreclosed real estate operations, including gains on sales, resulted in a
net gain of $6.8 million for the nine months ended September 30, 1996 compared
to a net gain of $.2 million for the same period in 1995. The change is
attributed to a higher volume of sales in 1996 at comparatively higher prices
to carrying values.

     Amortization of intangible assets increased to $6.9 million for the nine
months ended September 30, 1996 from $.5 million for the corresponding period
in 1995, primarily due to the amortization of the $133.8 million intangible
asset recorded in connection with the 1996 Acquisitions.

     Other noninterest expense was $59.6 million for the nine months ended
September 30, 1996, an increase of $16.9 million from the nine months ended
September 30, 1995, principally due to increased telecommunications, postage,
office supplies, insurance, OTS assessments and travel expenses, all of which
are attributed primarily to the increased loan servicing activity as a result
of the Maryland Acquisition and the LMUSA Purchases.

     PROVISION FOR INCOME TAXES. During the nine months ended September 30,
1996 and 1995, the Company recorded income tax benefit of $81.4 million and
income tax expense of $7.4 million, respectively. Based on a favorable earnings
trend since the consummation of the FN Acquisition and future earnings
expectations, management changed its judgment about the realizability of the
Company's net deferred tax asset and recognized a deferred tax benefit of
$125.0 million in the second quarter of 1996. In order to recognize the total
net deferred tax asset recorded as of September 30, 1996, the Company must have
future earnings of approximately $865 million. Included in tax expense for the
nine months ended September 30, 1995 is the reversal of 1993 and 1994 over
accruals of Federal taxes totaling $2.2 million. The Company's effective
Federal tax rates, before extraordinary items, were(26%) and (1%) during the
nine months ended September 30, 1996 and 1995, respectively, while its
statutory Federal tax rate was 35% during both periods. The difference between
the effective and statutory rates was primarily the result of the utilization
of net

                                    Page 24




     
<PAGE>




operating loss carryforwards for both periods, the reversal of 1993 and 1994
over accruals for the nine months ended September 30, 1995 and the recognition
of a $125 million deferred tax benefit in 1996. The Company's effective state
tax rate, before extraordinary items was approximately 7% and 9% during the
nine months ended September 30, 1996 and 1995, respectively.

     EXTRAORDINARY ITEM. During the nine months ended September 30, 1996, First
Nationwide repurchased $44 million in aggregate principal amount of the $50
million in Senior Notes assumed in the SFFed Acquisition, resulting in a loss
of $1.6 million net of income taxes. During the nine months ended September 30,
1995, the Company recorded a gain of $2.0 million on the early extinguishment
of $250 million in FHLB advances, net of income taxes.

     MINORITY INTEREST. Minority interest in income consists of $34.6 million
in dividends on the Preferred Stock of the Bank, $108.8 million representing
the portion of FN Holdings' income attributable to its class B common stock
which is owned by Hunter's Glen, and $.1 million in dividends on Holdings
Preferred Stock.

     NET INCOME. The Company had net income of $417.1 million for the nine
months ended September 30, 1996, an increase of $369.3 million from the nine
months ended September 30, 1995.

     THREE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS THREE MONTHS ENDED
     SEPTEMBER 30, 1995

     The following table sets forth, for the periods and at the dates
indicated, information regarding the Company's consolidated average statements
of financial condition, together with the total dollar amounts of interest
income and interest expense and the weighted average interest rates for the
periods presented. Average balances are calculated on a daily basis. The
information presented represents the historical activity of the Company.

                                    Page 25




     
<PAGE>

<TABLE>
<CAPTION>

                                                                           Three months ended
                                                                           September 30, 1996
                                                                           ------------------
                                                               Average                            Average
                                                               Balance          Interest           Rate
                                                               -------          --------           ----
                                                                          (dollars in millions)
<S>                                                          <C>               <C>               <C>
   ASSETS
     Interest-earning assets (1):
         Securities (2)(3)                                    $   633             $  9              5.69%
         Mortgage-backed securities
              available for sale (3)                            1,662               28              6.74
         Mortgage-backed securities
            held to maturity (3)                                1,735               34              7.61
         Loans held for sale, net                                 798               15              7.52
         Loans receivable, net                                 11,156              222              7.96
         Covered assets                                            26               --                --
                                                              -------             ----              ----
              Total interest-earning
                  assets                                       16,010              308              7.69%
                                                                                  ----              ----
     Noninterest-earning assets                                 1,240
                                                              -------

              Total assets                                    $17,250
                                                              =======

   LIABILITIES, MINORITY INTEREST
      AND STOCKHOLDER'S EQUITY

     Interest-bearing liabilities:
         Deposits                                             $ 9,001             $101              4.46%
         Securities sold under
              agreements to repurchase                          1,908               28              5.84
     Borrowings (4)                                             5,254               90              6.89
                                                              -------             ----              ----
              Total interest-bearing
                  liabilities                                  16,163              219              5.39%
                                                                                  ----              ----
     Noninterest-bearing liabilities                              386
     Minority interest                                            538
     Stockholder's equity                                         163
                                                              -------
         Total liabilities, minority
              interest and stockholder's
                  equity                                      $17,250
                                                              =======
     Net interest income                                                          $ 89
                                                                                  ====
     Interest rate spread                                                                           2.30%
                                                                                                    ====
     Net interest margin                                                                            2.25%
                                                                                                    ====
     Average equity to average assets                                                               0.94%
                                                                                                    ====

</TABLE>


                                    Page 26




     
<PAGE>


<TABLE>
<CAPTION>


                                                                           Three months ended
                                                                            September 30, 1995
                                                                            ------------------
                                                               Average                            Average
                                                               Balance          Interest           Rate
                                                               -------          --------           ----
                                                                          (dollars in millions)
<S>                                                         <C>                <C>                <C>
   ASSETS
     Interest-earning assets (1):
         Securities (2)(3)                                    $   413             $  7              6.64%
         Mortgage-backed securities
              available for sale (3)                               --               --                --
         Mortgage-backed securities
              held to maturity (3)                              2,871               52              7.24
         Loans held for sale, net                                 223                5              8.16
         Loans receivable, net                                 10,152              206              8.12
         Covered assets (5)                                        45                1              9.20
                                                              -------             ----              ----
         Total interest-earning
              assets                                           13,704              271              7.90%
                                                                                  ----              ----
     Noninterest-earning assets                                   707
                                                              -------
              Total assets                                    $14,411
                                                              =======

   LIABILITIES, MINORITY INTEREST
      AND STOCKHOLDER'S EQUITY

     Interest-bearing liabilities:
         Deposits                                             $10,015             $116              4.60%
         Securities sold under
              agreements to repurchase                          1,790               30              6.65
         Borrowings (4)                                         1,826               39              8.39
                                                              -------             ----              ----
              Total interest-bearing
                  liabilities                                  13,631              185              5.38%
                                                                                  ----              ----
     Noninterest-bearing liabilities                              142
     Minority interest                                            329
     Stockholder's equity                                         309
                                                              -------
         Total liabilities, minority
              interest and stockholder's
                  equity                                      $14,411
                                                              =======
     Net interest income                                                          $ 86
                                                                                  ====
     Interest rate spread                                                                           2.52%
                                                                                                    ====
     Net interest margin                                                                            2.55%
                                                                                                    ====
     Average equity to average assets                                                               2.14%
                                                                                                    ====

</TABLE>

------------------

(1)  Nonaccruing assets are included in the average balances for the periods
     indicated.

(2)  Includes interest-bearing deposits in other banks and securities purchased
     under agreements to resell.

(3)  Prior to December 29, 1995, all U.S. government agency and mortgage-backed
     securities were classified in the held to maturity category. On December
     29, 1995, the Company reclassified $1.5 billion and $231.8 million,
     respectively, of securities and mortgage-backed securities from the
     held-to-maturity category to the available-for-sale category. The
     information presented in the "securities" line for 1996 includes
     securities held to maturity of $4 million and related interest of less
     than $.01 million with the remainder representing securities available for
     sale. Average balances presented for 1996 represent the original amortized
     cost of the securities without the

                                    Page 27




     
<PAGE>




     effect of unrealized gains and losses recorded as a result of the
     available for sale classification.

(4)  Interest and Average Rate include the impact of interest rate swaps.

(5)  Includes unconsolidated subsidiaries covered by FSLIC/RF yield
     maintenance.

     The following table presents certain information regarding changes in
interest income and interest expense of the Company during the periods
indicated. The dollar amount of interest income and interest expense fluctuates
depending upon changes in the respective interest rates and upon changes in the
respective amounts (volume) of the Company's interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (changes in average outstanding balances multiplied by
the prior period's rate) and (ii) changes in rate (changes in average interest
rate multiplied by the prior period's volume). Changes attributable to both
volume and rate have been allocated proportionately.
<TABLE>
<CAPTION>

                                                           Three months ended September 30, 1996 vs. 1995
                                                                     Increase (Decrease) Due to
                                                                     --------------------------
                                                             Volume               Rate              Net
                                                             ------               ----              ---
                                                                            (in millions)
<S>                                                         <C>              <C>                <C>
   INTEREST INCOME:
     Securities                                               $  3               $ (1)           $  2
     Mortgage-backed securities
         available for sale                                     28                 --               28
     Mortgage-backed securities
         held to maturity                                      (22)                 3              (19)
     Loans held for sale, net                                   11                 --               11
     Loans receivable, net                                      20                 (4)              16
     Covered assets                                             (1)                --               (1)
                                                              ----               ----             ----
         Total                                                  39                 (2)              37
                                                              ----               ----             ----

   INTEREST EXPENSE:

     Deposits                                                  (12)                (3)             (15)
     Securities sold under
         agreements to repurchase                                2                 (4)              (2)
     Borrowings                                                 58                 (7)              51
                                                              ----               ----             ----
         Total                                                  48                (14)              34
                                                              ----               ----             ----
              Change in net interest income                   $ (9)              $ 12             $  3
                                                              ====               ====             ====
</TABLE>

     The volume variances in total interest income and total interest expense
from the three months ended September 30, 1995 to the corresponding period in
1996 are largely due to the additional $4.2 billion in interest-earning assets
acquired, $4.4 billion in interest-bearing liabilities assumed in the 1996
Acquisitions and the issuance of the $455 million Parent Senior Notes and the
$140 million Senior Sub Notes. The positive total rate variance of $12 million
is attributed to the decrease in overall market rates on interest-bearing
liabilities between the two periods, offset slightly by the issuance of the
Parent Senior Notes and the Senior Sub Notes and the impact of the additional
wholesale borrowings used to finance the Branch Sales.

     INTEREST INCOME.  Total interest income was $308.1 million for the three
months
ended September 30, 1996, an increase of $37.6 million from the three months
ended
September 30, 1995.  The interest-earning assets acquired in the 1996
Acquisitions

                                    Page 28




     
<PAGE>




resulted in total interest-earning assets for the three months ended September
30, 1996 averaging $16.0 billion, compared to $13.7 billion for the
corresponding period in 1995. In addition, the yield on total interest-earning
assets during the three months ended September 30, 1996 decreased to 7.69% from
the 7.90% yield on total interest-earning assets for the three months ended
September 30, 1995.

     The Company earned $222.4 million of interest income on loans receivable
for the three months ended September 30, 1996, an increase of $16.1 million
from the three months ended September 30, 1995. The loans acquired in the 1996
Acquisitions contributed most of the increased interest income in 1996, and
resulted in an increase in the average balance of loans receivable to $11.2
billion from $10.2 billion for the three months ended September 30, 1995. The
weighted average yield on loans receivable decreased to 7.96% for the third
quarter of 1996 from 8.12% for the same period in 1995 due to the impact of
decreasing market rates during the period on the Company's adjustable rate loan
portfolio.

     The Company earned $15.3 million of interest income on loans held for sale
for the three months ended September 30, 1996, an increase of $10.8 million
from the three months ended September 30, 1995. The increased income is the net
effect of a higher average volume of loans held for sale due to increased
originations from the operations acquired in the LMUSA Purchases, partially
offset by a decrease in the weighted average rate of such loans. The average
balance of loans held for sale increased to $798 million for the three months
ended September 30, 1996 from $223 million for the same period in 1995. The
weighted average yield on loans held for sale decreased to 7.52% for the three
months ended September 30, 1996 from 8.16% for the same period in 1995 due to
generally decreasing market rates during the period and the portfolio
consisting of a higher percentage of comparatively lower-rate adjustable rate
loans in the third quarter of 1996 compared to a predominantly fixed rate
portfolio in the third quarter of 1995.

     Interest income on all mortgage-backed securities, including the available
for sale portfolio and mortgage-backed securities held to maturity, was $61.2
million for the three months ended September 30, 1996, an increase of $9.4
million from the three months ended September 30, 1995. The average portfolio
balances increased $.5 billion, to $3.4 billion, during the three months ended
September 30, 1996 compared to $2.9 billion during the three months ended
September 30, 1995. The weighted average yield on all mortgage-backed
securities decreased to 7.18% for the three months ended September 30, 1996
from 7.24% for the corresponding period in 1995, primarily due to the impact of
decreasing market rates during the period on the adjustable rate loans
underlying such securities.

     The interest income from Covered Assets declined $1.0 million for the
three months ended September 30, 1996 compared to the three months ended
September 30, 1995. This decline is attributed to the termination of the
Assistance Agreement effective August 19, 1996, which included First
Nationwide's forfeiture of guaranteed yield accrued on Covered Assets during
the third quarter of 1996.

     Interest income from securities and interest-bearing deposits in banks was
$9.2 million for the three months ended September 30, 1996, an increase of $2.3
million from the three months ended September 30, 1995. The average portfolio
balances during the three months ended September 30, 1996 and 1995 increased to
$633 million from $413 million, respectively, primarily due to the 1996
Acquisitions. The weighted average yield on these assets decreased to 5.69% for
the third quarter of 1996 from 6.64% for the third quarter of 1995, primarily
due to an overall decline in market interest rates.

                                    Page 29




     
<PAGE>




     INTEREST EXPENSE. Total interest expense was $219.5 million for the three
months ended September 30, 1996, an increase of $34.7 million from the three
months ended September 30, 1995. The increase is the result of additional
interest-bearing liabilities assumed in the 1996 Acquisitions and the issuance
of the Parent Senior Notes and the Senior Sub Notes, partially offset by lower
rates due to generally decreasing market rates during the period.

     Interest expense on customer deposits, including brokered deposits, was
$100.6 million for the three months ended September 30, 1996, a decrease of
$15.5 million from the three months ended September 30, 1995. The average
balance of customer deposits outstanding decreased from $10.0 billion to $9.0
billion for the three months ended September 30, 1995 and 1996, respectively,
primarily due to the net impact of the Branch Sales and the 1996 Acquisitions.
The overall weighted average cost of deposits decreased from 4.60% for the
three months ended September 30, 1995 to 4.46% for the corresponding period in
1996, due principally to the impact of higher average balances of lower rate
custodial transaction accounts related to the additional loan servicing
acquired in the Maryland Acquisition and the LMUSA Purchases and an overall
decline in market interest rates.

     Interest expense on securities sold under agreements to repurchase
totalled $27.6 million for the three months ended September 30, 1996, a
decrease of $2.4 million from the three months ended September 30, 1995. The
average balance of such borrowings for the three months ended September 30,
1996 and 1995 was $1.9 billion and $1.8 billion, respectively. The increase in
average balance is attributed to $.8 billion of such liabilities acquired in
the 1996 Acquisitions together with $1.5 billion in additional short-term
borrowings to fund the Branch Sales during 1996, partially offset by maturities
and payoffs that were refinanced with deposits acquired in the Home Federal
Acquisition and FHLB advances. The weighted average interest rate on these
instruments decreased to 5.84% during the three months ended September 30, 1996
from 6.65% for the corresponding period in 1995, primarily due to the impact of
decreases in overall market interest rates for such borrowings.

     Interest expense on borrowings totalled $91.3 million for the three months
ended September 30, 1996, an increase of $52.6 million from the three months
ended September 30, 1995. The increase is attributed to the net effect of a
volume increase for borrowings assumed in the 1996 Acquisitions, the issuance
of the Senior Sub Notes and the Parent Senior Notes, and additional borrowings
to replace the deposits sold in the Branch Sales, partially offset by the
impact of decreases in the overall rates paid on such borrowings. The average
balance outstanding for the three months ended September 30, 1996 and 1995 was
$5.3 billion and $1.8 billion, respectively. The weighted average interest rate
on these instruments decreased to 6.89% during the three months ended September
30, 1996 from 8.39% for the corresponding period in 1995, primarily due to the
impact of decreases in overall market interest rates and the shorter average
maturity of the portfolio as a result of financing the Branch Sales, partially
offset by the higher rates paid for the Senior Sub Notes and the Parent Senior
Notes.

     NET INTEREST INCOME. Net interest income was $88.7 million for the three
months ended September 30, 1996, an increase of $2.9 million from the three
months ended September 30, 1995. The interest rate spread decreased to 2.30%
for the three months ended September 30, 1996 from 2.52% for the three months
ended September 30, 1995.

     NONINTEREST INCOME. Total noninterest income, consisting primarily of loan
servicing fees, customer banking fees, management fees and gains on Branch
Sales and

                                    Page 30




     
<PAGE>




sales of assets, was $75.9 million for the three months ended September 30,
1996, an increase of $40.2 million from the three months ended September 30,
1995.

     Loan servicing fees, net of amortization of mortgage servicing rights,
were $31.4 million for the three months ended September 30, 1996, compared to
$16.8 million for the three months ended September 30, 1995. This increase is
due to the addition of the mortgage servicing portfolios acquired in the LMUSA
Purchases and the 1996 Acquisitions, as well as servicing rights originated
through the increased origination and sale of loans. During the three months
ended September 30, 1996, First Nationwide sold $1.2 billion in single-family
mortgage loans originated for sale as part of its ongoing mortgage banking
operations compared to $311 million of such sales for the corresponding period
in 1995.

     Fees and service charges related to retail banking operations, consisting
of fees associated with transaction accounts, overdrafts, and miscellaneous
other fees, were $10.6 million for the three months ended September 30, 1996,
compared to $12.6 million for the three months ended September 30, 1995. The
decrease is attributed to the Branch Sales which occurred during the first and
second quarters of 1996, partially offset by the increased revenues from the
retail banking operations acquired in the Branch Purchases and the 1996
Acquisitions.

     Management fees totalled $2.3 million for the three months ended September
30, 1996, compared to $3.5 million for the three months ended September 30,
1995. The decrease is attributed principally to the reduced number of assets
under management as a result of contracts with the Resolution Trust Corporation
and other third parties which have expired.

     Other noninterest income was $32.6 million for the three months ended
September 30, 1996, an increase of $28.5 million from the three months ended
September 30, 1995. The increase is primarily attributed to a $25.6 million
gain recognized in connection with the termination of the Assistance Agreement
and an increase of $1.9 million in dividends on FHLB stock related to the
increase in the volume of such stock owned by the Bank.

     NONINTEREST EXPENSE. Total noninterest expense was $157.4 million for the
three months ended September 30, 1996, an increase of $80.5 million from the
three months ended September 30, 1995, principally due to increased
compensation, loan expense, deposit insurance premiums and other noninterest
expenses, primarily related to the growth of the Bank through the various
acquisitions in 1995 and the first half of 1996 and the Special SAIF
Assessment.

     Total compensation and employee benefits expense was $45.1 million for the
three months ended September 30, 1996, an increase of $9.0 million from the
three months ended September 30, 1995. This increase is attributable, in part,
to the impact of $3.1 million of Incentive Plan accruals, the impact of
employee additions in the mortgage banking operations related to the servicing
portfolios acquired in the LMUSA Purchases and an increase in retail banking
employees attributed to the 1996 Acquisitions, partially offset by the impact
of a reduction in retail banking employees due to the Branch Sales.

     Occupancy and equipment expense was $11.9 million for the three months
ended September 30, 1996, an increase of $.9 million from the three months
ended September 30, 1995, attributed primarily to the increased expenses due to
the Maryland Acquisition and the 1996 Acquisitions, partially offset by
decreased expenses related to the Branch Sales.

                                    Page 31




     
<PAGE>




     Loan expense was $6.4 million for the three months ended September 30,
1996, an increase of $4.1 million from the three months ended September 30,
1995. The increase relates to increased expenses associated with the higher
volume of loans serviced due to the LMUSA Purchases and the Maryland
Acquisition. In addition, such expenses include outside appraisal fees,
inspection fees and provision for loss on FHA and VA loans serviced.

     SAIF deposit insurance premiums increased $59.7 million, to $65.4 million,
for the three months ended September 30, 1996. The increase is due to a $60.1
million accrual for the Special SAIF Assessment, partially offset by a lower
average balance of SAIF-assessable deposits outstanding in the third quarter of
1996 compared to 1995 due largely to the net effect of the 1996 Acquisitions
and the Branch Sales.

     Marketing expense was $2.9 million for the three months ended September
30, 1996, a decrease of $.5 million from the three months ended September 30,
1995, due to reduced nationwide marketing efforts as a result of the Branch
Sales.

     Professional fees increased $1.8 million, to $4.0 million, for the three
months ended September 30, 1996. This increase is primarily due to additional
consulting expenses of $1.5 million and legal fees of $.2 million related to
the 1996 Acquisitions and LMUSA Purchases.

     Foreclosed real estate operations, including gains on sales, resulted in a
net gain of $1.9 million for the three months ended September 30, 1996 compared
to a net gain of $.9 million for the same period in 1995. The change is
attributed to a higher volume of sales at comparatively higher prices to
carrying values.

     Amortization of intangible assets increased to $2.7 million for the three
months ended September 30, 1996 from $.2 million for the corresponding period
in 1995, primarily due to the impact of the amortization of the additional
$133.8 million intangible asset recorded in connection with the 1996
Acquisitions.

     Other noninterest expense was $18.5 million for the three months ended
September 30, 1996, an increase of $3.8 million from the three months ended
September 30, 1995, principally due to increased telecommunications, postage,
office supplies, and travel expenses, all of which are attributed primarily to
the increased loan servicing activity as a result of the Maryland Acquisition
and the LMUSA Purchases.

     PROVISION FOR INCOME TAXES. During the three months ended September 30,
1996 and 1995 the Company recorded income tax expense of $.5 million and
expense of $4.0 million, respectively. The Company's effective Federal tax
rates, before extraordinary items, were 12% and 2% during the three months
ended September 30, 1996 and 1995, respectively, while its statutory Federal
tax rate was 35% during both periods. The difference between the effective and
statutory rates was primarily the result of the utilization of net operating
loss carryforwards and amortization of non-tax deductible intangible assets.
The Company's effective state tax rate, before extraordinary items was
approximately (36%) and 9% during the three months ended September 30, 1996 and
1995, respectively.

     EXTRAORDINARY ITEM. During the three months ended September 30, 1996,
First Nationwide repurchased $44 million aggregate principal amount of the $50
million in Senior Notes assumed in the SFFed Acquisition, resulting in a loss
of $1.6 million, net income taxes.


                                    Page 32




     
<PAGE>




     MINORITY INTEREST. Minority interest in income for the third quarter of
1996 consists of $8.6 million in dividends on the Preferred Stock of the Bank
and $.2 million representing dividends on the Holdings Preferred Stock and the
portion of FN Holdings' income attributable to its class B common stock which
is owned by Hunter's Glen.

     NET INCOME. The Company had a net loss of $13.7 million for the three
months ended September 30, 1996, compared to net income of $21.8 million for
the three months ended September 30, 1995.


PROVISION FOR LOAN LOSSES

     The adequacy of the allowance for loan losses is periodically evaluated by
management in order to maintain the allowance at a level that is sufficient to
absorb expected loan losses. The Company charges current earnings with a
provision for estimated credit losses on loans receivable. The provision
considers both specifically identified problem loans as well as credit risks
not specifically identified in the loan portfolio. The Company established
provisions for loan losses of $29.7 million and $18.0 million for the nine
months ended September 30, 1996 and 1995, respectively. The allowance for loan
losses is increased by provisions for loan losses and decreased by charge-offs
(net of recoveries).

     Activity in the allowance for loan losses for the nine months ended
September 30, 1996 and September 30, 1995 is as follows (in thousands):
<TABLE>
<CAPTION>

                                       1996          1995
                                       ----          ----
<S>                                  <C>          <C>
Balance - January 1                  $ 210,484    $ 202,780
     Additions - 1996 Acquisitions      44,793         --
     Provision for loan losses          29,700       18,000
     Charge-offs                       (43,897)     (21,154)
     Recoveries                          2,570        2,498
                                     ---------    ---------
Balance - September 30               $ 243,650    $ 202,124
                                     =========    =========
</TABLE>

     A significant portion of the Company's loans are secured by real estate
located within markets where real estate prices continue to be weak.
Accordingly, the ultimate collectibility of those loans is susceptible to
changes in the economic conditions in such regions. Management's periodic
evaluation of the adequacy of the allowance for loan losses is based on past
loan loss experience, known and inherent risks in the portfolio, potential
adverse situations that may affect the borrower's ability to repay, the
estimated value of underlying collateral, current and prospective economic
conditions, and the remaining available balance under the Non- Performing Asset
Sale Agreement (the "Put Agreement") between the Bank and Granite Management
and Disposition, Inc. ("Granite"), a subsidiary of Ford Motor Company.

     On September 30, 1996, First Nationwide had a remaining available balance
under the Put Agreement of $70.5 million. On November 30, 1996, the Bank has
the right to require Granite to purchase any asset eligible under the Put
Agreement, other than the assets which previously became non-performing and
which the Bank did not require Granite to purchase. The Put Agreement will
terminate on November 30, 1996.

     Charge-offs for the nine months ended September 30, 1996 increased over
charge-offs for the same period in 1995 due principally to two factors. Certain
credit losses that would have been realized for the nine months ended September
30, 1995 were avoided through the sale of a large volume of non-performing
residential loans

                                    Page 33




     
<PAGE>




to Granite under the Put Agreement in late-1994 and early-1995. In addition,
during the second quarter of 1996, the Bank sold $38.0 million of
non-performing and poor- performing residential loans. The $6.3 million loss
realized from the sale of these loans was recorded as a charge-off to the
Company's allowance for loan losses during the second quarter of 1996.

     Although management believes that its present allowance for loan losses is
adequate, it will continue to review its loan portfolio to determine the extent
to which any changes in economic conditions or loss experience may require
further provisions in the future.

ASSET AND LIABILITY MANAGEMENT

     Financial institutions are subject to interest rate risk to the degree
that their interest-bearing liabilities, consisting principally of deposits,
securities sold under agreements to repurchase and FHLB advances, mature or
reprice more or less frequently, or on a different basis, than their
interest-earning assets.

     The Company actively pursues investment and funding strategies to minimize
the sensitivity of its earnings to interest rate fluctuations while maintaining
the flexibility required to execute its business strategies. The Bank measures
the interest rate sensitivity of the balance sheet through gap and duration
analysis, as well as net interest income and market value simulation, and,
after taking into consideration both the variability of rates and the
maturities of various instruments, evaluates strategies which may reduce the
sensitivity of its earnings to interest rate and market value fluctuations. An
important decision is the selection of interest-bearing liabilities and the
generation of interest-bearing assets which best match relative to interest
rate changes. In order to reduce interest rate risk by increasing the
percentage of interest sensitive assets, First Nationwide has continued its
emphasis on the origination of adjustable rate mortgage ("ARM") products for
its portfolio. Where possible, the Bank seeks to purchase assets or originate
real estate loans that reprice frequently and that on the whole adjust in
accordance with the repricing of its liabilities. During the nine months ended
September 30, 1996, most of the fixed and variable rate real estate loans
originated were sold in the secondary market to provide funds for the
acquisition and divestiture activity occurring during the period. At September
30, 1996, approximately 89% of First Nationwide's real estate loan portfolio
consisted of ARMs.

     In connection with a 1994 acquisition, the Company acquired the rights and
assumed the obligations under certain interest rate swap agreements. Under the
terms of these agreements, the Company pays the variable rate based on LIBOR
and receives fixed rates. During the nine months ended September 30, 1996, the
Company's net interest income increased by $.1 million as a result of these
interest rate swap agreements, largely due to a decrease in the variable rate
paid due to changing market interest rates, net of the fixed rate payments
received and the amortization of the premium assigned to these agreements at
the time of acquisition. For additional information, see Note 20 to the
Company's 1995 consolidated financial statements filed with its Registration
Statement on Form S-1.

     One of the most important sources of a financial institution's net income
is net interest income, which is the difference between the income earned on
interest-earning assets and the expense paid on interest-bearing liabilities.
Net interest income is also dependent on the relative balances of
interest-earning assets and interest-bearing liabilities. A traditional measure
of interest rate risk within

                                    Page 34




     
<PAGE>




the savings industry is the interest rate sensitivity gap, which is the sum of
all interest-earning assets minus the sum of all interest-bearing liabilities
to be repriced within a given period. A gap is considered positive when the
interest rate sensitive assets exceed interest rate sensitive liabilities,
while the opposite case results in a negative gap. During a period of rising
interest rates, a negative gap would tend to adversely affect net interest
income, and a positive gap would tend to result in an increase in net interest
income, while the opposite would tend to occur in a period of falling rates.

     The following table sets forth the projected maturities based upon
contractual maturities as adjusted for projected prepayments and "repricing
mechanisms" (provisions for changes in the interest rates of assets and
liabilities), and the impact of interest rate swap agreements as of September
30, 1996. Prepayment rates are assumed in each period on substantially all of
the Company's loan portfolio based upon expected loan prepayments. Repricing
mechanisms on the Company's assets are subject to limitations such as caps on
the amount that interest rates and payments on its loans may adjust and,
accordingly, such assets may not respond in the same manner or to the same
extent to changes in interest rates as the Company's liabilities. In addition,
the interest rate sensitivity of the Company's assets and liabilities
illustrated in the table would vary substantially if different assumptions were
used or if actual experience differed from the assumptions set forth. The
Company's estimated interest rate sensitivity gap at September 30, 1996 is as
follows:



                                    Page 35




     
<PAGE>


<TABLE>
<CAPTION>


                                                                      Maturity/Rate Sensitivity
                                                                      -------------------------
                                                            Within         1-5        Over 5
                                                            1 Year        Years        Years        Total
                                                            ------        -----        -----        -----
                                                                        (dollars in millions)
<S>                                                       <C>            <C>         <C>          <C>
INTEREST-EARNING ASSETS

Securities held to maturity,
     interest-bearing deposits
     in other banks and short-
     term investment securities (1)(2)                        $156          $ --       $   --      $   156
Securities available for sale (3)                              568            --           --          568
Mortgage-backed securities
     available for sale                                      1,660            --           --        1,660
Mortgage-backed securities held
     to maturity (1)(4)                                      1,686             2            3        1,691
Loans held for sale, net (3)                                   710            --           --          710
Loans receivable, net (1)(5)                                 9,590           740          351       10,681
Investment in FHLB                                             218            --           --          218
                                                           -------          ----       ------      -------
         Total interest-earning assets                      14,588           742          354       15,684
Noninterest-earning assets                                      --            --        1,303        1,303
                                                           -------          ----       ------      -------
                                                           $14,588          $742       $1,657      $16,987
                                                           =======          ====       ======      =======

INTEREST-BEARING LIABILITIES

Deposits (6)                                               $ 7,544        $1,224       $   32      $ 8,800
Securities sold under agreements
     to repurchase (1)                                       2,073            55           --        2,128
FHLB advances (1)                                            3,249           671            6        3,926
Other borrowings (1)                                             5           209          716          930
                                                           -------        ------       ------      -------
     Total interest-bearing liabilities                     12,871         2,159          754       15,784

Noninterest-bearing liabilities                                 --            --          431          431
Minority interest                                                8            --          605          613
Stockholder's equity                                            --            --          159          159
                                                           -------        ------       ------      -------
                                                           $12,879        $2,159       $1,949      $16,987
                                                           =======        ======       ======      =======

Gap before interest rate swap
     agreements                                             $1,717       $(1,417)       $(400)      $ (100)
Interest rate swap agreements                                 (400)          400           --           --
                                                           -------        ------       ------      -------
Gap adjusted for interest rate
     swap agreements                                        $1,317       $(1,017)       $(400)       $(100)
                                                           =======        ======       ======      =======

Cumulative gap                                              $1,317          $300        $(100)       $(100)
                                                           =======        ======       ======      =======

Gap as a percentage of total assets                            7.8%         (6.0%)       (2.4%)       (0.6%)
                                                               ===           ===          ===          ===
Cumulative gap as a percentage of
     total assets                                              7.8%          1.8%        (0.6%)       (0.6%)
                                                               ===           ===          ===          ===
</TABLE>

------------------

(1)  Based upon (a) contractual maturity, (b) instrument repricing date, if
     applicable, and (c) projected repayments and prepayments of principal, if
     applicable. Prepayments were estimated generally by using the prepayment
     rates forecast by various large brokerage firms as of September 30, 1996.
     The actual maturity and rate sensitivity of these assets could vary
     substantially if future prepayments differ from the Company's prepayment
     estimates.

                                    Page 36




     
<PAGE>




(2)  Consists of $4 million of securities held to maturity, $25 million of
     interest-bearing deposits in other banks and $127 million of short-term
     investment securities.

(3)  As loans held and securities available for sale may be sold within one
     year, they are considered to be maturing within one year.

(4)  Excludes underlying loans on nonaccrual status of $9 million.

(5)  Excludes allowance for loan losses of $244 million and nonaccrual loans of
     $160 million.

(6)  Fixed rate deposits and deposits with a fixed pricing interval are
     reflected as maturing in the year of contractual maturity or of first
     repricing date. Money market deposit accounts, demand deposit accounts and
     passbook accounts are reflected as maturing within one year.

     On September 30, 1996, interest-bearing liabilities of the Company
exceeded interest-earning assets by approximately $100 million. At December 31,
1995, interest-earning assets of the Company exceeded interest-bearing
liabilities by approximately $132 million. The change in the cumulative gap
between the two periods is due principally to the 1996 Acquisitions, the Branch
Sales, and the issuance of the Senior Sub Notes and the Parent Senior Notes.

LIQUIDITY

     The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U.S. government and other specified securities to deposits
and borrowings due within one year. The OTS has currently established a minimum
liquidity requirement of 5.00%. First Nationwide's liquidity ratio was 5.31%
and 5.46% at September 30, 1996 and December 31, 1995, respectively.

     A major source of the Company's funding is expected to be its retail
deposit branch network, which management believes will be sufficient to meet
its long-term liquidity needs. The ability of First Nationwide to retain and
attract new deposits is dependent upon the variety and effectiveness of its
customer account products, customer service and convenience, and rates paid to
customers. The Company also obtains funds from the repayment and maturities of
loans and mortgage-backed securities, while additional funds can be obtained
from a variety of sources including customer and brokered deposits, loan sales,
securities sold under agreements to repurchase, FHLB advances, and other
secured and unsecured borrowings. It is anticipated that FHLB advances and
securities sold under agreements to repurchase will be secondary sources of
funding, and management expects there to be adequate collateral for such
funding requirements.

     The Company's primary uses of funds are the origination or purchase of
loans, the funding of maturing certificates of deposit, demand deposit
withdrawals, and the repayment of borrowings. Certificates of deposit scheduled
to mature during the twelve months ending September 30, 1997 aggregate $4.6
billion. The Company may renew these certificates, attract new replacement
deposits, replace such funds with other borrowings, or it may elect to reduce
the size of the balance sheet. In addition, at September 30, 1996, the Company
had securities sold under agreements to repurchase, FHLB advances and other
borrowings aggregating $4.6 billion which mature within twelve months. The
Company may elect to pay off such debt or to replace such borrowings with
additional FHLB advances at prevailing rates.

     In July 1996, FN Holdings entered into a merger agreement with Cal Fed,
pursuant to which the Bank will acquire Cal Fed and its wholly owned capital
stock savings bank, California Federal Bank, A Federal Savings Bank, which, at
June 30, 1996, had

                                    Page 37




     
<PAGE>




approximately $14.0 billion in assets and $8.8 billion in deposits and operated
118 branches in California and Nevada. The aggregate cash consideration to be
paid in connection with the Cal Fed Acquisition is estimated to be
approximately $1.2 billion. FN Holdings expects to finance the Cal Fed
Acquisition with: (i) $555 million net proceeds from the September 19, 1996
issuance of the Notes, (ii) the $144.2 million net cash proceeds from the sale
of Holdings Preferred Stock, which was funded by borrowings under a credit
facility, and (iii) existing cash.

     On September 19, 1996, the FN Holdings issued the Holdings Preferred
Stock. Cash dividends on the Holdings Preferred Stock are cumulative and are
payable: (i) in cash at an annual rate of the cost of funds to an affiliate of
FN Holdings under such affiliate's bank credit facility and (ii) in additional
Preferred Stock at an annual rate of 2% of the stated liquidation value of the
Holdings Preferred Stock, if, when, and as declared by the Board of Directors
of FN Holdings. The annual cash dividends on the 10,000 shares of Holdings
Preferred Stock, assuming such dividends have been declared by the Board of
Directors of FN Holdings, are expected to approximate $15 million per year.

     During 1994, First Nationwide issued 3,007,300 shares of preferred stock
("Preferred Stock"). Cash dividends on such Preferred Stock are noncumulative
and are payable at an annual rate of 11-1/2% if, when, and as declared by the
Board of Directors of the Bank. The payment of dividends by the Bank is subject
to certain federal laws applicable to savings associations. Preferred Stock
dividends totaling $25.9 million were declared and paid during the nine months
ended September 30, 1996.

     FN Holdings' primary source of cash to pay the interest on and principal
of its $200 million of 12-1/4% Senior Notes due 2001 (the "Senior Notes") and
its $140 million of Senior Sub Notes is expected to be distributions from the
Bank. The annual interest on the Senior Notes and the Senior Sub Notes is $24.5
million and $12.8 million, respectively. Interest on the Notes, which FN
Holdings will assume in connection with the FN Escrow Merger, will approximate
$61.1 million per year, and is also expected to be paid with cash from
distributions from the Bank. Although FN Holdings expects that distributions
from the Bank will be sufficient to pay interest when due and the principal
amount of the Senior Notes, the Senior Sub Notes and the Notes at maturity,
there can be no assurance that earnings from the Bank will be sufficient to
make such distributions to FN Holdings. In addition, there can be no assurance
that such distributions will be permitted by the terms of any debt instruments
of FN Holdings' subsidiaries then in effect, by the terms of any class of
preferred stock issued by the Bank, including the Preferred Stock, or under
applicable federal thrift laws.

     Parent Holdings' primary source of cash to pay the interest on and
principal of its Parent Senior Notes is expected to be distributions from FN
Holdings. The annual interest on the Parent Senior Notes is $56.9 million.
Although Parent Holdings expects that distributions from FN Holdings will be
sufficient to pay interest when due and the principal amount of the Parent
Senior Notes at maturity, there can be no assurance that earnings from First
Nationwide will be sufficient to make distributions to FN Holdings, or that FN
Holdings will make distributions to Parent Holdings in amounts sufficient to
enable Parent Holdings to pay interest on the Parent Senior Notes when due or
principal of the Parent Senior Notes at maturity or that such distributions
will be permitted by the terms of any debt instrument of Parent Holdings,
subsidiaries then in effect, including the FN Holdings Senior Notes and Senior
Sub Notes, by the terms of any class of preferred stock issued by FN

                                    Page 38




     
<PAGE>




Holdings, including the Holdings Preferred Stock or any class of preferred
stock issued by First Nationwide, including the Bank Preferred Stock, or under
applicable federal thrift laws or regulations.

     The Company anticipates that the cash flow from assets as well as other
sources of funds will provide adequate liquidity in the future. In addition to
cash and cash equivalents of $271.2 million at September 30, 1996, the Company
has substantial additional borrowing capacity with the FHLB and other sources.

     As presented in the accompanying consolidated statements of cash flows,
the sources of liquidity vary between periods. The primary sources of funds in
the nine months ended September 30, 1996 were proceeds from the issuance of
Holdings Preferred Stock of $144.2 million, sales of loans held for sale, net
of originations, of $471.2 million, repayments of mortgage-backed securities
totaling $720.3 million, a net decrease in loans receivable of $1.3 billion,
and additional borrowings (including the issuance of the Senior Sub Notes and
Parent Senior Notes) and securities sold under agreements to repurchase of $7.7
billion, and capital contributions of $1.7 million. The primary uses of funds
were the $4.6 billion funding of the Branch Sales, principal payments on
borrowings of $5.2 billion, dividends paid of $369.4 million and capital
distributions of $267.1 million.

NON-PERFORMING ASSETS AND IMPAIRED LOANS

     The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. In determining impairment, the Company considers large
non-homogeneous loans including nonaccrual loans, troubled debt restructurings,
and performing loans which exhibit, among other characteristics, high
loan-to-value ratios, low debt-coverage ratios, or other indications that the
borrowers are experiencing increased levels of financial difficulty. The
Company bases the measurement of collateral-dependent impaired loans on the
fair value of their collateral. The amount, if any, by which the recorded
investment of the loan exceeds the measure of the impaired loan's value is
recognized by recording a valuation allowance.

     Generally, specific allowances for loan losses relative to impaired loans
that were acquired in the FN Acquisitions have not been established. In the
event that these impaired loans become non-performing, most would be eligible
to be sold to Granite under the Put Agreement. The Company considers the volume
of impaired loans that not eligible under the Put Agreement and the level in
excess of the amount available under the Put Agreement in its evaluation of the
adequacy of the established allowance for loan losses. There have been no
significant multi-family or commercial real estate loans originated since
October 1, 1994. At September 30, 1996, the specific allowances for loan losses
reflected on the Company's books represent allowances established by
predecessor institutions and were acquired in the 1996 Acquisitions.

     At September 30, 1996, the carrying value of loans that are considered to
be impaired totalled $136.2 million (of which $31.4 million were on non-accrual
status). The average recorded investment in impaired loans during the nine
months ended September 30, 1996 was approximately $136.9 million. For the nine
months ended September 30, 1996, the Company recognized interest income on
those impaired loans of $12.3 million, which included $.3 million of interest
income recognized using the cash basis method of income recognition.


                                    Page 39




     
<PAGE>




     The following table presents the amounts, net of specific allowances for
loan losses and purchase accounting adjustments, of the Company's nonaccrual
loans, foreclosed real estate, troubled debt restructurings and impaired loans
as of the dates indicated. These categories are not mutually exclusive; certain
loans are included in more than one classification.
<TABLE>
<CAPTION>

                                                                           September 30, 1996
                                                         Nonaccrual         Impaired         Restructured
                                                         ----------         --------         ------------
                                                                          (in millions)
<S>                                                     <C>                <C>              <C>
     Real Estate:
         1-4 unit residential                                 $134              $ --                $  4
         5+ unit residential                                    19                66                  66
         Commercial and other                                   13                70                  63
         Land                                                   --                --                  --
         Construction                                           --                --                  --
                                                              ----              ----                ----
              Total real estate                                166               136                 133
     Non-real estate                                             3                --                  --
                                                              ----              ----                ----
              Total loans, net                                 169              $136 (b)            $133 (c)
                                                                                ====                ====
     Foreclosed real estate, net                                59
                                                              ----
              Total non-performing assets                     $228 (a)
                                                              ====

</TABLE>

<TABLE>
<CAPTION>
                                                                          December 31, 1995
                                                         Nonaccrual         Impaired         Restructured
                                                         ----------         --------         ------------
                                                                          (in millions)
<S>                                                     <C>                <C>              <C>
     Real Estate:
         1-4 unit residential                                 $136             $  --                $  8
         5+ unit residential                                    23                73                 147
         Commercial and other                                    9                52                  79
         Land                                                   --                --                  --
         Construction                                           --                --                  --
                                                              ----               ---                ----
              Total real estate                                168               125                 234
     Non-real estate                                             3                --                  --
                                                               ---              ----                ----
              Total loans                                      171              $125 (b)            $234 (c)
                                                                                ====                ====
     Foreclosed real estate, net                                49
                                                              ----
              Total non-performing assets                     $220
                                                              =====
</TABLE>

------------------

(a)  Includes loans securitized with recourse on nonaccrual status of $9
     million.

(b)  Includes loans on nonaccrual status of $31.4 million and $29.6 million at
     September 30, 1996 and December 31, 1995, respectively, and loans
     classified as troubled debt restructurings of $28.4 million and $31.9
     million at September 30, 1996 and December 31, 1995, respectively.

(c)  Includes nonaccrual loans of $3.4 million and $1.2 million at September
     30, 1996 and December 31, 1995, respectively. At September 30, 1996, $2.4
     million of these nonaccrual, troubled debt restructurings were also
     considered impaired. The decrease from $234 million at December 31, 1995
     to $133 million at September 30, 1996 is due to loans which have been
     performing under the restructured terms for greater than twelve months
     which then cease to be reported as "restructured."

     There were no accruing loans contractually past due 90 days or more at
September 30, 1996 or December 31, 1995.

     The Company's non-performing assets increased to $228 million at September
30, 1996 from $220 million at December 31, 1995. Non-performing assets at
September 30,

                                    Page 40




     
<PAGE>




1996 include $49.3 million of non-performing loans and $19.2 million of
foreclosed real estate which were acquired in the 1996 Acquisitions. Foreclosed
real estate also includes $6.0 million of assets acquired in the LMUSA 1996
Purchase that are covered for loss under the indemnification provisions of the
related contract, provided such real estate is sold prior to January 31, 1997.

     During the nine months ended September 30, 1996, $41.9 million of assets
were sold to Granite under the Put Agreement, leaving a remaining available
balance under the Put Agreement of $70.5 million. Of the $228 million in
non-performing assets at September 30, 1996, approximately $17.3 million were
eligible to be sold to Granite pursuant to the Put Agreement.

     The Company continuously manages its credit risk by assessing the current
and estimated future performance of the real estate markets in which it
operates. The Company continues to place a high degree of emphasis on the
management of its asset portfolio. The Company has three distinct asset
management functions: performing loan asset management, problem loan asset
management and credit review. Each of the three functions is charged with the
responsibility of reducing the risk profile within the residential, commercial
and multi-family asset portfolios by applying asset management and risk
evaluation techniques that are consistent with the Company's portfolio
management strategy and regulatory requirements. In addition to these asset
management functions, the Company has a specialized credit risk management
group that is charged with the development of credit policies and performing
credit risk analyses for all asset portfolios.

     The following table presents non-performing real estate assets by
geographic region of the country as of September 30, 1996:
<TABLE>
<CAPTION>
                                                                               Total
                                         Nonaccrual        Foreclosed     Non-performing
                                         Real Estate      Real Estate,      Real Estate      Geographic
                                       Loans, Net (2)        Net (2)          Assets        Concentration
                                       --------------        -------          ------        -------------
                                                              (dollars in millions)
<S>                                    <C>                 <C>              <C>            <C>
     Region:
         Northeast (1)                       $ 37              $12              $ 49           21.71%
         California                            99               42               141           62.83
         Other regions                         30                5                35           15.46
                                             ----              ---              ----          ------
              Total                          $166              $59              $225          100.00%
                                             ====              ===              ====          ======
</TABLE>
------------------
(1)  Includes Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, New
     York, Pennsylvania, Rhode Island and Vermont.

(2)  Net of purchase accounting adjustments and specific allowances for losses.



                                    Page 41




     
<PAGE>




     At September 30, 1996, the Company's largest non-performing asset was
approximately $3.6 million, and it had seven non-performing assets over $2
million in size with balances averaging approximately $2.8 million. Parent
Holdings has 1,873 non-performing assets below $2 million in size, including
1,783 non-performing 1-4 unit residential assets.

     A summary of the activity in the allowance for loan losses by loan type is
as follows for the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
                                                                      5+ Unit
                                                                    Residential
                                                 1-4 Unit         and Commercial      Consumer
                                                Residential         Real Estate       and Other       Total
                                                -----------         -----------       ---------       -----
                                                                (dollars in millions)
<S>                                             <C>                <C>                <C>          <C>
     Balance - December 31, 1995                     $116               $ 85              $ 9          $210
         Purchases/acquisitions                        12                 32                1            45
         Provision for loan losses                     25                  2                3            30
         Charge-offs                                  (36)                (3)              (5)          (44)
         Recoveries                                     2                 --                1             3
                                                     ----               ----              ---          ----
     Balance - September 30, 1996                    $119               $116              $ 9          $244
                                                     ====               ====              ===          ====

     Ratio of allowance for loan losses to
      non-performing loans:
              December 31, 1995                     85.3%              265.6%           300.0%        122.8%
                                                    ====               =====            =====         =====
              September 30, 1996                    88.8%              362.5%           300.0%        144.4%
                                                    ====               =====            =====         =====
</TABLE>

                                    Page 42




     
<PAGE>




MORTGAGE BANKING OPERATIONS

     The Company, through FNMC, has significantly expanded and enhanced the
efficiency of its mortgage banking operations. With the consummation of the
LMUSA 1996 Purchase on January 31, 1996 and the acquisition of additional
single-family loan servicing portfolios in the 1996 Acquisitions, other
acquisitions and the originated servicing, the single-family residential loans
serviced for others totalled $42.7 billion at September 30, 1996, an increase
of $15.7 billion from December 31, 1995. During the nine months ended September
30, 1996, the Company, through FNMC, originated and sold (generally with
servicing retained) single-family residential loans totaling approximately $3.6
billion and $3.8 billion, respectively. Gross revenues from mortgage loan
servicing activities for the nine months of 1996 totalled $155.5 million, an
increase of $89.4 million from the nine months ended September 30, 1995.

     In accounting for mortgage loan sales prior to April 1995, a gain or loss
was recognized based on the sum of three components: (i) the difference between
the cash proceeds of the loan sales and the carrying value of the loans; (ii)
the "excess servicing", if any; less (iii) provisions for estimated losses to
be incurred from limited recourse obligations, if any. Excess servicing results
in a capitalized asset that is amortized as an offset to servicing fee income
using the interest method over the estimated remaining lives of the loans sold.

     Effective April 1, 1995, the Company adopted SFAS No. 122, which requires
that, when a mortgage loan is sold and servicing rights are retained, a portion
of the cost of originating a mortgage loan be allocated to the mortgage
servicing rights based on its fair market value. This cost of originating the
loan is capitalized and amortized as an offset to servicing fee income using
the interest method over the estimated remaining lives of the loans sold. The
net gains on sales of single-family mortgage loans during the nine months ended
September 30, 1996 totalled $5.5 million and included amounts related to the
capitalization of originated and excess mortgage servicing rights of $55.0
million.

     The following is a summary of activity in mortgage servicing rights
purchased ("Purchased"), originated ("Originated") and excess servicing fees
receivable ("Excess") for the nine months ended September 30, 1996 (in
thousands):
<TABLE>
<CAPTION>

                                                Purchased         Originated         Excess            Total
                                                ---------         ----------         ------            -----
<S>                                               <C>               <C>                <C>            <C>
Balance at December 31, 1995                      $223,749          $16,370            $1,236         $241,355
     Additions                                     175,823           52,121             2,852          230,796
     Amortization                                  (62,058)          (2,980)             (444)         (65,482)
     Impairment                                         --               --                --               --
                                                  --------          -------            ------         --------
Balance at September 30, 1996                     $337,514          $65,511            $3,644         $406,669
                                                  ========          =======            ======         ========
</TABLE>

     Capitalized mortgage servicing rights are amortized over the period of
estimated future net servicing income. No allowance for loss due to impairment
of mortgage servicing rights was necessary at September 30, 1996.


                                    Page 43




     
<PAGE>




CAPITAL RESOURCES

     The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
established three capital requirements for all insured institutions: tangible
capital, core capital and risk-based capital. In general, tangible capital is
determined by subtracting most intangible assets from common stockholders'
equity (including retained earnings) and noncumulative perpetual preferred
stock. Core capital generally is the sum of tangible capital plus qualifying
supervisory goodwill and certain other qualifying intangibles. Total capital
generally is core capital plus a limited amount of supplementary capital such
as other forms of qualifying preferred stock and qualifying subordinated debt.

     At September 30, 1996, the Bank's regulatory capital levels exceeded the
minimum regulatory capital requirements, with tangible, core and risk-based
capital ratios of 6.71%, 6.71% and 12.93%, respectively. The following is a
reconciliation of the Bank's stockholders' equity to regulatory capital as of
September 30, 1996:
<TABLE>
<CAPTION>

                                              Tangible      Core    Risk-based
                                              Capital      Capital    Capital
                                              -------      -------    -------
                                                 (dollars in millions)
<S>                                         <C>          <C>         <C>
Stockholders' equity of the Bank at
    September 30, 1996                        $ 1,462     $ 1,462     $ 1,462
Unrealized holding gain on securities
    available for sale, net                       (35)        (35)        (35)
Non-qualifying loan-servicing rights              (41)        (41)        (41)
Non-allowable capital:
    Intangible assets                            (145)       (145)       (145)
    Investment in subsidiaries                     (8)         (8)         (8)
    Excess deferred tax assets                   (125)       (125)       (125)
Supplemental capital:
    Qualifying subordinated debt debentures      --          --            90
    General loan loss reserves                   --          --           129
Assets required to be deducted:
    Land loans with more than
         80% LTV ratio                           --          --            (2)
                                              -------     -------     -------
Regulatory capital of the Bank                  1,108       1,108       1,325
Minimum regulatory capital requirement            248         495         820
                                              -------     -------     -------
Excess above minimum capital
    requirement                               $   860     $   613     $   505
                                              =======     =======     =======

Regulatory capital of the Bank                   6.71%       6.71%      12.93%
Minimum regulatory capital requirement           1.50        3.00        8.00
                                              -------     -------     -------

Excess above minimum capital
    requirement                                  5.21%       3.71%       4.93%
                                              =======     =======     =======
</TABLE>

     The amount of adjusted total assets used for the tangible and core capital
ratios is $16.5 billion. Risk-weighted assets used for the risk-based capital
ratio amounted to $10.3 billion.

     The Bank is also subject to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 which, among other things, define
specific capital categories based on an institution's capital ratios. The
capital categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions

                                    Page 44




     
<PAGE>




categorized as "undercapitalized" or worse are subject to certain restrictions,
including the requirement to file a capital plan with the OTS, prohibitions on
the payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring, among other things. Other
restrictions may be imposed on the institution either by the OTS or by the
FDIC, including requirements to raise additional capital, sell assets, or sell
the entire institution. Once an institution becomes "critically
undercapitalized" it is generally placed in receivership or conservatorship
within 90 days.

     To be considered "well capitalized," a savings institution must generally
have a core capital ratio of at least 5.00%, a Tier 1 risk-based capital ratio
of at least 6.00%, and a total risk-based capital ratio of at least 10.00%. An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2.00% or less. At September 30, 1996, First Nationwide's
capital levels were sufficient for it to be considered "well capitalized":
<TABLE>
<CAPTION>
                                                                                         Risk-based
                                                                 Core             --------------------------
                                                                Capital           Tier 1       Total Capital
                                                                -------           ------       -------------
<S>                                                             <C>               <C>          <C>
     Regulatory capital of the Bank                              6.71%            10.81%           12.93%
     Well capitalized ratio                                      5.00              6.00            10.00
                                                                 ----             -----            -----
     Excess above well capitalized ratio                         1.71%             4.81%            2.93%
                                                                 ====              ====             ====
</TABLE>


                                    Page 45




     
<PAGE>




                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The Company and the Bank are involved in legal proceedings on claims
incidental to the normal conduct of their business. Although it is impossible
to predict the outcome of any outstanding legal proceedings, management
believes that such legal proceedings and claims, individually or in the
aggregate, will not have a material effect on the financial condition or
results of operations of the Company.

     During the second quarter of 1996, the two issues in dispute with respect
to the Bank's 1994 acquisition of substantially all of the assets and certain
of liabilities of First Nationwide Bank, A Federal Savings Bank ("Old FNB"),
pursuant to an asset purchase agreement ("Asset Purchase Agreement") were
resolved. The Asset Purchase Agreement provided that the purchase price
thereunder would be increased or decreased by, among other items, the increase
or decrease from January 1, 1994 to September 30, 1994, in the net book value
of the purchased assets acquired from Old FNB (the "Purchased Assets") and the
liabilities assumed from Old FNB (the "Assumed Liabilities") as such net book
value was reflected on the books and records of Old FNB in accordance with GAAP
(as defined in the Asset Purchase Agreement) consistently applied with the
previous accounting practices of Old FNB. The purchase price paid at closing,
including that portion based upon the change in net book value from January 1,
1994 to the close of business on September 30, 1994, was an estimate provided
by Old FNB.

     The more significant of the two issues previously in dispute arose from
Old FNB's change in net book value from January 1, 1994, to the close of
business on September 30, 1994. Specifically, in arriving at the cash purchase
price, Old FNB added back to the book value of the Purchased Assets an amount
of approximately $24 million which had been amortized from intangible assets
and goodwill on the closing date, thereby increasing the net book value of the
Purchased Assets and Assumed Liabilities and the estimated cash purchase price
by $24 million. First Nationwide believed that the exclusion of the
amortization of intangible assets and goodwill from the closing net book value
was contrary to the express provisions of the Asset Purchase Agreement. As a
result, First Nationwide did not believe that the addition by Old FNB of $24
million to the cash purchase price was proper under the terms of the Asset
Purchase Agreement. On March 9, 1995, First Nationwide filed suit against Old
FNB in state district court in Dallas, Texas regarding this matter. On October
16, 1995, the court in this matter granted Old FNB's motion to compel
arbitration and stayed First Nationwide's court action. The arbitration process
commenced in December 1995. In June 1996, First Nationwide prevailed in the
arbitration, and in July 1996, the $24 million previously in dispute, plus
interest, was remitted to the Bank.

     The other issue related to an outstanding receivable account, which First
Nationwide maintained was overstated by approximately $4 million by Old FNB at
September 30, 1994. In the second quarter of 1996, the parties mutually agreed
upon a settlement relating to this issue. There was no material impact on the
consolidated financial statements of the Company as a result of this
settlement.



                                    Page 46




     
<PAGE>





ITEM 2.  CHANGES IN SECURITIES.

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

     None.

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

     None.

ITEM 5.  OTHER INFORMATION.

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)      Exhibits:

              27.1 Financial Data Schedule

     (b)      Reports on Form 8-K:

                  During the quarter ended September 30, 1996, the Company made
                  one filing on Form 8-K:

              1.  Filing dated August 30, 1996, reporting on Item 5, "Other
                  Events" and Item 7, "Financial Statements, Pro Forma
                  Financial Statements and Exhibits." This filing reported that
                  FN Holdings has entered into an Agreement and Plan of Merger
                  dated as of July 27, 1996 pursuant to which it will acquire
                  Cal Fed Bancorp Inc. and its wholly-owned subsidiary,
                  California Federal Bank, A Federal Savings Bank. This filing
                  included the following financial statements:

                    Pro Forma Condensed Combined Statement of Financial
                    Condition at June 30, 1996.

                    Notes to Pro Forma Condensed Combined Statement of
                    Financial Condition.

                    Pro Forma Condensed Combined Statement of Operations for
                    the six months ended June 30, 1996.
                      Notes to Pro Forma Condensed Combined Statement of
                      Operations for the six months ended June 30, 1996.

                    Pro Forma Condensed Combined Statement of Operations for
                    the year ended December 31, 1995.
                      Notes to Pro Forma Condensed Combined Statement of
                      Operations for the year ended December 31, 1995.



                                    Page 47




     
<PAGE>





                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.






                    First Nationwide (Parent) Holdings Inc.



                    /s/ Laurence Winoker
                    --------------------------------------
                    By:     Laurence Winoker
                            Vice President and
                            Controller

                            (Signing on behalf of the
                            Registrant and as the
                            Principal Accounting Officer)





November 13, 1996


                                    Page 48