<PAGE>

                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                 June 30, 1997
                              ------------------------------------------------

                                       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
 incorporation or organization)           (I.R.S. Employer Identification No.)

135 Main Street, San Francisco, CA                                 94105
------------------------------------------------------------------------------
(Address of principal executive offices)                         (Zip Code)
                       
                                  415-904-0100
------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

 35 East 62nd Street, New York, NY 10021            (212) 572-8500 
------------------------------------------------------------------------------
            (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 August 8, 1997: 1,000 shares
of common stock.

                               Page 1 of 44 pages
                           Exhibit index on page: 43



<PAGE>



                    FIRST NATIONWIDE (PARENT) HOLDINGS INC.
                    SECOND QUARTER 1997 REPORT ON FORM 10-Q
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                       Page No.
                                                                       --------
<S>                                                                    <C>
PART I.       FINANCIAL INFORMATION

 Item 1.  Consolidated Financial Statements

          Consolidated Statements of Financial Condition
          June 30, 1997 (unaudited) and December 31, 1996...................3

          Unaudited Consolidated Statements of Operations
          Six months ended June 30, 1997 and 1996...........................4

          Unaudited Consolidated Statements of Operations
          Three Months ended June 30, 1997 and 1996.........................5

          Unaudited Consolidated Statement of Stockholder's Equity
          Six Months ended  June 30, 1997...................................6

          Unaudited Consolidated Statements of Cash Flows
          Six Months ended June 30, 1997 and 1996...........................7

          Notes to Unaudited Consolidated Financial Statements..............9

 Item 2.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations....................14


PART II.      OTHER INFORMATION

 Item 1.  Legal Proceedings................................................42

 Item 2.  Changes in Securities............................................42

 Item 3.  Defaults Upon Senior Securities..................................42

 Item 4.  Submission of Matters to a Vote of Security Holders..............43

 Item 5.  Other Information................................................43

 Item 6.  Exhibits and Reports on Form 8-K.................................43

</TABLE>

                                     Page 2

<PAGE>



            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                      JUNE 30, 1997 AND DECEMBER 31, 1996
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                     June 30,       December  31,                 
                                                                                       1997             1996
                                                                                     --------        ----------
<S>                                                                              <C>              <C> 
                      Assets                                                        (unaudited)
Cash and amounts due from banks                                                   $   317,707      $   135,534
Interest-bearing deposits in other banks                                               50,734           20,619
Short-term investment securities                                                       73,645          113,716
                                                                                  -----------      -----------
     Cash and cash equivalents                                                        442,086          269,869

Securities available for sale, at fair value                                          947,995          542,019
Securities held to maturity                                                            58,047            4,272
Mortgage-backed securities available for sale, at fair value                        4,950,496        1,598,652
Mortgage-backed securities held to maturity                                         1,485,195        1,621,662
Loans held for sale, net                                                              858,587          825,316
Loans receivable, net                                                              19,476,094       10,212,583
Investment in Federal Home Loan Bank ("FHLB") System                                  399,794          220,962
Office premises and equipment, net                                                    155,877          100,164
Foreclosed real estate, net                                                            73,128           51,987
Accrued interest receivable                                                           192,005          106,034
Intangible assets (net of accumulated amortization of $35,736 in 1997
     and $11,141 in 1996)                                                             698,023          140,564
Mortgage servicing rights                                                             547,020          423,692
Other assets                                                                          662,396          517,297
                                                                                  -----------      -----------
         Total assets                                                             $30,946,743      $16,635,073
                                                                                  ===========      ===========

         Liabilities, Minority Interest and Stockholder's Equity

Deposits                                                                          $16,657,905      $ 8,501,883
Securities sold under agreements to repurchase                                      2,384,130        1,583,387
Borrowings                                                                          9,681,581        5,364,894
Other liabilities                                                                     809,913          399,446
                                                                                  -----------      -----------
         Total liabilities                                                         29,533,529       15,849,610
                                                                                  -----------      -----------

Commitments and contingencies                                                              --               --

Minority interest                                                                   1,231,253          613,852

Stockholder's equity:
     Common stock, $1.00 par value, 1,000 shares authorized,
         issued and outstanding                                                             1                1
     Additional paid-in capital                                                            --              161
     Net unrealized holding gain on securities available for sale                      42,416           36,975
     Retained earnings (substantially restricted)                                     139,544          134,474
                                                                                  -----------      -----------
         Total stockholder's equity                                                   181,961          171,611
                                                                                  -----------      -----------
         Total liabilities, minority interest and stockholder's equity            $30,946,743      $16,635,073
                                                                                  ===========      ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                     Page 3

<PAGE>



            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    SIX MONTHS ENDED JUNE 30, 1997 AND 1996
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>


                                                             1997                1996
                                                              ----                ----
<S>                                                     <C>              <C>  
Interest income:
     Loans receivable                                      $   779,663    $   446,397
     Mortgage-backed securities available for sale             134,432         59,662
     Mortgage-backed securities held to maturity                58,869         70,760
     Covered assets                                               --            1,413
     Loans held for sale                                        37,627         32,348
     Securities available for sale                              25,278         14,674
     Securities held to maturity                                   929            117
     Interest-bearing deposits in other banks                    3,790            905
                                                           -----------    -----------
         Total interest income                               1,040,588        626,276
                                                           -----------    -----------

Interest expense:
     Deposits                                                  374,787        222,656
     Securities sold under agreements to repurchase             72,786         62,310
     Borrowings                                                287,290        134,955
                                                           -----------    -----------
         Total interest expense                                734,863        419,921
                                                           -----------    -----------
         Net interest income                                   305,725        206,355
Provision for loan losses                                       39,900         19,800
                                                           -----------    -----------
     Net interest income after provision for loan losses       265,825        186,555
                                                           -----------    -----------

Noninterest income:
     Loan servicing fees, net                                   75,055         60,765
     Customer banking fees and service charges                  46,676         23,806
     Management fees                                             4,089          5,710
     Gain on sale of loans, net                                 11,358         13,670
     (Loss) gain on sale of assets, net                           (214)        38,458
     Gain on sales of branches                                   1,069        363,250
     Dividends on FHLB stock                                    11,975          4,691
     Other income                                               11,279          9,241
                                                           -----------    -----------
         Total noninterest income                              161,287        519,591
                                                           -----------    -----------

Noninterest expense:
     Compensation and employee benefits                        127,502        110,866
     Occupancy and equipment                                    40,844         25,578
     Savings Association Insurance Fund ("SAIF")
         deposit insurance premium                               5,450         11,584
     Loan expense                                               33,966         14,012
     Marketing                                                   7,684          4,812
     Professional fees                                          22,755          9,465
     Data processing                                             6,182          5,825
     Foreclosed real estate operations, net                       (857)        (4,910)
     Amortization of intangible assets                          24,595          4,204
     Other                                                      57,247         41,172
                                                           -----------    -----------
         Total noninterest expense                             325,368        222,608
                                                           -----------    -----------

Income before income taxes and minority interest               101,744        483,538
Income tax expense (benefit)                                    19,218        (81,975)
                                                           -----------    -----------
     Income before minority interest                            82,526        565,513
Minority interest                                               62,900        134,733
                                                           -----------    -----------
     Net income                                            $    19,626    $   430,780
                                                           ===========    ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                     Page 4

<PAGE>



            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED JUNE 30, 1997 AND 1996
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                            1997           1996
                                                            ----           ----
<S>                                                       <C>           <C> 

Interest income:
     Loans receivable                                      $ 389,020    $ 225,236
     Mortgage-backed securities available for sale            73,427       29,924
     Mortgage-backed securities held to maturity              28,929       36,180
     Covered assets                                             --            691
     Loans held for sale                                      20,374       17,773
     Securities available for sale                            14,307        7,921
     Securities held to maturity                                 858          113
     Interest-bearing deposits in other banks                    922          262
                                                           ---------    ---------
         Total interest income                               527,837      318,100
                                                           ---------    ---------

Interest expense:
     Deposits                                                187,767      105,143
     Securities sold under agreements to repurchase           38,403       31,758
     Borrowings                                              149,298       83,304
                                                           ---------    ---------
         Total interest expense                              375,468      220,205
                                                           ---------    ---------
         Net interest income                                 152,369       97,895
Provision for loan losses                                     19,950        9,900
                                                           ---------    ---------
     Net interest income after provision for loan losses     132,419       87,995
                                                           ---------    ---------

Noninterest income:
     Loan servicing fees, net                                 35,339       33,309
     Customer banking fees and service charges                24,159       12,003
     Management fees                                           2,194        2,405
     Gain (loss) on sale of loans, net                         8,489          (22)
     (Loss) gain on sale of assets, net                         (236)      42,970
     Gain on sales of branches                                 1,069       55,345
     Dividends on FHLB stock                                   6,013        2,785
     Other income                                              5,421        5,857
                                                           ---------    ---------
         Total noninterest income                             82,448      154,652
                                                           ---------    ---------

Noninterest expense:
     Compensation and employee benefits                       63,022       50,122
     Occupancy and equipment                                  20,162       12,409
     Savings Association Insurance Fund ("SAIF")
         deposit insurance premium                             2,797        5,548
     Loan expense                                             26,142        6,255
     Marketing                                                 3,616        2,633
     Professional fees                                        13,395        7,017
     Data processing                                           3,247        2,976
     Foreclosed real estate operations, net                   (1,862)      (2,340)
     Amortization of intangible assets                        12,489        2,475
     Other                                                    28,636       16,887
                                                           ---------    ---------
         Total noninterest expense                           171,644      103,982
                                                           ---------    ---------

Income before income taxes and minority interest              43,223      138,665
Income tax expense (benefit)                                   9,025     (110,978)
                                                           ---------    ---------
     Income before minority interest                          34,198      249,643
Minority interest                                             31,061       58,610
                                                           ---------    ---------
     Net income                                            $   3,137    $ 191,033
                                                           =========    =========
</TABLE>



See accompanying notes to unaudited consolidated financial statements.

                                     Page 5

<PAGE>



            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                         SIX MONTHS ENDED JUNE 30, 1997
                                  (Unaudited)
                                 (in thousands)


<TABLE>
<CAPTION>


                                                                    Net unrealized
                                                      Additional   holding gains on                      Total
                                         Common         paid-in       securities         Retained     stockholder's
                                         stock         capital     available for sale    earnings         equity
                                        ----------   -----------  --------------------  ----------   -------------- 
<S>                                     <C>         <C>                <C>             <C>            <C>
Balance at December 31, 1996             $     1     $     161          $  36,975       $ 134,474      $ 171,611
Net income                                    --            --                 --          19,626         19,626
Merger of FN Escrow                           --            --                 --            (931)          (931)
Capital contribution                          --            39                 --              --             39
Issuance costs of FN Holdings                                                                          
Preferred Stock                               --            --                 --            (440)          (440)
Issuance costs of REIT Preferred Stock        --          (200)                --         (13,841)       (14,041)
                                                                                                       
Redemption of FN Holdings Preferred                                                                    
Stock                                         --            --                 --             656            656
Change in net unrealized holding gains                                                                 
on securities available for sale              --            --              5,441              --          5,441
                                         ---------   ---------          ---------       ---------      ---------
Balance at June 30, 1997                 $     1     $      --          $  42,416       $ 139,544      $ 181,961
                                         =========   =========          =========       =========      =========
                                                                                                     
</TABLE>


  See accompanying notes to unaudited consolidated financial statements.

                                     Page 6

<PAGE>



            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SIX MONTHS ENDED JUNE 30, 1997 AND 1996
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                   1997        1996
                                                                   ----        ----
<S>                                                           <C>            <C>  
Cash flows from operating activities:
Net income                                                    $    19,626    $   430,780
Adjustments to reconcile net income to net cash provided by
  operating activities:
 Amortization of intangible assets                                 24,595          4,204
 Accretion of purchase accounting premiums
    and discounts, net                                             (9,510)        (7,413)
 Amortization of mortgage servicing rights                         51,070         42,086
 Provision for loan losses                                         39,900         19,800
 Loss (gain) on sales of assets, net                                  214        (38,458)
 Gain on sale of branches                                          (1,069)      (363,250)
 Gain on sales of foreclosed real estate, net                      (7,191)        (6,882)
 Loss on sale of loans, net                                        51,816         22,814
 Depreciation and amortization of office premises
    and equipment                                                   7,603           (274)
 Amortization of deferred debt issuance costs                       3,379          1,005
 FHLB stock dividend                                              (11,975)        (4,691)
 Capitalization of originated mortgage servicing rights
    and excess servicing fees receivable                          (63,174)       (36,484)
 Purchases and originations of loans held for sale             (3,024,959)    (2,435,973)
 Proceeds from the sale of loans held for sale                  2,962,052      2,830,000
 Decrease (increase) in other assets                              107,353       (158,724)
 (Increase) decrease in accrued interest receivable               (15,004)         9,574
 (Decrease) increase in other liabilities                            (733)        31,103
 Minority interest                                                 59,048        117,441
                                                              -----------    -----------
    Total adjustments                                             173,415         25,878
                                                              -----------    -----------
    Net cash provided by operating activities                 $   193,041    $   456,658
                                                              -----------    -----------
</TABLE>

                                                                   (Continued)

                                     Page 7

<PAGE>



            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SIX MONTHS ENDED JUNE 30, 1997 AND 1996
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                               1997            1996
                                                                               ----            ----
<S>                                                                        <C>            <C>

Cash flows from investing activities:
     Acquisitions:
         Cal Fed Acquisition                                                $  (161,196)    $       --
         SFFed Acquisition                                                           --        (83,184)
         Home Federal Acquisition                                                    --         79,044
         Mortgage loan servicing rights and operations                           (7,728)       (48,305)
     Purchases of securities available for sale                                (607,845)      (255,003)
     Proceeds from maturities of securities available for sale                  204,888        114,269
     Purchases of securities held to maturity                                   (58,149)        (9,303)
     Proceeds from maturities of securities held to maturity                      4,374          1,250
     Purchases of mortgage-backed securities available for sale              (1,743,072)       (94,858)
     Principal payments on mortgage-backed securities available for sale        345,823        304,357
     Proceeds from sales of mortgage-backed securities available for sale        22,184             --
     Principal payments on mortgage-backed securities held to maturity          136,207        213,305
     Proceeds from sales of loans                                                 7,905         54,765
     Net decrease in loans receivable                                           622,849        836,831
     Purchases of FHLB stock, net                                                    --        (54,250)
     Purchases of office premises and equipment                                 (24,264)       (23,035)
     Proceeds from disposal of office premises and equipment                      1,828          8,393
     Proceeds from sales of foreclosed real estate                               88,847         89,386
     Purchases of mortgage servicing rights                                     (21,230)       (20,337)
                                                                            -----------    -----------
         Net cash flows (used in) provided by investing activities           (1,188,579)     1,113,325
                                                                            -----------    -----------

Cash flows from financing activities:
     Branch Sales                                                               (21,683)    (4,585,022)
     Net (decrease) increase in deposits                                       (810,276)       470,623
     Proceeds from additional borrowings                                      9,147,953      5,940,747
     Principal payments on borrowings                                        (8,598,582)    (3,238,041)
     Net increase in securities sold under agreements to repurchase             500,856        399,419
     Issuance of REIT Preferred Stock, net                                      485,959             --
     Dividends to parent                                                             --       (369,446)
     Redemption of FN Holdings Preferred Stock                                  (62,500)            --
     Proceeds from FN Escrow Merger                                             605,347             --
     Redemption of FN Holdings/FN Escrow Preferred Stock                        (17,250)            --
     Dividends paid to minority stockholders, net of taxes                      (61,668)        (6,086)
     Issuance costs of FN Holdings Preferred Stock                                 (440)            --
     Capital distribution to parent                                                  --       (267,055)
     Capital contribution                                                            39             --
                                                                            -----------    -----------
         Net cash flows provided by (used in) financing activities            1,167,755     (1,654,861)
                                                                            -----------    -----------

Net change in cash and cash equivalents                                         172,217        (84,878)
Cash and cash equivalents at beginning of period                                269,869        312,571
                                                                            -----------    -----------
Cash and cash equivalents at end of period                                  $   442,086    $   227,693
                                                                            ===========    ===========
</TABLE>





See accompanying notes to unaudited consolidated financial statements.


                                     Page 8

<PAGE>


            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited 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 six months ended June 30, 1997 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 six
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 California Federal
Bank, A Federal Savings Bank ("California Federal" or "Bank"), formerly First
Nationwide Bank, A Federal Savings Bank ("First Nationwide"), and the Bank's
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. These financial statements
should be read in conjunction with the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. All terms used but not defined elsewhere herein have
meanings ascribed to them in the Company's Annual Report on Form 10-K.

     Minority interest represents amounts attributable to the preferred stock
of the Bank, the preferred stock of FN Holdings, the preferred stock of
California Federal Preferred Capital Corporation, a wholly owned subsidiary of
the Bank, and the results of operations and equity of FN Holdings attributable
to its class B common stock.

     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

     On January 3, 1997, FN Holdings acquired 100% of the outstanding common
stock of Cal Fed Bancorp Inc. ("Cal Fed Bancorp") and California Federal Bank,
A Federal Savings Bank ("Cal Fed"), pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") dated July 27, 1996, among FN Holdings, Cal Fed
Bancorp and Cal Fed. The aggregate consideration paid under the Merger
Agreement consisted of approximately $1.2 billion in cash and the issuance of
litigation interests (the "Cal Fed Acquisition"). In connection with the Cal
Fed Acquisition, Cal Fed Bancorp was liquidated and First Nationwide was merged
with and into Cal Fed. Effective on January 3, 1997, First Nationwide changed
its name to California Federal Bank, A Federal Savings Bank.

     In connection with the Cal Fed Acquisition, FN Holdings made a capital
contribution to the Bank on January 3, 1997 of approximately $685 million.




                                     Page 9

<PAGE>


            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

     The following is a summary of the assets acquired and liabilities assumed
in connection with the Cal Fed Acquisition at January 3, 1997.
<TABLE>
<CAPTION>
                                                                                      Estimated
                                       Cal Fed                             Bank        Remaining
                                      Carrying        Fair Value         Carrying        Lives
                                        Value         Adjustments         Value       (in years)
                                        -----         -----------         -----       ----------
                                                (dollars in thousands)
<S>                                 <C>            <C>                  <C>           <C>  
Cash and cash equivalents            $  1,027,491    $         --    $  1,027,491          --
Securities                                  6,013              12           6,025           1
Mortgage-backed securities              1,963,869           1,387       1,965,256         6-9
Loans receivable, net                  10,084,170         (23,991)     10,060,179        2-12
Office premises and equipment, net         58,900         (17,765)         41,135        3-10
Investment in FHLB System                 166,786              --         166,786          --
Foreclosed real estate, net                18,482             (16)         18,466          --
Accrued interest receivable                71,868              --          71,868          --
Mortgage servicing rights                   4,759          39,738          44,497         2-7
Other assets                               87,096         142,634         229,730         2-5
Deposits                               (8,985,630)         (9,699)     (8,995,329)        1-8
Borrowings                             (3,468,004)         (2,918)     (3,470,922)        1-5
Other liabilities                        (198,454)       (188,892)       (387,346)       1-10
Preferred stock                          (172,500)             --        (172,500)         --
                                     ------------    ------------    ------------    
                                     $    664,846    $    (59,510)        605,336
                                     ============    ============                    
Purchase price                                                          1,188,687
                                                                     ------------
Excess cost over fair value
     of net assets acquired                                          $    583,351          15
                                                                     ============
</TABLE>


     The Cal Fed Acquisition was accounted for as a purchase and accordingly,
the purchase price was allocated to the assets acquired and liabilities assumed
in the transaction based on estimates of fair value at the date of purchase.
Since the date of purchase, the results of operations related to such assets
and liabilities have been included in the Company's 1997 consolidated statements
of operations.

     Effective May 31, 1997, the Bank (through its wholly owned mortgage bank
operating subsidiary, First Nationwide Mortgage Corporation ("FNMC")) acquired
a residential mortgage loan servicing portfolio of approximately $3.2 billion
from WMC Mortgage Corporation (the "Weyerhaeuser Purchase") for $37.1 million,
of which $7.7 million was paid by June 30, 1997. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Mortgage
Banking Operations."

     The following pro forma financial information combines the historical
results of the Company as if the Cal Fed Acquisition and the issuances of the
REIT Preferred Stock (as defined herein), the FN Holdings 10-5/8% Notes (as
defined herein) and the Parent Senior Notes (as defined herein) had occurred as
of the beginning of the first period presented (in thousands):

                                             Six months ended June 30,
                                            ---------------------------
                                               1997          1996
                                               ----          ----
     Net interest income                     $307,264       $353,860
     Net income                                18,120        149,908
                                             ========       ========



                                    Page 10

<PAGE>


            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements



     The gains recognized related to the Branch Sales, net of related taxes,
and certain sales of branches by Cal Fed are excluded from the above table. The
pro forma information does not include the effect of the Home Federal
Acquisition, the SFFed Acquisition, the LMUSA 1996 Purchase, the Weyerhaeuser
Purchase, the Branch Sales or the issuance of the FN Holdings Senior
Subordinated Notes (as defined herein) 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 Cal Fed Acquisition and the issuances of the
REIT Preferred Stock, the FN Holdings 10-5/8% Notes and the Parent Senior Notes
had been consummated in the past nor do they project the results of operations
in any future period.

(3)  FN Escrow Merger

     On January 3, 1997 and prior to the consummation of the Cal Fed
Acquisition, First Nationwide Escrow Corp. ("FN Escrow"), an affiliate of FN
Holdings, was merged with and into FN Holdings, pursuant to a merger agreement
by and between FN Holdings and FN Escrow (the "FN Escrow Merger"). In
connection therewith, FN Holdings acquired the net proceeds from the issuance
of FN Escrow's $575 million of senior subordinated notes due 2003 (the "FN
Holdings 10-5/8% Notes") and assumed FN Escrow's obligations under the FN
Holdings 10-5/8% Notes and indenture. Deferred issuance costs associated with
the FN Holdings 10-5/8% Notes of $19 million were included in FN Escrow's other
assets and are being amortized over the term of the FN Holdings 10-5/8% Notes.

     Concurrent with the issuance of the FN Holdings 10-5/8% Notes, FN Escrow
issued approximately $36 million aggregate liquidation value of cumulative
perpetual preferred stock (the "FN Escrow Preferred Stock") to Trans Network
Insurance Services Inc., an affiliate of FN Escrow. The FN Escrow Preferred
Stock had a stated liquidation value of $10,000 per share, plus accrued and
unpaid dividends, if any. Cash dividends on the FN Escrow Preferred Stock were
cumulative and accrued at an annual rate of approximately 7.3% of the stated
liquidation value. In connection with the FN Escrow Merger, each share of FN
Escrow Preferred Stock was converted into and became one share of cumulative
perpetual preferred stock of FN Holdings (the "FN Holdings/FN Escrow Preferred
Stock"), which stock had the same relative rights, terms and preferences as the
FN Escrow Preferred Stock. Immediately after issuance, FN Holdings redeemed the
FN Holdings/FN Escrow Preferred Stock at a redemption price of $36.8 million,
representing its stated liquidation value and accrued and unpaid dividends to
January 3, 1997. At the same time, a $19 million loan receivable from an
affiliate of FN Holdings was forgiven.

(4)  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 six months ended June 30, 1997 and
1996 was $706.1 million and $398.6 million, respectively.

     During the six months ended June 30, 1997, noncash activity consisted of
transfers of $86.8 million from loans receivable and $1.2 million from loans
held for sale (at lower of cost or market) to foreclosed real estate, the
issuance of additional FN Holdings preferred stock through preferred stock
dividends to minority stockholders of $1.4 million and the forgiveness of a $19
million loan from an affiliate of FN Holdings in exchange for the redemption of
FN Holdings/FN Escrow Preferred Stock.

     During the six months ended June 30, 1996, noncash activity consisted of
transfers from loans receivable to foreclosed real estate of $72.2 million, and
the transfers of certain consumer loans from loans held for sale to loans
receivable (at lower of cost or market) totalling $26.8 million.


                                    Page 11

<PAGE>


            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements


(5)  Minority Interest

     REIT Preferred Stock

     In November 1996, the Bank formed First Nationwide Preferred Capital
Corporation ("Preferred Capital Corp."), a real estate investment trust
("REIT") for the purpose of acquiring, holding and managing real estate
mortgage assets. All of Preferred Capital Corp.'s common stock is owned by the
Bank. Preferred Capital Corp. entered into a subservicing agreement with FNMC
pursuant to which FNMC services Preferred Capital Corp.'s mortgage assets.
Effective January 6, 1997, Preferred Capital Corp. changed its name to
California Federal Preferred Capital Corporation.

     On January 31, 1997, Preferred Capital Corp. issued 20,000,000 shares of
its 9-1/8% noncumulative exchangeable preferred stock (the "REIT Preferred
Stock"), raising $500 million. The REIT Preferred Stock has a stated
liquidation value of $25 per share, plus declared and unpaid dividends, if any.
The annual cash dividends on the 20,000,000 shares of REIT Preferred Stock,
assuming such dividends have been declared by the Board of Directors of
Preferred Capital Corp., are expected to approximate $45.6 million per year. As
long as Preferred Capital Corp. qualifies as a REIT, distributions on the REIT
Preferred Stock will be a dividends paid deduction by Preferred Capital Corp.

     Cal Fed Preferred Stock

     In connection with the Cal Fed Acquisition, the Bank assumed Cal Fed's
10-5/8% preferred stock with a liquidation value of $172.5 million (the "Cal
Fed Preferred Stock"). Cash dividends on the Cal Fed Preferred Stock are
noncumulative and are payable at an annual rate of 10-5/8% per share if, when,
and as declared by the Board of Directors of the Bank. The Cal Fed Preferred
Stock is generally not redeemable prior to April 1, 1999. The Cal Fed Preferred
Stock is redeemable at the option of California Federal, in whole or in part,
at $105.313 per share on or after April 1, 1999 and prior to April 1, 2000, and
at prices decreasing annually thereafter to the liquidation preference of
$100.00 per share on or after April 1, 2003, plus declared but unpaid
dividends. In addition, in the event of a change of control, the Cal Fed
Preferred Stock is redeemable at the option of California Federal or its
successor on or after April 1, 1996 and prior to April 1, 1999 in whole, but
not in part, at $114.50 per share.

(6)  Newly Issued Accounting Pronouncements

     On June 28, 1996, the 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.

     In December 1996, the FASB issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125" ("SFAS No. 127"). SFAS No. 127 defers for one year the
effective date (i) of paragraph 15 of SFAS No. 125 and (ii) of paragraphs 9-12
and 237(b) of SFAS No. 125 for repurchase agreement, dollar-roll, securities
lending and similar transactions. SFAS No. 127 provides additional guidance on
the types of transactions for which the effective date of SFAS No. 125 has been
deferred. It also requires that if it is not possible to determine whether a
transaction occurring during calendar-year 1997 is part of a repurchase
agreement, dollar-roll, securities lending, or similar transaction, then
paragraphs 9-12 of SFAS No. 125 should be applied to that transfer. The Company
adopted SFAS No. 125, as amended by SFAS No. 127, on January 1, 1997. Such
adoption did not have a material impact on the Company's consolidated financial
statements.

                                    Page 12

<PAGE>


            FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

     In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS
No. 129"). SFAS No. 129 establishes standards for disclosing information about
an entity's capital structure and applies to all entities. This statement
continues the previous requirements to disclose certain information about an
entity's capital structure found in APB Opinions No. 10, Omnibus Opinion-1966,
and No. 15, Earnings per Share, and FASB Statement No. 47, Disclosure of
Long-Term Obligations, for entities that were subject to the requirements of
those standards. This statement supersedes specific disclosure requirements of
Opinions 10 and 15 and Statement 47 and consolidates them in this statement for
ease of retrieval and for greater visibility to non-public entities. This
statement is effective for financial statements for periods ending after
December 15, 1997. It is not expected that the Company will experience any
material revision in its disclosures when SFAS No. 129 is adopted.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in
that financial statement. This statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. This statement
has no impact on the financial condition or results of operations of the
Company, but will require changes in the Company's disclosure requirements.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement supersedes FASB Statement No. 14, Financial Reporting for Segments of
a Business Enterprise, but retains the requirement to report information about
major customers. It amends FASB Statement No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure requirements for
previously unconsolidated subsidiaries. This statement is effective for fiscal
years beginning after December 15, 1997. In the initial year of application,
comparative informative for earlier years is to be restated. This statement
need not be applied to interim financial statements in the initial year of
application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application. This statement has no impact on the
financial condition or results of operations of the Company, but will require
changes in the Company's disclosure requirements.



                                    Page 13

<PAGE>



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

     The statements contained in this Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and Exchange Act
of 1934, including statements regarding the Company's expectations, intentions,
beliefs or strategies regarding the future. Forward-looking statements include
the Company's statements regarding liquidity, provision for loan losses,
capital resources and anticipated expense levels in "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In addition, in
those and other portions of this document, the words "anticipate," "believe,"
"estimate," "expect," "intend," and other similar expressions, as they relate
to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. It is important to note that the Company's
actual results could differ materially from those described herein as
anticipated, believed, estimated or expected. Among the factors that could
cause results to differ materially are the risks discussed in the "Risk
Factors" section included in the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on April 25, 1996 (File No.
333-4026) and declared effective on May 15, 1996. The Company assumes no
obligation to update any such forward-looking statement.

OVERVIEW

     The principal business of Parent Holdings, through California Federal,
consists of (i) operating retail deposit branches, (ii) originating and/or
purchasing residential real estate loans and, to a lesser extent, certain
commercial and consumer loans, for investment, (iii) managing its commercial
real estate loan portfolio and (iv) mortgage banking and loan servicing.
Revenues are derived primarily from interest charged on loans, interest
received on government and agency securities and mortgage-backed securities,
gains on sales of loans and other investments and 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, loan expenses,
deposit insurance assessments, data processing and other general and
administrative expenses.

     Acquisitions and Sales

     On January 3, 1997, the Company consummated the Cal Fed Acquisition
involving assets totalling $13.5 billion, retail deposits totalling $9.0
billion, and including 113 branches in California and six in Nevada. On May 9,
1997, the Bank consummated the sale of deposit accounts and related retail
banking assets comprised of cash on hand, loans on deposits and facilities
totalling $21.7 million to Humbolt Bank at a gross price representing a deposit
premium of 4.5% (the "Garberville Branch Sale"), and resulting in a net gain on
sale of $1.1 million.

     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 unaudited
consolidated financial statements for information regarding the Cal Fed
Acquisition.

     Net Income

     Parent Holdings reported net income for the six months ended June 30, 1997
of $19.6 million compared with net income of $430.8 million for the
corresponding period in 1996. Net income for the six months ended June 30, 1997
includes a $19.0 million provision for professional fees and additional
unreimbursable costs related to the foreclosure of single family loans serviced
for others, which are not expected to be recurring. Net income for the six
months ended June 30, 1996 includes $363.3 million in pre-tax gains on sales of
branches, $40.4 million in pre-tax gains from the sale of ACS stock and the
recognition of a $125.0 million deferred tax benefit. On a comparative basis,
excluding non-

                                    Page 14
<PAGE>

recurring and expected non-recurring items, net income (loss) for
the six months ended June 30, 1997 and 1996 was $38.7 million and $(37.3)
million, respectively.

     Net income for the three months ended June 30, 1997 was $3.1 million
compared to $191.0 million for the similar period in 1996. Net income for the
three months ended June 30, 1997 includes the provision for professional fees
and additional unreimbursable costs related to the foreclosure of single family
loans serviced for others. Net income for the three months ended June 30, 1996
includes $55.3 million in pre-tax gains on sales of branches, as well as the
gain from the sale of ACS stock and recognition of the deferred tax benefit. On
a comparative basis, excluding non-recurring and expected non-recurring items,
net income (loss) for the three months ended June 30, 1997 and 1996 was $20.5
million and $(13.2) million, respectively.

     Net interest income was $152.4 million and $305.7 million, respectively,
for the three and six months ended June 30, 1997, compared to $97.9 million and
$206.4 million in the same periods in 1996. The increases in 1997 over 1996 are
primarily due to the increased volumes of interest-bearing assets and
liabilities acquired in the SFFed and Home Federal Acquisitions (collectively,
the "1996 Acquisitions") and the Cal Fed Acquisition, partially offset by a
decrease in the net interest margin during 1997 compared to 1996 due to assets
from the Cal Fed Acquisition generally having a lower yield than the rest of
the portfolio, the assumption of the FN Holdings 10-5/8% Notes, the issuance of
$140 million of FN Holdings' 9-1/8% senior subordinated notes due 2003 (the "FN
Holdings Senior Subordinated Notes") on January 31, 1996 and the issuance of
$455 million of the Company's 12-1/2% Senior Notes due 2003 (the "Parent Senior
Notes") on April 17, 1996.

     Financial Condition

     During the six months ended June 30, 1997, consolidated total assets
increased $14.3 billion, to $30.9 billion, from December 31, 1996, and total
liabilities increased from $15.8 billion to $29.5 billion, primarily due to the
Cal Fed Acquisition and the assumption of the FN Holdings 10-5/8% Notes.

     During the six months ended June 30, 1997, minority interest increased by
$617.4 million. This increase is the result of the issuance of $500 million in
REIT Preferred Stock, the assumption of the Cal Fed Preferred Stock with a
liquidation value of $172.5 million as well as related accrued but unpaid
dividends of $4.6 million, $1.4 million in stock dividends on the FN Holdings
Preferred Stock and $2.2 million representing that portion of the results of
operations and equity of FN Holdings attributable to its class B common stock
which is owned by Hunter's Glen, partially offset by a $63.3 million redemption
of the FN Holdings Preferred 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 $313 million at June 30, 1997
compared with $224 million at December 31, 1996. Approximately $93.3 million,
or 29.8%, of the total non-performing assets at June 30, 1997 were acquired in
the Cal Fed Acquisition. Total non-performing assets as a percentage of the
Bank's total assets decreased to 1.01% at June 30, 1997 from 1.37% at December
31, 1996.


                                    Page 15

<PAGE>



RESULTS OF OPERATIONS

     Six Months ended June 30, 1997 versus Six Months ended June 30, 1996

     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.
<TABLE>
<CAPTION>


                                                                             Six months ended
                                                                               June 30, 1997
                                                            ----------------------------------------------
                                                               Average                            Average
                                                               Balance          Interest           Rate
                                                               -------          --------           ----
                                                                            (dollars in millions)
<S>                                                      <C>               <C>                    <C>   
 ASSETS

     Interest-earning assets (1):
         Securities and interest-bearing deposits
              in banks (2)                                   $  1,005            $  30              5.97%
         Mortgage-backed securities
              available for sale                                3,953              134              6.80
         Mortgage-backed securities
              held to maturity                                  1,549               59              7.60
         Loans held for sale, net                               1,011               37              7.44
         Loans receivable, net                                 20,052              780              7.79
         Covered assets                                            --               --                 --
                                                            ---------            -----              -----
              Total interest-earning assets                    27,570            1,040              7.55%
                                                                                 -----              ----
     Noninterest-earning assets                                 2,954
                                                            ---------
              Total assets                                    $30,524
                                                            =========

   LIABILITIES, MINORITY INTEREST
       AND STOCKHOLDER'S EQUITY

     Interest-bearing liabilities:
         Deposits                                             $16,845              375              4.49%
         Securities sold under
              agreements to repurchase                          2,548               73              5.68
         Borrowings (3)                                         8,584              286              6.75
                                                            ---------            -----              ----
              Total interest-bearing liabilities               27,977              734              5.30%
                                                                                 -----              ----
     Noninterest-bearing liabilities                            1,210
     Minority interest                                          1,168
     Stockholder's equity                                         169
                                                            ---------
              Total liabilities, minority interest and
                  stockholder's equity                        $30,524
                                                            =========
     Net interest income                                                          $306
                                                                                  ====
     Interest rate spread                                                                           2.25%
                                                                                                    ====
     Net interest margin                                                                            2.17%
                                                                                                    ====
     Average equity to average assets                                                               0.55%
                                                                                                    ====
</TABLE>


                                    Page 16

<PAGE>

<TABLE>
<CAPTION>


                                                                            Six months ended
                                                                              June 30, 1996
                                                           -----------------------------------------------
                                                               Average                            Average
                                                               Balance          Interest           Rate
                                                               -------          --------           ----
                                                                            (dollars in millions)
<S>                                                        <C>               <C>                 <C>  
   ASSETS

     Interest-earning assets (1):
         Securities and interest-bearing deposits
              in banks (2)                                   $    521             $ 16               6.14%
         Mortgage-backed securities
              available for sale                                1,753               60               6.85
         Mortgage-backed securities
              held to maturity                                  1,839               71               7.72
         Loans held for sale, net                                 876               32               7.31
         Loans receivable, net                                 11,073              446               8.06
         Covered assets                                            39                1               7.14
                                                             --------             ----               ----
              Total interest-earning assets                    16,101              626               7.78%
                                                                                  ----               ----
     Noninterest-earning assets                                 1,133
                                                             --------
              Total assets                                   $ 17,234
                                                             ========
   LIABILITIES, MINORITY INTEREST
       AND STOCKHOLDER'S EQUITY

     Interest-bearing liabilities:
         Deposits                                            $  9,949              223              4.50%
         Securities sold under
              agreements to repurchase                          2,225               63              5.59
         Borrowings (3)                                         3,987              134              6.77
                                                             --------             ----              ----
              Total interest-bearing liabilities               16,161              420              5.20%
                                                                                  ----              ----
     Noninterest-bearing liabilities                              273
     Minority interest                                            411
     Stockholder's equity                                         389
                                                             --------
              Total liabilities, minority interest and
                     stockholder's equity                    $ 17,234
                                                             ========
     Net interest income                                                          $206
                                                                                  ====
     Interest rate spread                                                                           2.58%
                                                                                                    ====
     Net interest margin                                                                            2.56%
                                                                                                    ====
     Average equity to average assets                                                               2.26%
                                                                                                    ====
                    
</TABLE>
-----------------

   (1)  Nonaccruing assets are included in the average balances for the periods
        indicated.
   (2)  The information presented includes securities held to maturity,
        securities available for sale and interest-bearing deposits in other
        banks.
   (3)  Interest and average rate include the impact of interest rate swaps.


                                     Page 17

<PAGE>



     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>

                                                                Six months ended June 30, 1997 vs. 1996
                                                                       Increase (Decrease) Due to
                                                             --------------------------------------------------
                                                              Volume                Rate              Net
                                                              ------                ----              ---
                                                                               (in millions)
<S>                                                         <C>                 <C>              <C>   
INTEREST INCOME: 

     Securities and interest-bearing deposits in banks           $ 14                $  --           $  14
     Mortgage-backed securities available for sale                 74                   --              74
     Mortgage-backed securities held to maturity                  (11)                  (1)            (12)
     Loans held for sale                                            4                    1               5
     Loans receivable, net                                        348                  (14)            334
     Covered assets                                                (1)                  --              (1)
                                                                 ----                -----           -----
         Total                                                   $428                $ (14)          $ 414
                                                                 ----                -----           -----

INTEREST EXPENSE:

     Deposits                                                    $153                $  (1)          $ 152
     Securities sold under agreements to repurchase                 9                    1              10
     Borrowings                                                   153                   (1)            152
                                                                -----                -----           ----- 
         Total                                                   $315                $  (1)          $ 314
                                                                 ----                -----           -----
              Change in net interest income                      $113                $ (13)           $100
                                                                 ====                =====           =====
</TABLE>

     The volume variances in total interest income and total interest expense
from the six months ended June 30, 1997 to the corresponding period in 1996 are
largely due to the additional $17.0 billion in interest-earning assets acquired
and $16.9 billion in interest-bearing liabilities assumed in the Cal Fed
Acquisition and the 1996 Acquisitions, the issuance of the $455 million Parent
Senior Notes, as well as the assumption of the FN Holdings 10-5/8% Notes. The
negative total rate variance of $13 million is attributed to assets from the
Cal Fed Acquisition generally having a lower yield than the rest of the
portfolio, the assumption of the FN Holdings 10-5/8% Notes, the issuances of
the FN Holdings Senior Subordinated Notes on January 31, 1996 and the Parent
Senior Notes and the impact of the additional wholesale borrowings used to
finance the Branch Sales.

     Interest Income. Total interest income was $1.0 billion for the six months
ended June 30, 1997, an increase of $414.3 million from the six months ended
June 30, 1996. The interest-earning assets acquired in the Cal Fed Acquisition
and the 1996 Acquisitions resulted in total interest-earning assets for the six
months of 1997 averaging $27.6 billion, compared to $16.1 billion for the
corresponding period in 1996. The yield on total interest-earning assets during
the six months ended June 30, 1997 decreased to 7.55% compared to 7.78% for the
six months ended June 30, 1996, primarily due to assets from the Cal Fed
Acquisition generally having a lower yield than the rest of the portfolio.

     Parent Holdings earned $779.7 million of interest income on loans
receivable for the six months ended June 30, 1997, an increase of $333.3
million from the six months ended June 30, 1996. The loans acquired in the Cal
Fed Acquisition and the 1996 Acquisitions contributed most of the additional
interest income in 1997 and resulted in an increase in the average balance of
loans receivable to $20.1 billion for the six months ended June 30, 1997 from
$11.1 billion for the six months ended June 30, 1996. The weighted average
yield on loans receivable decreased to 7.79% for the six months ended June 30,
1997 from 8.06% for the same period in 1996, due primarily to the addition of
$10.1 billion in loans from the Cal Fed Acquisition.

                                    Page 18

<PAGE>



     Parent Holdings earned $37.6 million of interest income on loans held for
sale for the six months ended June 30, 1997, an increase of $5.3 million from
the six months ended June 30, 1996. The average balance of loans held for sale
was $1.0 billion for the six months ended June 30, 1997, an increase of $135
million from the same period in 1996, due to increased originations. The
weighted average yield on loans held for sale increased to 7.44% for the six
months ended June 30, 1997 from 7.31% during the six months ended June 30, 1996
primarily due to an increase in rates on ARM loans, and a higher percentage of
a comparatively higher fixed rate portfolio in 1997 compared to 1996.

     Interest income on mortgage-backed securities available for sale was
$134.4 million for the six months ended June 30, 1997, an increase of $74.8
million from the six months ended June 30, 1996. The average portfolio balances
increased $2.2 billion, to $4.0 billion, during the six months ended June 30,
1997 compared to the same period in 1996. The weighted average yield on these
assets decreased from 6.85% for the six months ended June 30, 1996 to 6.80% for
the six months ended June 30, 1997. The increase in the volume and decrease in
the weighted average yield is due to the acquisition of $2.0 billion in
mortgage-backed securities from Cal Fed and the purchase of $1.7 billion in
mortgage-backed securities during the first half of 1997.

     Interest income on mortgage-backed securities held to maturity was $58.9
million for the six months ended June 30, 1997, a decrease of $11.9 million
from the six months ended June 30, 1996. The average portfolio balances
decreased $290 million, to $1.5 billion, during the six months ended June 30,
1997 compared to the same period in 1996. The weighted average rate decreased
from 7.72% for the six months ended June 30, 1996 to 7.60% for the six months
ended June 30, 1997, primarily due to the repricing of mortgage loans
underlying the securities.

     Interest income from securities and interest-bearing deposits in banks was
$30.0 million for the six months ended June 30, 1997, an increase of $14.3
million from the six months ended June 30, 1996. The average portfolio balances
during the six months ended June 30, 1997 and 1996 increased to $1.0 billion
from $521 million, respectively, primarily due to the assets acquired in the
Cal Fed Acquisition and purchases made by the Bank during 1997 to meet
liquidity needs. The weighted average yield on these assets decreased to 5.97%
for the six months ended June 30, 1997 from 6.14% for the six months ended June
30, 1996, primarily due to a higher mix of lower-rate interest-bearing deposits
acquired in the Cal Fed Acquisition, along with a decline in yields earned on
interest-bearing deposits.

     Interest Expense. Total interest expense was $734.9 million for the six
months ended June 30, 1997, an increase of $314.9 million from the six months
ended June 30, 1996. The increase is the result of additional interest-bearing
liabilities assumed in the Cal Fed Acquisition and the 1996 Acquisitions, the
assumption of the FN Holdings 10-5/8% Notes, the issuances of the FN Holdings
Senior Subordinated Notes on January 31, 1996 and the Parent Senior Notes on
April 17, 1996, and incrementally higher rates paid on the additional
borrowings used to replace the retail deposits sold in the Branch Sales.

     Interest expense on customer deposits, including brokered deposits, was
$374.8 million for the six months ended June 30, 1997, an increase of $152.1
million from the six months ended June 30, 1996. The average balance of
customer deposits outstanding increased from $9.9 billion to $16.8 billion for
the six months ended June 30, 1996 and 1997, respectively. The increase in the
average balance is primarily due to $9.0 billion in deposits assumed in the Cal
Fed Acquisition. The overall weighted average cost of deposits was 4.49% for
the six months ended June 30, 1997 and 4.50% for the six months ended June 30,
1996.

     Interest expense on securities sold under agreements to repurchase
totalled $72.8 million for the six months ended June 30, 1997, an increase of
$10.5 million from the six months ended June 30, 1996. The average balance of
such borrowings for the six months ended June 30, 1997 and 1996 was $2.5
billion and $2.2 billion, respectively. The increase in the average balance is
primarily attributed to $1.1 billion of such liabilities assumed in the Cal Fed
Acquisition and the 1996 Acquisitions, partially offset by maturities and
payoffs that were refinanced with FHLB advances and deposits acquired in the
Cal Fed and Home Federal Acquisitions. The weighted average interest rate on
these instruments increased to 5.68% during the six months ended June 30, 1997
from 5.59% for the six months ended June 30, 1996, primarily due to an increase
in rates on new borrowings compared to such borrowings during 1996.

                                    Page 19
<PAGE>

     Interest expense on borrowings totalled $287.3 million for the six months
ended June 30, 1997, an increase of $152.3 million from the six months ended
June 30, 1996. The increase is attributed to the net effect of an increase for
borrowings assumed in the Cal Fed Acquisition and the 1996 Acquisitions, the
assumption of the FN Holdings 10-5/8% Notes, the issuances of the FN Holdings
Senior Subordinated Notes and the Parent Senior Notes, and additional
borrowings to replace the deposits sold in the Branch Sales, partially offset
by the impact of a slight decrease in the rates paid on such borrowings. The
average balance outstanding for the six months ended June 30, 1997 and 1996 was
$8.6 billion and $4.0 billion, respectively. The weighted average interest rate
on these instruments decreased to 6.75% during the six months ended June 30,
1997 from 6.77% for the six months ended June 30, 1996, primarily due to the
shorter average maturity of the portfolio at June 30, 1997 compared to June 30,
1996, partially offset by the higher rates paid on the Parent Senior Notes, the
FN Holdings Senior Subordinated Notes and the FN Holdings 10-5/8% Notes.

     Net Interest Income. Net interest income was $305.7 million for the six
months ended June 30, 1997, an increase of $99.4 million from the six months
ended June 30, 1996. The interest rate spread decreased to 2.25% for the six
months ended June 30, 1997 from 2.58% for the six months ended June 30, 1996.

     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 loans, was $161.3 million for the six months ended June
30, 1997, a decrease of $358.3 million from the six months ended June 30, 1996.
This decrease includes gains on sales of branches of $363.3 million in the six
months ended June 30, 1996, compared to a gain of $1.1 million in the first
half of 1997.

     Loan servicing fees, net of amortization of mortgage servicing rights,
were $75.1 million for the six months ended June 30, 1997, compared to $60.8
million for the six months ended June 30, 1996. This increase is due to the
addition of the mortgage servicing portfolios acquired in the Cal Fed
Acquisition, the 1996 Acquisitions, the LMUSA 1996 Purchase and the
Weyerhaeuser Purchase, as well as servicing rights originated through the
increased origination capacity provided by these acquisitions, partially offset
by portfolio paydowns. The single-family residential loan servicing portfolio,
excluding loans serviced for the Bank, increased from $44.9 billion at June 30,
1996 to $47.4 billion at June 30, 1997. During the six months ended June 30,
1997, the Company sold $3.0 billion in single-family mortgage loans originated
for sale as part of its ongoing mortgage banking operations compared to $2.6
billion of such sales for the corresponding period in 1996.

     Customer banking fees and service charges related to retail banking
operations, consisting of depositor fees for transaction accounts, overdrafts,
and miscellaneous other fees, were $46.7 million for the six months ended June
30, 1997, compared to $23.8 million for the six months ended June 30, 1996. The
increase is primarily attributed to the impact of increased revenues from the
retail banking operations acquired in the Cal Fed Acquisition and the 1996
Acquisitions, partially offset by the impact of the Branch Sales.

     Management fees totalled $4.1 million for the six months ended June 30,
1997, compared to $5.7 million for the six months ended June 30, 1996. The
decrease is attributed principally to the reduced number of assets under
management as a result of an increase in dispositions of assets being managed
and contracts with third parties which have expired.

     Gain on sales of loans was $11.4 million for the six months ended June 30,
1997, compared to a gain of $13.7 million for the six months ended June 30,
1996. The decrease 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, partially
offset by 1997 pay-offs of commercial loans with unamortized discounts.

     Loss on sales of assets was $.2 million for the six months ended June 30,
1997 compared to a gain of $38.5 million for the six months ended June 30,
1996. The activity in 1996 is primarily the result of a $40.4 million gain from
the sale of ACS stock, partially offset by a permanent impairment in the
mortgage-backed securities available for sale portfolio.

                                    Page 20
<PAGE>

     Dividends on FHLB stock were $12.0 million for the six months ended June
30, 1997, an increase of $7.3 million from the six months ended June 30, 1996,
representing an increase in the volume of such stock owned by the Company,
primarily as a result of the Cal Fed Acquisition.

     Other noninterest income was $11.3 million for the six months ended June
30, 1997, an increase of $2.0 million from the six months ended June 30, 1996.
The increase is primarily attributed to an increase in disbursement float
interest income and the recognition of a previously deferred gain on the sale 
of certain retail operations, partially offset by a favorable outcome of an 
arbitration hearing during the second quarter of 1996.

     Noninterest Expense. Total noninterest expense was $325.4 million for the
six months ended June 30, 1997, an increase of $102.8 million from the six
months ended June 30, 1996. The increase is principally due to the growth of
the Company through the Cal Fed Acquisition and the 1996 Acquisitions.

     Total compensation and employee benefits expense was $127.5 million for
the six months ended June 30, 1997, an increase of $16.6 million from the six
months ended June 30, 1996. The increase in expense is primarily attributed to
1,741 additional employees of the Bank at June 30, 1997 compared to June 30,
1996, as a result of the Cal Fed Acquisition, partially offset by a reduction
in expense from June 30, 1996 to June 30, 1997 of $24.5 million related to a
management incentive plan ("Incentive Plan") between FN Holdings and certain
executive officers of the Bank. Parent Holdings has no employees of its own.

     Occupancy and equipment expense was $40.8 million for the six months ended
June 30, 1997, an increase of $15.3 million from the six months ended June 30,
1996, attributed primarily to the Cal Fed Acquisition and the 1996
Acquisitions, partially offset by operations sold in the Branch Sales.

     SAIF deposit insurance premiums decreased $6.1 million, to $5.5 million,
for the six months ended June 30, 1997, due to a decrease in the quarterly
assessment rate from 5.75 cents to 1.63 cents per $100 of retail deposits,
partially offset by an increase in the deposit assessment base as a result of
the net impact of the Cal Fed Acquisition, the 1996 Acquisitions and the Branch
Sales.

     Loan expense was $34.0 million for the six months ended June 30, 1997, an
increase of $20.0 million from the six months ended June 30, 1996. The increase
includes a $16.1 million provision for additional unreimbursable costs related
to the foreclosure of single family loans serviced for others, which is not
expected to be recurring. The increase is also attributed to additional
expenses associated with the higher volume of loans serviced, and higher
outside appraisal fees, inspection fees and provision for loss on FHA and VA
loans serviced.

     Marketing expense was $7.7 million for the six months ended June 30, 1997,
an increase of $2.9 million from the six months ended June 30, 1996, attributed
primarily to the Cal Fed Acquisition and the 1996 Acquisitions, partially
offset by reduced nationwide marketing efforts as a result of the Branch Sales.

     Professional fees increased $13.3 million, to $22.8 million, for the six
months ended June 30, 1997 compared to the same period in 1996. This increase
includes additional legal, consulting and audit expenses related to the Cal Fed
Acquisition and the 1996 Acquisitions, as well as $2.9 million in higher
foreclosure outsourcing costs for loans serviced for others.

     Foreclosed real estate operations, including gains on sales, resulted in a
net gain of $.9 million for the six months ended June 30, 1997 compared to a
net gain of $4.9 million for the same period in 1996. The change is primarily
attributed to an increase in commercial loan foreclosures due to the expiration
of the Put Agreement and additional writedowns on foreclosed residential assets
as a result of a decline in fair values.

     Amortization of intangible assets increased to $24.6 million for the six
months ended June 30, 1997 from $4.2 million for the corresponding period in
1996, primarily due to the amortization of an additional $714.2 million of
intangible assets recorded in connection with the Cal Fed Acquisition and the
1996 Acquisitions.

                                    Page 21
<PAGE>

     Other noninterest expense was $57.2 million for the six months ended June
30, 1997, an increase of $16.1 million from the six months ended June 30, 1996,
due to an increase in provision for retail branch and subservicing losses,
telecommunications, postage, office supplies, insurance, OTS assessments and
travel expenses, all of which are attributed primarily to the Cal Fed
Acquisition and the 1996 Acquisitions.

     Provision for Income Tax. During the six months ended June 30, 1997 and
1996, Parent Holdings recorded income tax expense of $19.2 million and income
tax benefit of $82.0 million, respectively. Parent Holdings' effective Federal
tax rate was 2% and (24%) during the six months ended June 30, 1997 and 1996,
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 for both periods
and the recognition of a $125.0 million deferred tax benefit in the first half
of 1996. Parent Holdings' effective state tax rate increased to 17% from 7%
during the six months ended June 30, 1997 compared to the same period in 1996,
primarily as a result of the Company's increased presence in California where
the state tax rate is generally higher than in other states and nondeductible
goodwill amortization from various acquisitions.

     Minority Interest. Minority interest in income includes dividends on the
preferred stock of the Bank, the FN Holdings Preferred Stock and the REIT
Preferred Stock totalling $26.3 million, $8.2 million and $19.1 million,
respectively during the six months ended June 30, 1997. Minority interest
relative to the REIT Preferred Stock is reflected on the consolidated statement
of operations net of the income tax benefit ($2.4 million) which will inure to
the Company as a result of the deductibility of such dividends for income tax
purposes. Minority interest in income includes $11.7 million representing that
portion of FN Holdings' income attributable to its class B common stock which
is owned by Hunter's Glen.

     During the six months ended June 30, 1996, minority interest in income
included $25.9 million in dividends on the Preferred Stock of the Bank and
$108.8 million representing the portion of FN Holdings' income attributable to
its class B common stock which is owned by Hunter's Glen.


                                    Page 22

<PAGE>



     Three Months ended June 30, 1997 versus Three Months ended June 30, 1996

     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.

<TABLE>
<CAPTION>

                                                        Three months ended
                                                           June 30, 1997
                                                      -------------------------
                                                      Average           Average
                                                      Balance  Interest  Rate
                                                      -------  -------- -------
                                                        (dollars in millions)
<S>                                                 <C>         <C>    <C> 
ASSETS

  Interest-earning assets (1):
      Securities and interest-bearing deposits
           in banks (2)                               $ 1,060    $ 17   6.45%
      Mortgage-backed securities
           available for sale                           4,354      73   6.74
      Mortgage-backed securities
           held to maturity                             1,522      29   7.60
      Loans held for sale, net                          1,031      20   7.90
      Loans receivable, net                            20,047     389   7.77
      Covered assets                                       --      --     --
                                                      -------    ----   ----
           Total interest-earning assets               28,014     528   7.54%
  Noninterest-earning assets                            2,799    ----   ----
                                                      -------
           Total assets                               $30,813
                                                      =======

LIABILITIES, MINORITY INTEREST
    AND STOCKHOLDER'S EQUITY

  Interest-bearing liabilities:
      Deposits                                        $16,845     188   4.47%
      Securities sold under
          agreements to repurchase                      2,638      38   5.76
      Borrowings (3)                                    8,920     150   6.76
                                                      -------    ----   ----
           Total interest-bearing liabilities          28,403     376   5.32%
  Noninterest-bearing liabilities                       1,005    ----   ----
  Minority interest                                     1,238
  Stockholder's equity                                    167
                                                      -------
           Total liabilities, minority interest and
               stockholder's equity                   $30,813
                                                      =======
  Net interest income                                            $152
                                                                 ====
  Interest rate spread                                                  2.22%
                                                                        ====
  Net interest margin                                                   2.15%
                                                                        ====
  Average equity to average assets                                      0.54%
                                                                        ====

</TABLE>

                                    Page 23

<PAGE>

<TABLE>
<CAPTION>

                                                      Three months ended
                                                         June 30, 1996
                                                  ---------------------------
                                                  Average             Average
                                                  Balance  Interest    Rate
                                                  -------  --------    ----
                                                    (dollars in millions)
<S>                                              <C>        <C>        <C>  
ASSETS

  Interest-earning assets (1):
      Securities and interest-bearing deposits
           in banks (2)                           $   538    $  8      5.95%
      Mortgage-backed securities
           available for sale                       1,775      30      6.99
      Mortgage-backed securities
           held to maturity                         1,855      36      7.55
      Loans held for sale, net                        891      18      8.08
      Loans receivable, net                        11,292     225      7.97
      Covered assets                                   40       1      7.28
                                                  -------    ----      ----
           Total interest-earning assets           16,391     318      7.76%
  Noninterest-earning assets                        1,207    ----      ----
                                                  -------
           Total assets                           $17,598
                                                  =======

LIABILITIES, MINORITY INTEREST
    AND STOCKHOLDER'S EQUITY

  Interest-bearing liabilities:
      Deposits                                    $ 9,633     105      4.37%
      Securities sold under
           agreements to repurchase                 2,282      32      5.63
      Borrowings (3)                                4,797      83      6.92
                                                  -------    ----      ----
           Total interest-bearing liabilities      16,712     220      5.27%
  Noninterest-bearing liabilities                     170    ----      ----
  Minority interest                                   415
  Stockholder's equity                                301
                                                  -------
           Total liabilities, minority interest
               and stockholder's equity           $17,598
                                                  =======
  Net interest income                                        $ 98
                                                             ====
  Interest rate spread                                                 2.49%
                                                                       ====
  Net interest margin                                                  2.39%
                                                                       ====
  Average equity to average assets                                     1.71%
                                                                       ====

</TABLE>

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


(1)  Nonaccruing assets are included in the average balances for the periods 
     indicated.
(2)  The information presented includes securities held to maturity,
     securities available for sale and interest-bearing deposits in other
     banks.
(3)  Interest and average rate include the impact of interest rate swaps.


                                    Page 24

<PAGE>



     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 
                                                      June 30, 1997 vs. 1996
                                                    Increase (Decrease) Due to
                                                    --------------------------
                                                    Volume      Rate      Net
                                                    ------      ----      ---
                                                          (in millions)
<S>                                                <C>         <C>       <C>  

INTEREST INCOME:

 Securities and interest-bearing deposits in banks   $   9      $ --     $  9
 Mortgage-backed securities available for sale          44        (1)      43
 Mortgage-backed securities held to maturity            (7)       --       (7)
 Loans held for sale                                     2        --        2
 Loans receivable, net                                 170        (6)     164
 Covered assets                                         (1)       --       (1)
                                                     -----      ----     ----
     Total                                           $ 217      $ (7)    $210
                                                     -----      ----     ----

INTEREST EXPENSE:

 Deposits                                            $  81      $  2     $ 83
 Securities sold under agreements to repurchase          5         1        6
 Borrowings                                             69        (2)      67
                                                     -----      ----     ----
     Total                                           $ 155      $  1     $156
                                                     -----      ----     ----
          Change in net interest income              $  62      $ (8)    $ 54
                                                     =====      ====     ====

</TABLE>

     The volume variances in total interest income and total interest expense
from the three months ended June 30, 1997 to the corresponding period in 1996
are largely due to the additional $17.0 billion in interest-earning assets
acquired and $16.9 billion in interest-bearing liabilities assumed in the Cal
Fed Acquisition and the 1996 Acquisitions, the issuance of the $455 million
Parent Senior Notes, as well as the assumption of the FN Holdings 10-5/8%
Notes. The negative total rate variance of $8 million is attributed to assets
from the Cal Fed Acquisition generally having a lower yield than the rest of
the portfolio, the issuance of the Parent Senior Notes, the assumption of the
FN Holdings 10-5/8% Notes and the impact of the additional wholesale borrowings
used to finance the Branch Sales.

     Interest Income. Total interest income was $527.8 million for the three
months ended June 30, 1997, an increase of $209.7 million from the three months
ended June 30, 1996. The interest-earning assets acquired in the Cal Fed
Acquisition and the Home Federal Acquisition resulted in total interest-earning
assets for the three months ended June 30, 1997 averaging $28.0 billion,
compared to $16.4 billion for the corresponding period in 1996. The yield on
total interest-earning assets during the three months ended June 30, 1997
decreased to 7.54% compared to 7.76% for the three months ended June 30, 1996,
primarily due to assets from the Cal Fed Acquisition generally having a lower
yield than the rest of the portfolio.

     Parent Holdings earned $389.0 million of interest income on loans
receivable for the three months ended June 30, 1997, an increase of $163.8
million from the three months ended June 30, 1996. The loans acquired in the
Cal Fed Acquisition and the Home Federal Acquisition contributed most of the
additional interest income in 1997 and resulted in an increase in the average
balance of loans receivable to $20.0 billion for the three months ended June
30, 1997 from $11.3 billion for the three months ended June 30, 1996. The
weighted average yield on loans receivable decreased to 

                                    Page 25
<PAGE>

7.77% for the three months ended June 30, 1997 from 7.97% for the same period 
in 1996, due primarily to the addition of $10.1 billion in loans from the Cal 
Fed Acquisition.

     Parent Holdings earned $20.4 million of interest income on loans held for
sale for the three months ended June 30, 1997, an increase of $2.6 million from
the three months ended June 30, 1996. The average balance of loans held for
sale was $1.0 billion for the three months ended June 30, 1997, an increase of
$140 million from the same period in 1996, due to increased originations. The
weighted average yield on loans held for sale decreased to 7.90% for the three
months ended June 30, 1997 from 8.08% during the three months ended June 30,
1996.

     Interest income on mortgage-backed securities available for sale was $73.4
million for the three months ended June 30, 1997, an increase of $43.5 million
from the three months ended June 30, 1996. The average portfolio balances
increased $2.6 billion, to $4.4 billion, during the three months ended June 30,
1997 compared to the same period in 1996. The weighted average yield on these
assets decreased from 6.99% for the three months ended June 30, 1996 to 6.74%
for the three months ended June 30, 1997. The increase in the volume and
decrease in the weighted average yield is primarily due to the acquisition of
$2.0 billion in mortgage-backed securities from Cal Fed.

     Interest income on mortgage-backed securities held to maturity was $28.9
million for the three months ended June 30, 1997, a decrease of $7.3 million
from the three months ended June 30, 1996. The average portfolio balances
decreased $333 million, to $1.5 billion, during the three months ended June 30,
1997 compared to the same period in 1996. The weighted average rate increased
from 7.55% for the three months ended June 30, 1996 to 7.60% for the three
months ended June 30, 1997, primarily due to upward rate adjustments of
adjustable-rate mortgage-backed securities.

     Interest income from securities and interest-bearing deposits in banks was
$16.1 million for the three months ended June 30, 1997, an increase of $7.8
million from the three months ended June 30, 1996. The average portfolio
balances during the three months ended June 30, 1997 and 1996 increased to $1.1
billion from $538 million, respectively, primarily due to the assets acquired
in the Cal Fed Acquisition and purchases made by the Bank during 1997 to meet
liquidity needs. The weighted average yield on these assets increased to 6.45%
for the three months ended June 30, 1997 from 5.95% for the three months ended
June 30, 1996, primarily due to significant purchases of higher-yielding
investment securities during 1997.

     Interest Expense. Total interest expense was $375.5 million for the three
months ended June 30, 1997, an increase of $155.3 million from the three months
ended June 30, 1996. The increase is the result of additional interest-bearing
liabilities assumed in the Cal Fed Acquisition and the 1996 Acquisitions, the
assumption of the FN Holdings 10-5/8% Notes, the issuance of the Parent Senior
Notes on April 17, 1996, and incrementally higher rates paid on the additional
borrowings used to replace the retail deposits sold in the Branch Sales.

     Interest expense on customer deposits, including brokered deposits, was
$187.8 million for the three months ended June 30, 1997, an increase of $82.6
million from the three months ended June 30, 1996. The average balance of
customer deposits outstanding increased from $9.6 billion to $16.8 billion for
the three months ended June 30, 1996 and 1997, respectively. The increase in
the average balance is primarily due to $9.0 billion in deposits assumed in the
Cal Fed Acquisition. The overall weighted average cost of deposits increased to
4.47% for the three months ended June 30, 1997 from 4.37% for the three months
ended June 30, 1996, due principally to the impact of deposits acquired in the
Cal Fed Acquisition, partially offset by the impact of the 1996 Branch Sales.

     Interest expense on securities sold under agreements to repurchase
totalled $38.4 million for the three months ended June 30, 1997, an increase of
$6.6 million from the three months ended June 30, 1996. The average balance of
such borrowings for the three months ended June 30, 1997 and 1996 was $2.6
billion and $2.3 billion, respectively. The increase in the average balance is
attributed to $1.1 billion of such liabilities assumed in the Cal Fed
Acquisition and the 1996 Acquisitions, partially offset by maturities and
payoffs that were refinanced with FHLB advances and deposits acquired in the
Cal Fed and Home Federal Acquisitions. The weighted average interest rate on
these instruments increased to 5.76% during the three months ended June 30,
1997 from 5.63% for the three months ended June 30, 1996, primarily due to an
increase in rates on new borrowings compared to such borrowings during 1996.

                                    Page 26
<PAGE>

     Interest expense on borrowings totalled $149.3 million for the three
months ended June 30, 1997, an increase of $66.0 million from the three months
ended June 30, 1996. The increase is attributed to the net effect of an
increase for borrowings assumed in the Cal Fed Acquisition and the 1996
Acquisitions, the assumption of the FN Holdings 10-5/8% Notes, the issuance of
the Parent Senior Notes on April 17, 1996, 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. The average balance outstanding
for the three months ended June 30, 1997 and 1996 was $8.9 billion and $4.8 
billion, respectively. The weighted average interest rate on these instruments 
decreased to 6.76% during the three months ended June 30, 1997 from 6.92% for 
the three months ended June 30, 1996, primarily due to the shorter average 
maturity of the portfolio at June 30, 1997 compared to June 30, 1996, 
partially offset by the higher rates paid on the Parent Senior Notes and the 
FN Holdings 10-5/8% Notes.

     Net Interest Income. Net interest income was $152.4 million for the three
months ended June 30, 1997, an increase of $54.5 million from the three months
ended June 30, 1996. The interest rate spread decreased to 2.22% for the three
months ended June 30, 1997 from 2.49% for the three months ended June 30, 1996.

     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 loans, was $82.4 million for the three months ended June
30, 1997, a decrease of $72.2 million from the three months ended June 30,
1996. The three months ended June 30, 1996 includes gains on sales of branches
of $55.3 million and gain from the sale of ACS stock of $40.4 million.

     Loan servicing fees, net of amortization of mortgage servicing rights,
were $35.3 million for the three months ended June 30, 1997, compared to $33.3
million for the three months ended June 30, 1996. This increase is due to the
addition of the mortgage servicing portfolios acquired in the Cal Fed
Acquisition, the Home Federal Acquisition and the Weyerhaeuser Purchase, as
well as servicing rights originated through the increased origination capacity
provided by these acquisitions, partially offset by portfolio paydowns. The
single-family residential loan servicing portfolio, excluding loans serviced
for the Bank, increased from $44.9 billion at June 30, 1996 to $47.4 billion at
June 30, 1997. During the three months ended June 30, 1997, the Company sold
$1.8 billion in single-family mortgage loans originated for sale as part of its
ongoing mortgage banking operations compared to $1.3 billion of such sales for
the corresponding period in 1996.

     Customer banking fees and service charges related to retail banking
operations, consisting of depositor fees for transaction accounts, overdrafts,
and miscellaneous other fees, were $24.2 million for the three months ended
June 30, 1997, compared to $12.0 million for the three months ended June 30,
1996. The increase is primarily attributed to the impact of increased revenues
from the retail banking operations acquired in the Cal Fed and Home Federal
Acquisitions, partially offset by the impact of the Branch Sales.

     Management fees totalled $2.2 million for the three months ended June 30,
1997, compared to $2.4 million for the three months ended June 30, 1996. The
decrease is attributed principally to the reduced number of assets under
management as a result of an increase in dispositions of assets being managed
and contracts with third parties which have expired.

     Gain on sales of loans was $8.5 million for the three months ended June
30, 1997, compared to a loss of less than $.1 million for the three months
ended June 30, 1996. The increase is primarily attributed to 1997 pay-offs of
commercial loans with unamortized discounts.

     Loss on sales of assets was $.2 million for the three months ended June
30, 1997 compared to a gain of $43.0 million for the three months ended June
30, 1996. The gain is primarily the result of a $40.4 million gain from the
sale of ACS stock in the three months ended June 30, 1996.

     Dividends on FHLB stock were $6.0 million for the three months ended June
30, 1997, an increase of $3.2 million from the three months ended June 30, 1996
representing an increase in the volume of such stock owned by the Company,
primarily as a result of the Cal Fed Acquisition.

                                    Page 27
<PAGE>

     Other noninterest income was $5.4 million for the three months ended June
30, 1997, a decrease of $.4 million from the three months ended June 30, 1996.
The decrease is primarily attributed to a favorable outcome of an arbitration
hearing during the second quarter of 1996, partially offset by an increase in
disbursement float income during the same period in 1997.

     Noninterest Expense. Total noninterest expense was $171.6 million for the
three months ended June 30, 1997, an increase of $67.7 million from the three
months ended June 30, 1996. The increase is principally due to the growth of
the Company through the Cal Fed and Home Federal Acquisitions.

     Total compensation and employee benefits expense was $63.0 million for the
three months ended June 30, 1997, an increase of $12.9 million from the three
months ended June 30, 1996. The increase in expense is primarily attributed to
1,741 additional employees of the Bank at June 30, 1997 compared to June 30,
1996, as a result of the Cal Fed Acquisition, partially offset by a reduction
in expense from June 30, 1996 to June 30, 1997 of $4.9 million related to a
management incentive plan ("Incentive Plan") between FN Holdings and certain
executive officers of the Bank. Parent Holdings has no employees of its own.

     Occupancy and equipment expense was $20.2 million for the three months
ended June 30, 1997, an increase of $7.8 million from the three months ended
June 30, 1996, attributed primarily to the Cal Fed and Home Federal
Acquisitions, partially offset by operations sold in the Branch Sales.

     SAIF deposit insurance premiums decreased from $5.5 million to $2.8
million for the three months ended June 30, 1996 and 1997, respectively, due to
a reduction in the quarterly assessment rate from 5.75 cents to 1.63 cents per
$100 of retail deposits, partially offset by an increase in the deposit
assessment base as a result of the net impact of the Cal Fed and Home Federal
Acquisitions and the Branch Sales.

     Loan expense was $26.1 million for the three months ended June 30, 1997,
an increase of $19.9 million from the three months ended June 30, 1996. The
increase includes a $16.1 million provision for additional unreimbursable costs
related to the foreclosure of single family loans serviced for others, which is
not expected to be recurring. The increase is also attributed to additional
expenses associated with the higher volume of loans serviced, and higher
outside appraisal fees, inspection fees and provision for loss on FHA and VA
loans serviced.

     Marketing expense was $3.6 million for the three months ended June 30,
1997, an increase of $1.0 million from the three months ended June 30, 1996,
attributed primarily to the Cal Fed and Home Federal Acquisitions, partially
offset by reduced nationwide marketing efforts as a result of the Branch Sales.

     Professional fees increased $6.4 million, to $13.4 million, for the three
months ended June 30, 1997, compared to the same period in 1996. This increase
includes additional legal, consulting and audit expenses related to the Cal Fed
and Home Federal Acquisitions, as well as $2.9 million in higher foreclosure
outsourcing costs for loans serviced for others.

     Foreclosed real estate operations, including gains on sales, resulted in a
net gain of $1.9 million for the three months ended June 30, 1997 compared to a
net gain of $2.3 million for the same period in 1996. The change is primarily
attributed to an increase in commercial loan foreclosures due to the expiration
of the Put Agreement and additional writedowns on foreclosed residential assets
as a result of a decline in fair values.

     Amortization of intangible assets increased to $12.5 million for the three
months ended June 30, 1997 from $2.5 million for the corresponding period in
1996, primarily due to the amortization of an additional $598.9 million of
intangible assets recorded in connection with the Cal Fed and Home Federal
Acquisitions.

     Other noninterest expense was $28.6 million for the three months ended
June 30, 1997, an increase of $11.7 million from the three months ended June
30, 1996, due to an increase in provision for subservicing losses as well as
increased 

                                    Page 28
<PAGE>

telecommunications, postage, office supplies, insurance, OTS assessments and 
travel expenses, all of which are attributed primarily to the Cal Fed 
Acquisition and the 1996 Acquisitions.

     Provision for Income Tax. During the three months ended June 30, 1997 and
1996, Parent Holdings recorded income tax expense of $9.0 million and income
tax benefit of $111.0 million, respectively. Parent Holdings' effective Federal
tax rates were 2% and (88%) during the three months ended June 30, 1997 and
1996, 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 for both
periods and the recognition of a $125.0 million deferred tax benefit in the 
second quarter of 1996. Parent Holdings' effective state tax rate increased to 
19% from 8% during the three months ended June 30, 1997 compared to the same 
period in 1996, primarily as a result of the Company's increased presence in 
California where the state tax rate is generally higher than in other states 
and nondeductible goodwill amortization from various acquisitions.

     Minority Interest. Minority interest in income includes dividends on the
preferred stock of the Bank, the FN Holdings Preferred Stock and the REIT
Preferred Stock totalling $13.2 million, $3.7 million and $11.4 million,
respectively, during the three months ended June 30, 1997. Minority interest
relative to the REIT Preferred Stock is reflected on the consolidated statement
of operations net of the income tax benefit ($1.5 million) which will inure to
the Company as a result of the deductibility of such dividends for income tax
purposes. Minority interest in income also includes $4.2 million representing
that portion of FN Holdings' income attributable to its class B common stock
which is owned by Hunter's Glen.

     During the three months ended June 30, 1996, minority interest in income
included $8.6 million in dividends on the Preferred Stock of the Bank and $50.0
million representing that portion of FN Holdings' income attributable to its
class B common stock which is owned by Hunter's Glen.

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 $39.9 million and $19.8 million during the six
months ended June 30, 1997 and 1996, 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 during the six months ended June
30, 1997 and 1996 is as follows (in thousands):

<TABLE>
<CAPTION>

                                           1997              1996
                                           ----              ----
<S>                                       <C>               <C>

Balance - January 1                       $ 246,556         $ 210,484
     Purchase - 1996 Acquisitions                --            44,793
     Purchase - Cal Fed Acquisition         143,820                --
     Provision for loan losses               39,900            19,800
     Charge-offs                            (32,243)          (33,792)
     Recoveries                               2,468             1,756
                                          ---------         ---------
Balance - June 30                         $ 400,501         $ 243,041
                                          =========         =========
</TABLE>


     A significant portion of the Company's loans are secured by real estate
located in Southern California where real estate prices, although improved
during the past year, have not increased as rapidly as real estate prices in
the Company's other primary lending areas. Accordingly, the ultimate
collectibility of those loans is susceptible to changes in the economic
conditions in the region. Management's periodic evaluation of the adequacy of
the allowance for loan 
                                    Page 29
<PAGE>

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, and current and 
prospective economic conditions. The increase in the provision for loan losses 
during the six months ended June 30, 1997 compared to the same period in 1996 
is primarily due to the increase in the loan portfolio as a result of the Cal 
Fed Acquisition.

     Although management believes that the allowance for loan losses is
adequate for its current portfolios, it will continue to review its loan
portfolio to determine the extent to which any changes in economic conditions
or loss experience may require additional 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 process of planning and controlling asset and
liability mixes, volumes and maturities to influence the net interest spread is
referred to as asset and liability management. The objective of the Company's
asset and liability management is to maximize its net interest income within
the constraints imposed by prudent lending and investing practices, liquidity
needs and capital planning.

     The Company actively pursues investment and funding strategies intended to
minimize the sensitivity of its earnings to interest rate fluctuations while
maintaining the flexibility required to execute its business strategies. The
Company 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, the Company has
continued its emphasis on the origination of adjustable rate mortgage ("ARM")
products for its portfolio. Where possible, the Company 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. At June 30,
1997, approximately 92.4% of Company's real estate loan portfolio consisted of
ARMs.

     ARMs have from time to time been offered with low initial interest rates
as marketing inducements. In addition, most ARMs are also subject to periodic
interest rate adjustment caps or floors. In a period of rising interest rates,
ARMs could reach a periodic adjustment cap while still at a rate significantly
below their contractual margin over existing market rates. Since repricing
liabilities are typically not subject to such interest rate adjustment
constraints, the Company's net interest margin would most likely be negatively
impacted in this situation. Certain ARMs now offered by the Company have a
fixed monthly payment for a given period, with any changes as a result of
market interest rates reflected in the unpaid principal balance through
negative amortization. From the lender's perspective, these loans respond most
quickly to rate changes because interest accruals immediately reflect the loans
as though they were fully indexed. In general, the closer the interest rate on
a portfolio of ARMs is to the ultimate contractual margin over market rates,
the more sensitive the portfolio yield is to changes in market interest rates.

     In connection with the FN Acquisition and the Cal Fed Acquisition, the
Company acquired the rights and assumed the obligations under certain interest
rate swap agreements. The swaps provide a means of hedging the interest rate
exposure relative to the Company's FHLB advances. Under the terms of these
agreements, the Company pays the variable rate based on LIBOR and receives
fixed rates or a variable rate based on the yield of discount notes issued by
the FHLB System. During the six months ended June 30, 1997, the Company's net
interest income increased by $1.7 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. Gains and losses on early termination of these agreements would be
included in the carrying amount of the FHLB advances and amortized over the
remaining terms of such advances. The requirements that must be satisfied in
order to account for the swap agreements in this manner are as follows: (1) the
FHLB advances must expose the Company to interest rate risk, and (2) at the
inception of the hedge and throughout the 

                                    Page 30
<PAGE>

hedge period, high correlation of changes in the market value of the swaps and 
the fair value of the FHLB advances shall be probable so that the results of 
the swaps will substantially offset the effects of interest rate changes on 
the FHLB advances. If these requirements are not met, the swaps would be 
considered speculative and marked to market with changes in market value 
reflected in noninterest income. For additional information, see Note 22 to 
the Company's 1996 consolidated financial statements on Form 10-K.

     One of the most important sources of a financial institution's net income
is net interest income, which is the difference between the combined interest
earned on interest-earning assets and the combined interest 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 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
given periods. A gap is considered positive when the interest rate sensitive
assets exceeds interest rate sensitive liabilities, while the opposite 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 June 30,
1997. 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 June 30, 1997 is as
follows:







                                    Page 31

<PAGE>


<TABLE>
<CAPTION>


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

INTEREST-EARNING ASSETS:

Securities held to maturity, interest-bearing
     deposits in other banks and short-term
     investment securities(1)(2)                     $   182       $    --       $   --       $   --      $   182
Securities available for sale (3)                        948            --           --           --          948
Mortgage-backed securities
     available for sale (3)                            4,950            --           --           --        4,950
Mortgage-backed securities held
     to maturity (1)(4)                                1,478             1            1           --        1,480
Loans held for sale, net (3)(5)                          827            --           --           --          827
Loans receivable, net (1)(6)                          17,446         1,463          764           --       19,673
Investment in FHLB                                       400            --           --           --          400
                                                     -------       -------       ------       ------      -------
     Total interest-earning assets                    26,231         1,464          765           --       28,460
Noninterest-earning assets                                --            --           --        2,487        2,487
                                                     -------       -------       ------       ------      -------
                                                     $26,231       $ 1,464       $  765       $2,487      $30,947
                                                     =======       =======       ======       ======      =======

INTEREST-BEARING LIABILITIES:

Deposits (7)                                         $14,217       $ 2,427       $   14       $   --      $16,658
Securities sold under agreements
     to repurchase (1)                                 2,370            14           --           --        2,384
FHLB advances (1)                                      7,164           955            2           --        8,121
Other borrowings (1)                                      --           257        1,304           --        1,561
                                                     -------       -------       ------       ------      -------
     Total interest-bearing liabilities               23,751         3,653        1,320           --       28,724
Noninterest-bearing liabilities                           --            --           --          810          810
Minority interest                                         --            --           --        1,231        1,231
Stockholder's equity                                      --            --           --          182          182
                                                     -------       -------       ------       ------      -------
                                                     $23,751       $ 3,653       $1,320       $2,223      $30,947
                                                     =======       =======       ======       ======      =======

Gap before interest rate swap
     agreements                                      $ 2,480       $(2,189)      $ (555)                  $  (264)
                                                                                                          =======
Interest rate swap agreements                             --            --           --                        --
                                                     -------       -------       ------                   -------
Gap adjusted for interest rate
     swap agreements                                 $ 2,480       $(2,189)      $ (555)                  $  (264)
                                                     =======       =======       ======                   =======

Cumulative gap                                       $ 2,480       $   291       $ (264)                  $  (264)
                                                     =======       =======       ======                   =======

Gap as a percentage of total assets                      8.0%         (7.1)%       (1.8)%                     (.9)%
                                                         ===         =====          ===                       ===

Cumulative gap as a percentage of
     total assets                                        8.0%           .9%         (.9)%                     (.9)%
                                                         ===            ==           ==                       ===

</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 June 30, 1997. The
     actual maturity and rate sensitivity of these assets could vary 
     substantially if future prepayments differ from the Company's prepayment
     estimates.



                                    Page 32

<PAGE>



(2)  Consists of $58 million of securities held to maturity, $51 million of 
     interest-bearing deposits in other banks and $74 million of short-term 
     investment securities.
(3)  As loans held for sale and securities and mortgage-backed 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 $5 million.
(5)  Excludes nonaccrual loans of $31 million.
(6)  Excludes allowance for loan losses of $401 million and nonaccrual loans 
     of $204 million.
(7)  Fixed rate deposits and deposits with a fixed pricing interval are
     reflected as maturing in the year of contractual maturity or first
     repricing date. Money market deposit accounts, demand deposit accounts and
     passbook accounts are reflected as maturing within one year.

     At June 30, 1997, interest-bearing liabilities of the Company exceeded
interest-earning assets by approximately $264 million. At December 31, 1996,
interest-bearing liabilities of the Company exceeded interest-earning assets by
approximately $206 million. The change in the cumulative gap between the two
periods is due principally to the Cal Fed Acquisition and the assumption of the
FN Holdings 10-5/8% Notes.

     The maturity/rate sensitivity analysis is a static view of the balance
sheet with assets and liabilities grouped into certain defined time periods,
and thus only partially depicts the dynamics of the Company's sensitivity to
interest rate changes. Since it is measured at a single point in time, this
analysis may not fully describe the complexity of relationships between product
features and pricing, market rates and future management of the balance sheet
mix. The Company utilizes computer modeling, under various interest rate
scenarios, to provide a dynamic view of the effects of the changes in rates,
spreads, and yield curve shifts on net interest income.

     The Company's risk management policies are established by the
Asset/Liability Management Committee ("ALCO") of the Bank. ALCO meets monthly
to formulate the Bank's investment and risk management strategies. The basic
responsibilities of ALCO include management of net interest income and market
value of portfolio equity, management of liquidity to provide adequate funding,
and the establishment of asset product priorities by formulating performance
evaluation criteria, risk evaluation techniques and a system to standardize the
analysis and reporting of originations, competitive trends, profitability and
risk. On a quarterly basis, the Board of Directors of the Bank is apprised of
ALCO strategies adopted and their impact on operations. At least annually, the
Board of Directors of the Bank reviews the Bank's interest rate risk management
policy statements.

LIQUIDITY

     The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U. S. government securities and other specified securities
to deposits and borrowings due within one year. The OTS has currently
established a minimum liquidity requirement for the Bank of 5.00%. California
Federal's liquidity ratio was 5.02% and 5.32% at June 30, 1997 and December 31,
1996, 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 the Company 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 continue to be important
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 June 30, 1998 aggregate $8.6 billion.
The Company may renew these certificates, 

                                    Page 33
<PAGE>

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 June 30, 
1997, Parent Holdings had securities sold under agreements to repurchase, FHLB 
advances and other borrowings aggregating $8.9 billion maturing within twelve 
months. The Company may elect to pay off such debt or to replace such 
borrowings with additional FHLB advances or other borrowings at prevailing 
rates.

     During 1994, the Bank 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 totalling $17.3 million were declared and paid during each of the six
months ended June 30, 1997 and 1996.

     On September 19, 1996, FN Holdings issued 10,000 shares of preferred stock
with a liquidation value of $150 million (the "FN Holdings Preferred Stock").
The annual cash dividends on the FN Holdings Preferred Stock, assuming such
dividends have been declared by the Board of Directors of FN Holdings,
approximate $15 million per year.

     As a result of the Cal Fed Acquisition, the Bank is obligated with respect
to the following outstanding securities of Cal Fed: (i) $50 million of 10.66%
senior subordinated notes due 1998, (ii) $2.7 million of 6-1/2% convertible
subordinated debentures due 2001, (iii) $4.3 million of 10% subordinated
debentures due 2003 and (iv) $172.5 million of the Cal Fed Preferred Stock. The
annual interest cost from the assumed notes is $5.9 million, and the annual
dividend requirement on the Cal Fed Preferred Stock is $18.3 million.

     The annual dividends, net of taxes, on the REIT Preferred Stock are
expected to approximate $39.8 million.

     In the FN Escrow Merger, FN Holdings assumed the FN Holdings 10-5/8% notes
which have an annual interest cost of $61.1 million.

     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
California Federal 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 10-5/8% Notes,
the FN Holdings Senior Notes (as defined herein) and the FN Holdings Senior
Subordinated Notes, by the terms of any class of preferred stock issued by FN
Holdings, including the FN Holdings Preferred Stock or any class of preferred
stock issued by California Federal, including the Preferred Stock and the Cal
Fed Preferred Stock, or under applicable federal thrift laws or regulations.

     FN Holdings' primary source of cash to pay the interest on and principal
of the 10-5/8% Notes, its $200 million of 12-1/4% Senior Notes due 2001 (the
"FN Holdings Senior Notes") and its $140 million of FN Holdings Senior
Subordinated Notes is expected to be distributions from the Bank. The annual
interest on the FN Holdings Senior Notes and FN Holdings Senior Subordinated
Notes is $24.5 million and $12.8 million, respectively. Although FN Holdings
expects that distributions from the Bank will be sufficient to pay interest
when due and the principal amount of the FN Holdings Senior Notes, the FN
Holdings Senior Subordinated Notes, and the FN Holdings 10-5/8% 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 and
the Cal Fed Preferred Stock, or under applicable federal thrift laws.

     The Company anticipates that cash and cash equivalents on hand, the cash
flow from assets as well as other sources of funds will provide adequate
liquidity for its operating, investing and financing needs and the Bank's
regulatory 

                                    Page 34
<PAGE>

liquidity requirements in the foreseeable future. In addition to cash and cash 
equivalents of $442.1 million at June 30, 1997, the Company has substantial 
additional borrowing capacity with the FHLB and other sources.

     As presented in the accompanying unaudited consolidated statements of cash
flows, the sources of liquidity vary between periods. The primary sources of
funds during the six months ended June 30, 1997 were loan repayments of $622.8
million, $9.1 billion in additional borrowings, a $500.9 million net increase
in securities sold under agreements to repurchase, $486.0 million from the
issuance of the REIT Preferred Stock, net of issuance costs, $572.9 million in
proceeds from principal payments and maturities of securities and 
mortgage-backed securities available for sale and $605.3 million in proceeds 
from the FN Escrow Merger. The primary uses of funds were $8.6 billion in 
principal payments on borrowings, $2.4 billion in purchases of securities and 
mortgage-backed securities available for sale, $810.3 million from a net 
decrease in deposits and $161.2 million in net cash paid for the Cal Fed 
Acquisition.



                                    Page 35

<PAGE>


PROBLEM AND POTENTIAL PROBLEM ASSETS

     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. Any insignificant delay (i.e., 60 days or less) or
insignificant shortfall in amount of payments will not cause a loan to be
considered impaired. 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 LTV
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 the
loan's 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.

     At June 30, 1997, the carrying value of loans that are considered to be
impaired totalled $123.9 million (of which $39.4 million were on nonaccrual
status). The average recorded investment in impaired loans during the six
months ended June 30, 1997 was approximately $124.7 million. For the six months
ended June 30, 1997, Parent Holdings recognized interest income on those
impaired loans of $5.2 million, which included $.2 million of interest income
recognized using the cash basis method of income recognition.

     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>

                                                   June 30, 1997
                                         ------------------------------------
                                         Nonaccrual   Impaired   Restructured
                                         ----------   --------   ------------
                                                   (in millions)
<S>                                      <C>           <C>         <C>  

Real Estate:
    1-4 unit residential                    $196        $ --        $  3
    5+ unit residential                       20          56           8
    Commercial and other                      19          66          26
    Land                                      --          --          --
    Construction                               1           2          --
                                            ----        ----        ----
         Total real estate                   236         124          37
Non-real estate                                4          --          --
                                            ----        ----        ----
         Total loans, net                    240        $124 (b)    $ 37
Foreclosed real estate, net                   73        ====        ==== 
                                            ----
         Total non-performing assets        $313 (a)
                                            ====
                                                                   
                                                   December 31, 1996
                                         ------------------------------------
                                         Nonaccrual   Impaired   Restructured
                                         ----------   --------   ------------
                                                   (in millions)
Real Estate:                                                       
    1-4 unit residential                    $146        $ --        $  3
    5+ unit residential                       13          47          55
    Commercial and other                       9          54          28
    Land                                      --          --           1
    Construction                               1           1          --
                                            ----        ----        ----
         Total real estate                   169         102          87
Non-real estate                                3         --           --
                                            ----        ----        ----
         Total loans                         172        $102 (b)    $ 87
Foreclosed real estate, net                   52        ====        ====
                                            ----
         Total non-performing assets        $224 (a)
                                            ==== 

</TABLE>

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


                                    Page 36


<PAGE>




(a)  Includes loans securitized with recourse on nonaccrual status of $5.0
     million and $6.0 million at June 30, 1997 and December 31, 1996,
     respectively, and loans held for sale on nonaccrual status of $31.0
     million at June 30, 1997.
(b)  Includes $39.4 million and $22.6 million of loans on nonaccrual status
     at June 30, 1997 and December 31, 1996, respectively. Also includes
     $16.3 million and $18.3 million of loans classified as troubled debt
     restructurings at June 30, 1997 and December 31, 1996, respectively.

     There were no accruing loans contractually past due 90 days or more at
June 30, 1997 or December 31, 1996.

     Parent Holdings' non-performing assets, consisting of nonaccrual loans,
net of purchase accounting adjustments, and foreclosed real estate, net,
increased to $313 million at June 30, 1997, compared with $224 million at
December 31, 1996, primarily as a result of assets acquired in the Cal Fed
Acquisition. Non-performing assets as a percentage of the Bank's total assets
decreased to 1.01% at June 30, 1997, from 1.37% at December 31, 1996.

     Parent Holdings, through the Bank, manages its credit risk by regularly
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. These three functions are 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 June 30, 1997:

<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:
    California            $150           $53           $203            65.7%
    Northeast (1)           44             9             53            17.2
    Other regions           42            11             53            17.1
                          ----           ---           ----           -----
         Total            $236           $73           $309           100.0%
                          ====           ===           ====           =====

</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 37

<PAGE>




     At June 30, 1997, the Company's largest non-performing asset was
approximately $5.7 million, and it had eight non-performing assets over $2
million in size with balances averaging approximately $3.4 million. The Company
has 2,333 non-performing assets below $2 million in size, including 2,204
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 six months ended June 30, 1997:


<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, 1996         $ 123         $ 115         $   9     $ 247
    Purchases/acquisitions             55            79            10       144
    Provision for loan losses          30             6             4        40
    Charge-offs                       (21)           (5)           (6)      (32)
    Recoveries                          1            --             1         2
                                    -----         -----         -----     -----
Balance - June 30, 1997             $ 188         $ 195         $  18     $ 401
                                    =====         =====         =====     =====

Ratio of allowance for loan
 losses to non-performing loans:
         December 31, 1996           83.9%        503.2%        280.9%    143.2%
                                    =====         =====         =====     =====
         June 30, 1997               95.8%        494.1%        397.9%    166.8%
                                    =====         =====         =====     =====

</TABLE>

MORTGAGE BANKING OPERATIONS

     The Company, through FNMC, has significantly expanded its mortgage banking
operations. Effective May 31, 1997, FNMC consummated the Weyerhaeuser Purchase
involving the acquisition of a residential mortgage loan servicing portfolio of
approximately $3.2 billion and 42,000 loans for a purchase price of $37.1
million. With the consummation of the Weyerhaeuser Purchase, the acquisition of
additional single-family loan servicing portfolios in the Cal Fed Acquisition
and the originated servicing, the single-family residential loans serviced for
others totalled $47.4 billion at June 30, 1997, an increase of $4.3 billion and
$2.5 billion from December 31, 1996 and June 30, 1996, respectively. During the
six months ended June 30, 1997, the Company, through FNMC, originated and sold
(generally with servicing retained) single-family residential loans totalling
approximately $3.0 billion. Gross revenues from mortgage loan servicing
activities for the six months of 1997 totalled $122.4 million, an increase of
$21.0 million from the six months ended June 30, 1996.

     Changes in long-term interest rates generally cause an acceleration or
deceleration of mortgage loan prepayments and, consequently, in amortization of
mortgage servicing rights, resulting in a change in the market value of
mortgage servicing rights and in the Company's servicing fee income. In order
to reduce the sensitivity of its earnings to interest rate and market value
fluctuations, the Company initiated a program to hedge the change in value of
its servicing rights based on changes in interest rates ("MSR Hedge"). At June
30, 1997, the Company, through FNMC, was a party to several interest rate floor
contracts maturing from October 2001 through June 2002. The Company paid
counterparties a premium in exchange for cash payments in the event that the
10-year Constant Maturity Treasury rate falls below negotiated strike prices.
At June 30, 1997, the notional amount of the interest rate floors was $970
million and the strike prices were between 5.0% and 6.5%. In addition, the
Company, through FNMC, entered into principal-only swap agreements related to
principal-only securities with a market value of $95.4 million. The estimated
market values of interest rate floor contracts and swaps designated as hedges
against mortgage servicing rights at June 30, 1997 were $7.4 million and $(.9)
million, respectively.

     The premium paid by the Company on the interest rate floor contracts is
amortized against the carrying value of mortgage servicing rights ("MSRs")
based on the option decay rate. Amounts received or paid under the
principal-only 

                                    Page 38
<PAGE>

swap agreements are included in the carrying value of mortgage servicing 
rights. Gains and losses on early termination of these hedges would be 
included in the carrying amount of the related MSRs and amortized over the 
remaining terms of the assets. Two requirements must be met in order to use 
these hedge accounting methods: (i) MSRs must expose the Company to interest 
rate risk, and (ii) at the inception of the hedge and throughout the hedge 
period, high correlation of changes in the market value of the interest floor 
contracts and the principal-only swaps and the fair value of the MSRs shall be 
probable so that the results of the interest floor contracts and the 
principal-only swaps will substantially offset the effects of interest rate
changes on the MSRs. If these requirements are not met, the interest floor
contracts and the principal-only swaps would be considered speculative and
marked to market with changes in market value reflected in current earnings.

     The following is a summary of activity in MSRs and the MSR Hedge for the
six months ended June 30, 1997 (in thousands):

<TABLE>
<CAPTION>

                                                                      Total MSR
                                                   MSRs    MSR Hedge   Balance
                                                   ----    ---------   -------
<S>                                             <C>        <C>         <C>    

Balance at December 31, 1996                     $420,187   $ 3,505   $423,692
  Additions - Cal Fed Acquisition                  45,101        --     45,101
  Additions - Weyerhaeuser Purchase                45,497        --     45,497
  Originated servicing                             63,174        --     63,174
  Additions - other                                11,607        --     11,607
  Premium on interest rate floor contracts, net        --     6,767      6,767
  Net amount paid under principal-only swap
    agreements                                      2,252        --      2,252
  Amortization                                    (49,584)   (1,486)   (51,070)
  Impairment                                           --        --         --
                                                 --------   -------   --------
Balance at June 30, 1997                         $538,234   $ 8,786   $547,020
                                                 ========   =======   ========
</TABLE>

     Capitalized mortgage servicing rights are amortized over the period of
estimated future net servicing income. SFAS No. 122 requires enterprises to
measure the impairment of servicing rights based on the difference between the
carrying amount of the servicing rights and their current fair value. At June
30, 1997 and December 31, 1996, no allowance for impairment of the mortgage
servicing rights was necessary.

CAPITAL RESOURCES

     OTS capital regulations require savings banks to satisfy three minimum
capital requirements: tangible capital, core (leverage) capital and risk-based
capital. In general, an institution's tangible capital, which must be at least
1.5% of adjusted total assets, is the sum of common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interest in equity accounts of fully consolidated subsidiaries, less
disallowed intangibles. An institution's ratio of core capital to adjusted
total assets (the "core capital ratio") must be at least 3%. Core capital
generally is the sum of tangible capital plus certain qualifying intangibles.
Under the risk-based capital requirement, a savings bank must have total
capital (core capital plus supplementary capital) equal to at least 8% of
risk-weighted assets (which equals assets plus the credit risk equivalent of
certain off-balance sheet items, each multiplied by the appropriate risk
weight). Supplementary capital, which may not exceed 100% of core capital for
purposes of the risk- based requirements, includes, among other things, certain
permanent capital instruments such as qualifying cumulative perpetual preferred
stock, as well as some forms of term capital instruments, such as qualifying
subordinated debt. The capital requirements are viewed as minimum standards by
the OTS, and most institutions are expected to maintain capital levels well
above the minimum. In addition, the OTS regulations provide that minimum
capital levels higher than those provided in the regulations may be established
by the OTS for individual savings associations, depending upon their particular
circumstances. The Bank is not subject to any such individual minimum
regulatory capital requirement. These capital requirements are applicable to
the Bank but not to Parent Holdings.


                                    Page 39

<PAGE>



     At June 30, 1997, the Bank's regulatory capital levels exceeded the
minimum regulatory capital requirements, with tangible, core and risk-based
capital ratios of 5.63%, 5.63% and 11.72%, respectively. The following is a
reconciliation of the Bank's stockholders' equity to regulatory capital as of
June 30, 1997:

<TABLE>
<CAPTION>

                                                   Tangible   Core   Risk-based
                                                   Capital   Capital  Capital
                                                   -------   -------  -------
                                                     (dollars in millions)
<S>                                               <C>        <C>      <C>  

Stockholders' equity of the Bank at June 30, 1997  $2,278    $2,278   $2,278
Minority interest - REIT Preferred Stock              500       500      500
Unrealized holding gain on securities              
    available for sale, net                           (53)      (53)     (53)
Non-qualifying loan-servicing rights                  (55)      (55)     (55)
Non-allowable capital:                             
    REIT Preferred Stock in excess of 25%          
         of Tier 1 capital                            (80)      (80)     (80)
    Intangible assets                                (698)     (698)    (698)
    Goodwill Litigation Asset                        (100)     (100)    (100)
    Investment in subsidiaries                        (50)      (50)     (50)
    Excess deferred tax asset                         (60)      (60)     (60)
Supplemental capital:                              
    Qualifying subordinated debt debentures            --        --      102
    General loan loss reserves                         --        --      212
Assets required to be deducted:                    
    Equity investments required to be deducted         --        --      (27)
    Land loans with more than                      
         80% LTV ratio                                 --        --       (1)
                                                   ------    ------   ------
Regulatory capital of the Bank                      1,682     1,682    1,968
Minimum regulatory capital requirement                448       897    1,344
Fully capitalized items                                --        --        2
                                                   ------    ------   ------
Excess above minimum capital requirement           $1,234    $  785   $  622
                                                   ======    ======   ======
                                                   
Regulatory capital of the Bank                       5.63%     5.63%   11.72%
Minimum regulatory capital requirement               1.50      3.00     8.00
                                                   ------    ------   ------
Excess above minimum capital requirement             4.13%     2.63%    3.72%
                                                   ======    ======   ======
                                                  
</TABLE>

     The amount of adjusted total assets used for the tangible and core capital
ratios is $29.9 billion. Risk-weighted assets used for the risk-based capital
ratio amounted to $16.8 billion.

     The Bank is also subject to the provisions of the FDICIA, 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 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.


                                    Page 40

<PAGE>



     To be considered "well capitalized," a savings institution must generally
have a core capital ratio of at least 5.00%, a Tier 1 (core capital) 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 June 30, 1997, the Bank'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           5.63%      10.02%           11.72%
Well capitalized ratio                   5.00        6.00            10.00
                                         ----       -----            -----
Excess above well capitalized ratio       .63%       4.02%            1.72%
                                         ====       =====            =====

</TABLE>

     OTS capital regulations allow a savings bank to include a net deferred tax
asset in regulatory capital, subject to certain limitations. To the extent that
the realization of a deferred tax asset depends on a savings bank's future
taxable income, such deferred tax asset is limited for regulatory capital
purposes to the lesser of the amount that can be realized within one year or 10
percent of core capital. At June 30, 1997, $60 million of the net tax benefit
was determined to be attributable to the amount of taxable income that may be
realized in periods beyond one year. Accordingly, such amount has been excluded
from regulatory capital at June 30, 1997.


                                    Page 41

<PAGE>



                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     Parent Holdings and California Federal are involved in legal proceedings
on claims incidental to the normal conduct of its 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.

     In addition to legal proceedings within the normal course of business, the
Bank is the plaintiff in a claim against the United States in the lawsuit,
California Federal Bank v. United States, Civil Action No. 92-138C (the "Cal
Fed Litigation"). In the Cal Fed Litigation, which the Bank assumed in the Cal
Fed Acquisition, the Bank alleges, among other things, that the United States
breached certain contractual commitments regarding the computation of its
regulatory capital for which the Bank seeks damages and restitution. Cal Fed's
claims arose from changes, mandated by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), with respect to the rules for
computing regulatory capital.

     On July 1, 1996, the United States Supreme Court issued its opinion for
United States v. Winstar Corporation, No. 95-865, which affirmed the decisions
of the United States Court of Appeals for the Federal Circuit and the United
States Court of Federal Claims in various consolidated cases (the "Winstar
Cases") granting summary judgment to the plaintiff thrift institutions on the
liability portion of their breach of contract claims against the United States.
The Supreme Court held that the government breached certain express contracts
when Congress enacted FIRREA, and the Supreme Court remanded the proceedings
for a determination of the appropriate measure and amount of damages, which to
date have not been awarded.

     On October 30, 1996, Cal Fed filed a motion for partial summary judgment
as to the Federal government's liability to Cal Fed for breach of contract,
which has been opposed by the Federal government. In addition, the government
filed a cross-motion for partial summary judgment as to certain liability
issues on December 30, 1996. A hearing on the motions for partial summary
judgment on liability was held on August 7, 1997, at which time the judge took
the motions under advisement for a later ruling. Although the decision of the
Supreme Court has been rendered, a court may still determine that Cal Fed's
claims involve sufficiently different facts and/or legal issues as to render
the Winstar Cases inapplicable to the Cal Fed Litigation and thereby compel a
different conclusion from that of the Winstar Cases. The trial of the Bank's
case is currently expected to begin in late 1998.

     In connection with the Cal Fed Acquisition, the Company recorded as an
asset the estimated after-tax cash recovery from the Cal Fed Litigation that
will inure to the Company, net of amounts payable to holders of the Litigation
Interests and the Secondary Litigation Interests (the "Goodwill Litigation
Asset"). The Goodwill Litigation Asset was recorded at its estimated fair value
of $100 million, net of estimated tax liabilities, as of January 3, 1997, and
is included in the unaudited consolidated statement of financial condition as
of June 30, 1997.

ITEM 2.  CHANGES IN SECURITIES.

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

     None.


                                    Page 42

<PAGE>



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:

        3.1       Third Restated Certificate of Incorporation of the 
                  Registrant.  (Incorporated by reference to Exhibit
                  3.1 to the Registrant's Registration Statement on 
                  Form S-1 (File No. 333-4026).)

        3.2       By-laws of the Registrant. (Incorporated by reference 
                  to Exhibit 3.2 to the Registrant's Registration
                  Statement on Form S-1 (File No. 333-4026).)

       27.1       Financial Data Schedule

     (b) Reports on Form 8-K:

         None



                                    Page 43

<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)




August 13, 1997








                                    Page 44