<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

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

               For the Quarterly period ended December 31, 1996
                                              -----------------  
                                      OR

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

For the transition period from _______________ to _______________

Commission file number 1-11515
                       -------
                         

                        Commercial Federal Corporation
                      ----------------------------------             
            (Exact name of registrant as specified in its charter)

     Nebraska                                            47-0658852
---------------------                              ----------------------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                      Identification Number)

   2120 South 72nd Street, Omaha, Nebraska                   68124
----------------------------------------------          --------------
   (Address of principal executive offices)                (Zip Code)

                                (402) 554-9200
            ----------------------------------------------------    
            (Registrant's telephone number, including area code)

                                Not Applicable
-------------------------------------------------------------------------------
           (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.

YES     X           NO
    ---------          ---------
                     
                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

           Class                         Outstanding at February 11, 1997
-------------------------------        --------------------------------------  
Common Stock, $0.01 Par Value                     21,495,099 Shares

                                       1
<PAGE>
 
                        COMMERCIAL FEDERAL CORPORATION
                        ------------------------------
                                   

                                   FORM 10-Q
                                   ---------   
                                   

                                     INDEX
                                     -----
<TABLE>  
<CAPTION> 
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Part 1.     Financial Information                                                                                        Page Number
            ---------------------                                                                                        -----------


<S>                                                                                                                       <C>      
            Item 1.   Financial Statements:

                      Consolidated Statement of Financial Condition as of                              
                         December 31, 1996 and June 30, 1996......................................................            3

                      Consolidated Statement of Operations for the Three
                         and Six Months Ended December 31, 1996 and 1995..........................................          4-5

                      Consolidated Statement of Cash Flows for the Six
                         Months Ended December 31, 1996 and 1995..................................................          6-7

                      Notes to Consolidated Financial Statements..................................................         8-12

            Item 2.   Management's Discussion and Analysis of Financial
                           Condition and Results of Operations....................................................        13-23


Part II.    Other Information
            -----------------  

            Item 4.   Submission of Matters to a Vote of Security Holders.........................................           24

            Item 5.   Other Information...........................................................................           25

            Item 6.   Exhibits and Reports on Form 8-K............................................................           25


Signature Page  ..................................................................................................           26

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</TABLE>
                                       2
<PAGE>
 
                        COMMERCIAL FEDERAL CORPORATION
                 CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

                         PART I. FINANCIAL INFORMATION
                         -----------------------------   
                         Item 1. Financial Statements
                         ----------------------------
<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)                                                                      December 31,              June 30,
ASSETS                                                                                         1996                    1996
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             (Unaudited)              (Audited)
<S>                                                                                       <C>                      <C> 
Cash (including short-term investments of $3,200 and $2,400)...........................     $     29,470           $     35,827
Investment securities available for sale, at fair value................................           19,424                  9,898
Mortgage-backed securities available for sale, at fair value...........................          256,579                263,206
Loans held for sale....................................................................           99,146                 89,379
Investment securities held to maturity (fair value of $268,961 and $239,141)...........          270,645                243,145
Mortgage-backed securities held to maturity (fair value of $879,214 and $905,034)......          880,586                916,840
Loans receivable, net of allowances of $50,232 and $49,200.............................        4,968,412              4,723,785
Federal Home Loan Bank stock...........................................................           75,101                 79,113
Interest receivable, net of reserves of $376 and $388..................................           42,166                 40,683
Real estate............................................................................           19,337                 16,669
Premises and equipment.................................................................           76,299                 73,555
Prepaid expenses and other assets......................................................           83,315                 74,836
Goodwill and core value of deposits, net of
   accumulated amortization of $78,867 and $73,742.....................................           47,733                 40,734
------------------------------------------------------------------------------------------------------------------------------------

      Total Assets.....................................................................     $  6,868,213           $  6,607,670
------------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------

Liabilities:
   Deposits ...........................................................................     $  4,421,433           $  4,304,576
   Advances from Federal Home Loan Bank................................................        1,197,792              1,350,290
   Securities sold under agreements to repurchase......................................          670,755                380,755
   Other borrowings....................................................................           87,589                 58,546
   Interest payable....................................................................           22,585                 24,298
   Other liabilities...................................................................           73,337                 75,928
------------------------------------------------------------------------------------------------------------------------------------

      Total Liabilities................................................................        6,473,491              6,194,393
------------------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies..........................................................               --                     --
------------------------------------------------------------------------------------------------------------------------------------

Stockholders' equity:
   Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued..........               --                     --
   Common stock, $.01 par value; 25,000,000 shares  authorized;
      14,326,973 and 15,089,701 shares issued and outstanding..........................              143                    151
   Common stock dividend distributable; $.01 par value, 7,163,476 shares...............               72                     --
   Additional paid-in capital..........................................................          146,734                175,548
   Retained earnings...................................................................          248,229                240,281
   Unrealized holding loss on securities available for sale, net.......................             (456)                (2,703)
------------------------------------------------------------------------------------------------------------------------------------

      Total Stockholders' Equity.......................................................          394,722                413,277
------------------------------------------------------------------------------------------------------------------------------------

      Total Liabilities and Stockholders' Equity.......................................     $  6,868,213           $   6,607,670
------------------------------------------------------------------------------------------------------------------------------------

</TABLE> 
See accompanying Notes to Consolidated Financial Statements.

                                       3
<PAGE>
 
                        COMMERCIAL FEDERAL CORPORATION
                     CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)
<TABLE> 
<CAPTION> 

-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)                           Three Months Ended                   Six Months Ended
                                                                          December  31,                        December 31,
                                                                    -------------------------            ------------------------
                                                                      1996             1995               1996              1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>              <C>              <C>  
Interest Income:
   Loans receivable............................................... $  102,254       $  94,597        $  200,801       $  188,926
   Mortgage-backed securities.....................................     19,212          21,743            38,427           43,809
   Investment securities..........................................      6,281           6,017            11,305           12,324
-----------------------------------------------------------------------------------------------------------------------------------
      Total interest income.......................................    127,747         122,357           250,533          245,059

Interest Expense:
   Deposits.......................................................     56,284          53,606           111,074          106,749
   Advances from Federal Home Loan Bank...........................     16,876          24,930            36,254           50,997
   Securities sold under agreements to repurchase.................     10,184           3,508            16,547            7,154
   Other borrowings...............................................      2,106           1,688             4,069            3,435
-----------------------------------------------------------------------------------------------------------------------------------
      Total interest expense......................................     85,450          83,732            167,944         168,335
Net Interest Income...............................................     42,297          38,625             82,589          76,724
Provision for Loan Losses.........................................     (2,108)         (1,508)            (3,766)         (3,091)
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses...............     40,189          37,117             78,823          73,633

Other Income (Loss):
   Loan servicing fees............................................      7,444           6,844             14,771          13,311
   Retail fees and charges........................................      3,993           3,024              7,916           5,708
   Real estate operations.........................................        918            (196)             1,134             169
   Gain on sales of loans.........................................         22             318                127             170
   Other operating income.........................................      2,365           1,815              4,397           3,836
-----------------------------------------------------------------------------------------------------------------------------------
      Total other income..........................................     14,742          11,805             28,345          23,194

Other Expense:
   General and administrative expenses:
      Compensation and benefits...................................     11,498          10,891             22,079          22,303
      Occupancy and equipment.....................................      6,171           6,015             12,278          11,573
      Regulatory insurance and assessments........................      2,287           2,595              5,034           5,110
      Advertising ................................................      1,963           1,447              3,613           2,871
      Other operating expenses....................................      6,462           7,580             14,699          14,639
-----------------------------------------------------------------------------------------------------------------------------------
         General and administrative expenses before
             Federal deposit insurance special assessment.........     28,381          28,528             57,703          56,496
      Federal deposit insurance special assessment................         --              --             27,062              --
-----------------------------------------------------------------------------------------------------------------------------------
         Total general and administrative expenses................     28,381          28,528             84,765          56,496
   Amortization of goodwill and core value of deposits............      2,740           2,200              5,125           4,400
-----------------------------------------------------------------------------------------------------------------------------------
      Total other expense.........................................     31,121          30,728             89,890          60,896

Income Before Income Taxes
   and Extraordinary Items........................................     23,810          18,194             17,278          35,931
-----------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes........................................      8,320           6,330              5,838          12,823
-----------------------------------------------------------------------------------------------------------------------------------

Income Before Extraordinary Items.................................     15,490          11,864             11,440          23,108
Extraordinary Items - Loss on Early Retirement
   of Debt, Net of Tax Benefit of $316............................       (583)             --               (583)             --
-----------------------------------------------------------------------------------------------------------------------------------
Net Income........................................................ $   14,907       $  11,864          $  10,857       $  23,108
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

                                       4
<PAGE>
 
                        COMMERCIAL FEDERAL CORPORATION
               CONSOLIDATED STATEMENT OF OPERATIONS (Contunued)
                                  (Unaudited)

<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)                           Three Months Ended                   Six Months Ended
                                                                          December  31,                        December 31,
                                                                    --------------------------        --------------------------
                                                                      1996               1995             1996              1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>              <C>              <C> 
Per Common Share:
   Income Before Extraordinary Items (1).......................... $      .71       $     .54        $      .52       $     1.06
   Extraordinary Items, Net of Tax Benefit (1)....................       (.03)             --              (.03)              --
                                                                   ----------       ----------       ----------        ---------
   Net Income (1)................................................. $      .68       $      .54       $      .49       $     1.06
                                                                   ==========       ==========       ==========       ==========

   Dividends Declared (1)......................................... $      .07       $     .133       $     .137       $     .133
                                                                   ==========       ==========       ==========       ==========
</TABLE> 
-------------------------------------------------------------------------------

 (1) All per share data restated to reflect the three-for-two stock split
effective January 14, 1997.

See accompanying Notes to Consolidated Financial Statements.

                                       5
<PAGE>
 
                        COMMERCIAL FEDERAL CORPORATION
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)

<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------------------------------------------
 (Dollars in Thousands)                                                                                  Six Months Ended
                                                                                                            December, 31
                                                                                             --------------------------------------
                                                                                                     1996                 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>                  <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................      $   10,857            $   23,108
Adjustments to reconcile net income to net cash
  provided (used) by operating activities:                

      Extraordinary items, net of tax benefit.............................................             583                    --
      Amortization of goodwill and core value of deposits.................................           5,125                 4,400
      Provision for loss on loans and real estate.........................................           4,141                 2,623
      Depreciation and amortization.......................................................           3,954                 3,216
      Accretion of deferred discounts and fees, net.......................................          (2,416)               (2,552)
      Amortization of mortgage servicing rights...........................................           3,903                 4,158
      Amortization of deferred compensation on restricted
           stock and premiums on other borrowings.........................................             546                   666
      Gain on sales of real estate, loans and loan servicing rights, net..................          (1,456)                 (971)
      Stock dividends from Federal Home Loan Bank.........................................          (2,367)               (1,507)
      Proceeds from the sale of loans.....................................................         345,650               333,139
      Origination of loans for resale.....................................................        (127,741)             (187,317)
      Purchase of loans for resale........................................................        (228,414)             (146,976)
      (Increase) decrease in interest receivable..........................................            (107)                  340
      Decrease in interest payable and other liabilities..................................          (6,727)               (5,834)
      Other items, net....................................................................         (14,250)               (1,634)
                                                                                              ------------          ------------
           Total adjustments..............................................................         (19,576)                1,751
                                                                                              ------------          ------------
                Net cash (used) provided by operating activities..........................          (8,719)               24,859
-----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of loans........................................................................        (367,770)             (315,861)
Repayment of loans, net of originations...................................................         206,678               223,109
Principal repayments of mortgage-backed securities available for sale.....................          17,197                 2,415
Principal repayments of mortgage-backed securities held to maturity.......................          66,783                90,962
Proceeds from sale of mortgage-backed securities available for sale.......................          17,447                 2,614
Maturities and repayments of investment securities held to maturity.......................          47,198                56,629
Purchase of investment securities held to maturity........................................         (64,906)              (61,278)
Maturities and repayments of investment securities available for sale.....................           1,000                 1,000
Purchases of mortgage loan servicing rights...............................................          (3,264)               (7,252)
Proceeds from sale of Federal Home Loan Bank stock........................................           9,501                16,085
Purchase of Federal Home Loan Bank stock..................................................          (1,670)               (3,713)
Proceeds from sale of real estate.........................................................           8,374                 7,034
Acquisitions, net of cash received........................................................           7,339                    --
Payments to acquire real estate...........................................................            (555)               (1,229)
Purchases of premises and equipment, net..................................................          (3,746)               (4,911)
Other items, net..........................................................................            (690)                  452
                                                                                                ----------           -----------
               Net cash (used) provided by investing activities...........................        (61,084)                 6,056
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</TABLE> 

                                       6
<PAGE>
 
                        COMMERCIAL FEDERAL CORPORATION
               CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
                                  (Unaudited)
<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------
 (Dollars in Thousands)                                                                           Six Months Ended 
                                                                                                     December 31,
                                                                                        --------------------------------------
                                                                                               1996                  1995 
------------------------------------------------------------------------------------------------------------------------------------
  <S>                                                                                           <C>                   <C> 
  CASH FLOWS FROM FINANCING ACTIVITIES:
  (Decrease) increase in deposits.........................................................      $ (41,311)            $   35,176
  Proceeds from Federal Home Loan Bank advances...........................................         65,000              1,222,500
  Repayment of Federal Home Loan Bank advances............................................       (226,385)            (1,236,228)
  Proceeds from securities sold under agreements to repurchase............................        375,000                     --
  Repayment of securities sold under agreements to repurchase.............................        (85,000)               (12,618)
  Proceeds from issuance of other borrowings..............................................         94,500                     --
  Repayment of other borrowings...........................................................        (67,005)                (5,151)
  Payment of cash dividends on common stock...............................................         (2,895)                (1,429)
  Repurchase of common stock..............................................................        (49,324)                    --
  Issuance of common stock................................................................            880                  1,006
  Other items, net........................................................................            (14)                    62
                                                                                                ----------            ----------
         Net cash provided by financing activities........................................      $   63,446            $    3,318
-----------------------------------------------------------------------------------------------------------------------------------

  CASH AND CASH EQUIVALENTS:
  (Decrease) increase in net cash position................................................          (6,357)               34,233
  Balance, beginning of year..............................................................          35,827                35,145
                                                                                                ----------          ------------
  Balance, end of period..................................................................      $   29,470          $     69,378
                                                                                                ==========          ============

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

  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
         Interest expense.................................................................      $  169,863          $    171,237
         Income taxes, net................................................................           1,930                 8,036
  Non-cash investing and financing activities:
         Securities transferred from held to maturity to
              available for sale, net.....................................................              --               410,930
         Loans exchanged for mortgage-backed securities...................................          26,991                42,756
         Loans transferred to real estate.................................................           8,674                 6,049
         Loans to facilitate the sale of real estate......................................             107                    51
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</TABLE> 
  See accompanying Notes to Consolidated Financial Statements.

                                       7
<PAGE>
 
                         COMMERCIAL FEDERAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
                                  (Unaudited)
--------------------------------------------------------------------------------

A.   BASIS OF CONSOLIDATION AND PRESENTATION:
     --------------------------------------- 

The unaudited consolidated financial statements are prepared on an accrual basis
and include the accounts of Commercial Federal Corporation (the Corporation) and
its wholly-owned subsidiary, Commercial Federal Bank, a Federal Savings Bank
(the Bank), and all majority-owned subsidiaries.  All significant intercompany
balances and transactions have been eliminated.

The accompanying interim consolidated financial statements have not been audited
by independent auditors.  However, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary to fairly
present the financial statements have been included.  The consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Corporation's June 30, 1996, Annual Report to
Stockholders.  The results of operations for the three and six month periods
ended December 31, 1996, are not necessarily indicative of the results which may
be expected for the entire fiscal year 1997.  Certain amounts in the prior
fiscal year periods have been reclassified for comparative purposes.


B.   THREE-FOR-TWO STOCK SPLIT:
     ------------------------- 

On November 18, 1996, the Board of Directors of the Corporation declared a
three-for-two stock split to be effected in the form of a 50 percent stock
dividend to stockholders of record on December 31, 1996.  Par value remained at
$.01 per share. The stock dividend, paid on January 14, 1997, totaled 7,163,476
shares of common stock and is shown on the line captioned "common stock dividend
distributable" in the stockholders' equity section of the Consolidated Statement
of Financial Condition at December 31, 1996.  Also on January 14, 1997,
fractional shares resulting from the stock split were paid in cash  totaling
$17,792 based on the closing price on the record date.  All references to the
number of shares, per share amounts and stock prices for all periods presented
have been adjusted on a retroactive basis to reflect the effect of the stock
split.


C.   REFINANCING OF CORPORATE DEBT:
     ----------------------------- 

On December 2, 1996, the Corporation completed the issuance of $50.0 million of
7.95% fixed-rate subordinated extendible notes due December 1, 2006 (the Notes).
Such offering resulted in the Corporation receiving $48.5 million, net of
an underwriting discount of $1.5 million.  With the proceeds from the issuance 
of the Notes the Corporation redeemed on December 27, 1996, its $40.25 million
10.25% subordinated debt due December 15, 1999, and its $6.9 million 10.0%
senior notes due January 31, 1999. Total expenses associated with this offering
approximated $1.9 million which are deferred and will be amortized over the life
of the Notes resulting in an effective interest rate of 8.52%. Contractual
interest on the Notes is set at 7.95% until December 1, 2001. The Corporation
will reset the interest rate for the Notes, at its option, effective December 1,
2001, to a rate and for a term of one, two, three or five years determined by
the Corporation and will reset the interest rate thereafter, at its option, upon
the date of expiration of each such new interest period prior to maturity. Any
such new interest rate shall not be less than 105% of the effective interest
rate on comparable maturity U.S. Treasury obligations (as defined). Interest is
paid monthly commencing January 15, 1997. There is no sinking fund. The Notes
may not be redeemed prior to December 1, 2001, and thereafter, the Corporation
may elect to redeem the Notes, in whole on December 1, 2001, and on any
subsequent interest reset date at par plus accrued interest to the date fixed
for redemption. The Notes will be unsecured general obligations of the
Corporation and are subordinated to all existing and future senior indebtedness
(as defined) of the Corporation. There are no restrictions in the Indenture on
the creation of additional senior indebtedness. The Indenture, among other
things, limits the ability of the Corporation to pay cash dividends or to make
other capital distributions under certain circumstances. 

On December 13, 1996, the Corporation refinanced the $28.0 million short-term
promissory note due January 31, 1997 (obtained to help finance the repurchase of
1,875,150 shares of common stock on August 21, 1996--see Note F), with a new
five-year term note for $28.0 million due December 31, 2001.  This note bears a
monthly adjustable interest rate which was 7.75% at December 31, 1996, and is
priced at 50 basis points below the quoted national base prime rate.  This note
has a seven year amortization with scheduled principal payments of $1.0 million
quarterly and a balloon of $8.0 million due December 31, 2001, and with interest
payable quarterly.  The note is unsecured but subject to certain covenants.  In
addition, the Corporation also has a $2.0 million line of credit with the same
financial institution.  This revolving credit promissory note is due in a single
payment on December 31, 1997, with interest rates, interest payments and
covenants the same as the $28.0 million term note.

                                       8
<PAGE>
 
D.   EXTRAORDINARY ITEMS - LOSS ON EARLY RETIREMENT OF DEBT:
     ------------------------------------------------------ 

In December 1996, the Corporation recognized an extraordinary loss of $583,000
(net of income tax benefit totaling $316,000), or $.03 loss per share, as a
result of the early retirement of debt.  The extraordinary loss consisted
primarily of the write-off of the associated premiums and costs associated with
the issuance and redemption of such debt.  With the proceeds from the issuance
of $50.0 million of 7.95% fixed-rate subordinated extendible notes due December
1, 2006, the Corporation redeemed on December 27, 1996, its $40.25 million
10.25% subordinated debt due December 15, 1999, and its $6.9 million 10.0%
senior notes due January 31, 1999.  In addition, on December 13, 1996, the
Corporation refinanced its $28.0 million short-term promissory note due January
31, 1997, with a new five-year term note for $28.0 million due December 31,
2001.  See Note C for additional information regarding these notes.


E.   ACQUISITION OF HERITAGE FINANCIAL, LTD.:
     ---------------------------------------  

On October 1, 1996, the Corporation consummated its acquisition of Heritage
Financial, Ltd. (Heritage), parent company of Hawkeye Federal Savings Bank
(Hawkeye Federal) located in Iowa.  Under the terms of the Reorganization and
Merger Agreement (the Merger Agreement), the Corporation acquired all of the
180,762 outstanding shares of Heritage's common stock.  Each share of Heritage's
common stock was exchanged for $18.73 in cash ($3,386,000) and 3.74775 shares of
the Corporation's common stock (677,449 shares).  Based on the Corporation's
closing stock price of $28.667 at October 1, 1996, the total consideration for
this acquisition, excluding cash paid for fractional shares, approximated
$22,806,000.

At October 1, 1996, before purchase accounting adjustments, Heritage had assets
of approximately $182,938,000, deposits of approximately $157,911,000 and
stockholders' equity of approximately $10,308,000.  Heritage operated six
branches located in Iowa.  The Heritage acquisition was accounted for as a
purchase, with the fair value of the assets and liabilities being determined
including an independent core value study and branch appraisals, with completion
expected during calendar year 1997.  In addition, costs and expenses associated
with this acquisition are estimated to approximate $1,125,000.  Core value of
deposits resulting from this transaction will be amortized on an accelerated
basis over a period not to exceed 10 years and goodwill amortized on a straight-
line basis over a period not to exceed 20 years.  The effect of this acquisition
on the Corporation's consolidated financial statements as if this acquisition
had occurred at the beginning of the fiscal year would not be material.

                                       9
<PAGE>
 
F. REPURCHASE OF COMMON STOCK:
   -------------------------- 

On August 21, 1996, the Corporation consummated the repurchase of 1,875,150
shares of its common stock, $0.01 par value, from CAI Corporation, a Dallas-
based investment company, for an aggregate purchase price of approximately
$48,910,000, excluding $414,000 in transaction costs.  Such purchase price,
excluding transaction costs incurred by the Corporation for this repurchase,
consisted of cash consideration of approximately $28,227,000 and surrender of a
warrant (valued at approximately $20,683,000) which would have enabled the
Corporation to purchase 99 shares of non-voting common stock of CAI Corporation.
The repurchased shares represented 8.3% of the outstanding shares of the
Corporation's common stock prior to the repurchase.  The Corporation also
reimbursed CAI Corporation for certain expenses totaling $2,200,000 incurred in
connection with its ownership of the 1,875,150 shares, including costs and
expenses incurred in connection with the 1995 proxy contest, and paid CAI
Corporation cash totaling $62,500 in lieu of the pro rata portion of any
dividend CAI Corporation otherwise would have received for the quarter ended
September 30, 1996.  Such nonrecurring expenses paid to CAI Corporation are
included in other operating expenses. The cash portion of the repurchase was
financed in part by a short-term variable-rate promissory note due January 31,
1997, from a financial institution secured by 1,403,200 shares or 15.6% of the
outstanding common stock of the Bank.  On December 13, 1996, this note was
refinanced on a long-term basis now due December 31, 2001 (see Note C).


G. FEDERAL DEPOSIT INSURANCE SPECIAL ASSESSMENT:
   -------------------------------------------- 

During the quarter ended September 30, 1996, the Corporation incurred an after-
tax charge of $17,300,000 ($27,062,000 pre-tax) as a result of the imposition of
a special assessment by the Federal Deposit Insurance Corporation (FDIC) to
recapitalize the Savings Association Insurance Fund (SAIF).  In order to
recapitalize the SAIF, the Deposit Insurance Funds Act of 1996, effective
September 30, 1996, authorized the FDIC to impose a one-time special assessment
on institutions with SAIF-assessable deposits based on the amount determined by
the FDIC to be necessary to increase the reserve levels of the SAIF to the
designated reserve ratio of 1.25% of insured deposits.  Institutions were
assessed at the rate of .657% based on the amount of their SAIF-assessable
deposits as of March 31, 1995.  This nonrecurring special assessment totaling
$27,062,000 on a pre-tax basis is recorded in the general and administrative
expenses section of the Consolidated Statement of Operations under a separate
line captioned "Federal deposit insurance special assessment."  Such special
assessment reduced the Bank's tangible, core and risk-based capital at September
30, 1996, by $17,300,000.  The Bank continues to exceed the minimum requirements
to be classified as a "well-capitalized" institution under applicable
regulations.


H. REPEAL OF THRIFT BAD DEBT RESERVES FOR TAX PURPOSES:
   ----------------------------------------------------

In August 1996, changes in the federal tax law (i) repealed both the percentage
of taxable income and experience methods effective July 1, 1996, allowing a bad
debt deduction for specific charge-offs only, and (ii) required recapture into
taxable income over a six year period of tax bad debt reserves which exceed the
base year amount, adjusted for any loan portfolio shrinkage.  These changes
resulted in the recognition to income tax expense of additional deferred tax
liabilities of approximately $103,000 in the first quarter of fiscal year 1997.
The remaining unrecognized deferred tax liability totaling approximately
$31,690,000 at December 31, 1996, could be recognized in the future, in whole or
in part, if (i) there is a change in federal tax law, (ii) the Bank fails to
meet certain definitional tests and other conditions in the federal tax law,
(iii) certain distributions are made with respect to the stock of the Bank or
(iv) the bad debt reserves are used for any purpose other than absorbing bad
debt losses.

                                       10
<PAGE>
 
I. COMMITMENTS AND CONTINGENCIES:
   ------------------------------


At December 31, 1996, the Corporation had issued commitments, excluding
undisbursed portions of loans in process, totaling approximately $199,309,000 to
fund and purchase loans as follows:  $70,439,000 of single-family adjustable-
rate mortgage loans, $101,174,000 of single-family fixed-rate mortgage loans,
$18,379,000 of consumer loan lines of credit and $9,317,000 of commercial real
estate loans.  These outstanding loan commitments to extend credit in order to
originate loans or fund consumer loan lines of credit do not necessarily
represent future cash requirements since many of the commitments may expire
without being drawn. Loans sold subject to recourse provisions totaled
approximately $35,124,000, which represents the total potential credit risk
associated with these particular loans.  Such credit risk would, however, be
offset by the value of the single-family residential properties which
collateralize these loans.

The Corporation is subject to a number of lawsuits and claims for various
amounts which arise out of the normal course of its business.  In the opinion of
management, the disposition of claims currently pending will not have a material
adverse effect on the Corporation's financial position or results of operations.

On September 13, 1994, the Corporation and the Bank commenced litigation against
the United States in the United States Court of Federal Claims seeking to
recover monetary relief for the government's refusal to honor certain contracts
which it had entered into with the Bank.  The suit alleges that such
governmental action constitutes a breach of contract and an unlawful taking of
property by the United States without just compensation or due process in
violation of the Constitution of the United States.

The litigation status and process of the litigation, as well as that of numerous
other actions alleging similar claims with respect to supervisory goodwill and
regulatory capital credits, make the value of the claims asserted by the Bank
uncertain as to their ultimate outcome, and contingent on a number of factors
and future events which are beyond the control of the Bank, both as to
substance, timing and the dollar amount of damages which may be awarded to the
Bank if it finally prevails in this litigation.


J.   REGULATORY CAPITAL REQUIREMENTS:
     ------------------------------- 

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios as set forth in the
following table of tangible, core and total risk-based capital.  Prompt
Corrective Action provisions contained in the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA) require specific supervisory
actions as capital levels decrease.  To be considered well-capitalized under the
regulatory framework for Prompt Corrective Action provisions under FDICIA, the
Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based and total risk-
based capital ratios as set forth in the following table.  At December 31, 1996,
and June 30, 1996, the Bank exceeded the minimum requirements for the well-
capitalized category.

                                       11
<PAGE>
 
J.   REGULATORY CAPITAL REQUIREMENTS (Continued):
     ------------------------------------------- 

The following presents the Bank's regulatory capital levels and ratios relative
to its minimum capital requirements pursuant to the Office of Thrift Supervision
(OTS) and FDICIA.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(Dollars in Thousands)
                                         As of December 31, 1996
                                 ----------------------------------------

                                   Actual Capital      Required Capital
                                 -------------------  -------------------

                                  Amount     Ratio     Amount     Ratio
--------------------------------------------------------------------------------
<S>                             <C>          <C>      <C>        <C> 
OTS capital adequacy:
   Tangible capital............  $407,891      5.95%   $102,817      1.50%
   Core capital................   421,684      6.14     206,048      3.00
   Risk-based capital..........   459,628     12.96     283,693      8.00
FDICIA regulations to be
 classified well-capitalized:
   Tier 1 leverage capital.....   421,684      6.14     177,308      5.00
   Tier 1 risk-based capital...   421,684     11.89     212,770      6.00
   Total risk-based capital....   459,628     12.96     354,616     10.00
------------------------------------------------------------------------------- 
</TABLE> 
<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------- 
(Dollars in Thousands)
                                           As of June 30, 1996
                                 ----------------------------------------

                                   Actual Capital      Required Capital
                                 -------------------  -------------------

                                  Amount    Ratio        Amount  Ratio
------------------------------------------------------------------------------- 
<S>                              <C>          <C>      <C>      <C> 
OTS capital adequacy:
   Tangible capital............  $408,708      6.18%   $ 99,137    1.50%
   Core capital................   424,909      6.41     198,760    3.00
   Risk-based capital..........   460,674     13.62     270,629    8.00
FDICIA regulations to be                                          
 classified well-capitalized:                                     
   Tier 1 leverage capital.....   424,909      6.41     331,266    5.00
   Tier 1 risk-based capital...   424,909     12.56     202,971    6.00
   Total risk-based capital....   460,674     13.62     338,286   10.00
------------------------------------------------------------------------------- 
</TABLE>

As of December 31, 1996, the most recent notification from the OTS categorized
the Bank as "well-capitalized" under the regulatory framework for Prompt
Corrective Action provisions under FDICIA.  There are no conditions or events
since such notification that management believes have changed the Bank's
classification.


K.   PROPOSED ACQUISITION - INVESTORS FEDERAL SAVINGS:
     ------------------------------------------------ 

Effective December 16, 1996, the Corporation entered into a definitive agreement
to acquire Investors Federal Savings (Investors) headquartered in Kinsley,
Kansas, which upon consummation, would be merged with and into the Bank.  Under
the terms of the agreement, the Corporation will acquire all 232,465 of the
outstanding shares of Investors' common stock for $23.00 in cash for a total
consideration of approximately $5,347,000.

As of December 31, 1996, Investors had assets of approximately $32,111,000,
deposits of approximately $27,006,000 and stockholders' equity of approximately
$4,700,000.  Investors operates three branches (Kinsley, Dodge City and Meade)
in southwest Kansas. This pending acquisition will be accounted for as a
purchase.  Expenses and costs associated with this proposed acquisition are
estimated to approximate $350,000.   Core value of deposits resulting from this
proposed transaction will be amortized on an accelerated basis over a period not
to exceed 10 years and goodwill, if any, will be amortized on a straight line
basis over a period not to exceed 20 years.  This pending acquisition, which is
subject to regulatory approvals, approval by Investors' stockholders and other
conditions, is anticipated to close during the quarter ended June 30, 1997.

                                       12
<PAGE>
 
                Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                ------------------------------------------------
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 ---------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES:
------------------------------- 


The Corporation's principal asset is its investment in the capital stock of the
Bank, and because it does not generate any significant revenues independent of
the Bank, the Corporation's liquidity is dependent on the extent to which it
receives dividends from the Bank.  The Bank's ability to pay dividends to the
Corporation is dependent on its ability to generate earnings and is subject to a
number of regulatory restrictions and tax considerations.  Under capital
distribution regulations of the OTS, a savings institution that, immediately
prior to, and on a pro forma basis after giving effect to, a proposed dividend,
has total capital that is at least equal to the amount of its fully phased-in
capital requirements (a "Tier 1 Association") is permitted to pay dividends
during a calendar year in an amount equal to the greater of (i) 75.0% of its net
income for the recent four quarters, or (ii) 100.0% of its net income to date
during the calendar year plus an amount that would reduce by one-half the amount
by which its ratio of total capital to assets exceeded its fully phased-in risk-
based capital ratio requirement at the beginning of the calendar year.  At
December 31, 1996, the Bank qualified as a Tier 1 Association, and would be
permitted to pay an aggregate amount approximating $78.6 million in dividends
under these regulations.  Should the Bank's regulatory capital fall below
certain levels, applicable law would require prior approval by the OTS of such
proposed dividends and, in some cases, would prohibit the payment of dividends.

On August 21, 1996, the Corporation repurchased 1,875,150 shares of its common
stock.  Total cash consideration for this transaction, including certain
expenses and costs associated with the seller's ownership of such stock,
approximated $51.2 million.  The sources of cash to consummate this stock
repurchase consisted of (i) a short-term variable-rate promissory note totaling
$28.0 million due January 31, 1997, (ii) a dividend from the Bank totaling $18.0
million and (iii) cash totaling $5.2 million paid directly by the parent
company.  Transaction costs incurred by the Corporation for this repurchase
totaled approximately $414,000.  Concurrent with the repurchase, two directors
of the Corporation, who also serve as executive officers of CAI Corporation,
resigned from the Corporation's Board of Directors.  In addition, CAI
Corporation and each of its shareholders agreed to a standstill agreement for a
period of 60 months beginning August 21, 1996.  CAI Corporation and the
Corporation have each agreed to waive and release all claims against the other
and the Corporation has agreed to indemnify CAI Corporation and its directors,
officers and affiliates against certain derivative claims.

On December 13, 1996, the Corporation refinanced the $28.0 million short-term
promissory note due January 31, 1997, with a new five-year term note for $28.0
million due December 31, 2001. This note bears a monthly adjustable interest
rate which was 7.75% at December 31, 1996, and is priced at 50 basis points
below the quoted national base prime rate.  This note has a seven year
amortization with scheduled principal payments of $1.0 million quarterly and a
balloon of $8.0 million due December 31, 2001, and with interest payable 
quarterly.  The note is unsecured but subject to certain covenants.  In 
addition, the Corporation also has a $2.0 million line of credit with the same
financial institution.  This revolving credit promissory note is due in a single
payment on December 31, 1997, with interest rates, interest payments and
covenants the same as the $28.0 million term note.

On December 2, 1996, the Corporation completed the issuance of $50.0 million of
7.95% fixed-rate subordinated extendible notes due December 1, 2006 (the Notes).
Such offering resulted in the Corporation receiving $48.5 million, net of an
underwriting discount of $1.5 million.  With the proceeds from the issuance of
the Notes the Corporation redeemed on December 27, 1996, its $40.25 million 
10.25% subordinated debt due December 15, 1999, and its $6.9 million 10.0% 
senior notes due January 31, 1999.  Total expenses associated with this 
offering approximated $1.9 million which are deferred and will be amortized over
the life of the Notes resulting in an effective interest rate of 8.52%.
Contractual interest on the Notes is set at 7.95% until December 1, 2001.  The
Corporation will reset the interest rate for the Notes, at its option, effective
December 1, 2001, to a rate and for a term of one, two, three or five years
determined by the Corporation and will reset the interest rate thereafter, at
its option, upon the date of expiration of each such new interest period prior
to maturity.  Any such new interest rate shall not be less than 105% of the
effective interest rate on comparable maturity U.S. Treasury obligations (as
defined).  Interest is paid monthly commencing January 15, 1997.  There is no
sinking fund.  The Notes may not be redeemed prior to December 1, 2001, and
thereafter, the Corporation may elect to redeem the Notes, in whole on December
1, 2001, and on any subsequent interest reset date at par plus accrued interest
to the date fixed for redemption.  The Notes will be unsecured general
obligations of the Corporation and are subordinated to all existing and future
senior indebtedness (as defined) of the Corporation.  There are no restrictions
in the Indenture on the creation of additional senior indebtedness.  The
Indenture, among other things, limits the ability of the Corporation to pay cash
dividends or to make other capital distributions under certain circumstances.


                                      13
<PAGE>


MEMO

 
LIQUIDITY AND CAPITAL RESOURCES (Continued):
------------------------------------------  

At December 31, 1996, cash of Commercial Federal Corporation (the parent
company) totaled $10.6 million. Due to the parent company's limited independent
operations, management believes that the cash balance at December 31, 1996, is
currently sufficient to meet operational needs. However, the parent company's
ability to make future interest and principal payments on the Notes and on the
$28.0 million promissory note due December 31, 2001, is dependent upon its
receipt of dividends from the Bank. For the three and six months ended December
31, 1996, dividends totaling $11.667 million and $29.667 million, respectively,
were paid by the Bank to the parent company. These dividends from the Bank were
paid to cover (i) interest payments totaling $3.658 million on the parent
company's subordinated debt, senior notes and promissory note, (ii) common stock
cash dividends totaling $4.399 million paid by the parent company, (iii) the
October 1, 1996, payment totaling $3.610 million to acquire Heritage Financial,
Ltd. and (iv) the first quarter payment totaling $18.0 million to help finance
the repurchase of 1,875,150 shares of the Corporation's common stock on August
21, 1996. The Bank will continue to pay dividends to the parent company,
pursuant to regulatory restrictions, to cover the cash dividends on common stock
that the parent company intends to pay on a quarterly basis and on future
principal and interest payments on the parent company's Notes and promissory
note due December 31, 2001. A dividend totaling $3.63 million was paid by the
Bank to the parent company during the three months ended December 31, 1995. The
parent company also receives cash from the exercise of stock options and the
sale of stock under its employee benefit plans.

The Corporation's primary sources of funds are (i) deposits, (ii) principal
repayments on loans, mortgage-backed and investment securities, (iii) advances
from the Federal Home Loan Bank (FHLB) of Topeka, (iv) securities sold under
agreements to repurchase and (v) cash generated from operations.  As reflected
in the Consolidated Statement of Cash Flows, net cash flows used by operating
activities totaled $8.7 million for the six months ended December 31, 1996, and
net cash flows provided by operating activities totaled $24.9 million for the
six months ended December 31, 1995.  Amounts fluctuate from period to period
primarily as a result of mortgage banking activity relating to the purchase and
origination of loans for resale and the subsequent sale of such loans.

Net cash flows used by investing activities for the six months ended December
31, 1996, totaled $61.1 million and net cash flows provided by investing
activities for the six months ended December 31, 1995, totaled $6.1 million.
Amounts fluctuate from period to period primarily as a result of (i) principal
repayments on loans and mortgage-backed securities and (ii) the purchase and
origination of loans and mortgage-backed securities.  The acquisition of
Heritage effective October 1, 1996, resulted in cash paid totaling approximately
$3.4 million for Heritage's common stock as well as the exchange of 677,449
shares of the Corporation's common stock.  This cash payment was paid from the
Bank to the parent company as a cash dividend in October 1996.  The proposed
acquisition of Investors Federal Savings will result in cash paid totaling
approximately $5.3 million for its common stock and stock options.  This pending
acquisition, subject to certain approvals, is anticipated to close during the
fourth quarter of fiscal year 1997.

Net cash flows provided by financing activities totaled $63.4 million and $3.3
million, respectively, for the six months ended December 31, 1996 and 1995.
Advances from the FHLB have been the primary sources to balance the
Corporation's funding needs during each of the periods presented.  In addition,
during the six months ended December 31, 1996, the Corporation utilized
securities sold under agreements to repurchase primarily for liquidity and asset
liability management purposes.  Also, during the six months ended December 31,
1996, the Corporation borrowed $28.0 million to partially finance the repurchase
of 1,875,150 shares of the Corporation's common stock.  The $28.0 million note,
which was due January 31, 1997, was refinanced on December 13, 1996, and is now
due December 31, 2001.  In addition, as previously discussed, the Corporation's
$40.25 million 10.25% subordinated debt and $6.9 million 10.0% senior notes were
paid in full on December 27, 1996, from the proceeds of the Corporation's $50.0
million 7.95% subordinated extendible notes due December 1, 2006.

Legislation signed into law on September 30, 1996, to recapitalize the SAIF fund
required SAIF-insured institutions to pay a one-time special assessment of .657%
of SAIF-insured deposits held as of March 31, 1995.  This nonrecurring special
assessment resulted in a one-time after-tax charge to the Corporation of
approximately $17.3 million ($27.1 million pre-tax) incurred in the quarter
ended September 30, 1996.  Such a special assessment will substantially
eliminate the deposit insurance premium disparity between BIF-insured and SAIF-
insured institutions and is anticipated to fully recapitalize the SAIF.  Such
results associated with this special assessment will have the effect of
significantly reducing the Corporation's deposit insurance premiums to the SAIF,
thereby increasing net income in future periods.  The FDIC has adopted a new
assessment schedule for SAIF deposit insurance pursuant to which the assessment
rate for well-capitalized institutions with the highest supervisory ratings
would be reduced to zero and institutions in the lowest risk assessment
classification will be assessed at the rate of .27% of insured deposits.  Until
December 31, 1999, however, SAIF-insured institutions will be required to pay
assessments to the FDIC at the rate of .064% to help fund interest payments on
certain bonds issued by the Financing Corporation (FICO), an agency of the
federal government established to finance takeovers of insolvent thrifts.
During this period, BIF members will be assessed for FICO obligations at the
rate of .013%.  After December 31, 1999, both BIF and SAIF members will be
assessed at the same rate for FICO payments.  Based on the Corporation's level
of deposits as of September 30, 1996, such a reduction in rates from .23% of
insured deposits (adjusted to .18% of insured deposits for the quarter ended
December 31, 1996, pursuant to a deposit insurance premium refund received
totaling $544,000) to .064% of insured deposits effective January 1, 1997, for
SAIF insurance premiums would result in an annual pre-tax increase to operating
earnings approximating $7.0 million.

                                      14
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES (Continued):
------------------------------------------  

The Deposit Insurance Funds Act of 1996 provides that the BIF and the SAIF will
be merged into a single deposit insurance fund effective December 31, 1999, but
only if there are no insured savings associations on that date.  The legislation
directs the Department of Treasury to make recommendations to Congress by March
31, 1997, for the establishment of a single charter for banks and thrifts.
Management of the Corporation cannot predict accurately at this time what effect
this legislation will have on the Corporation.

The Corporation has considered and will continue to consider possible mergers
with and acquisitions of other selected financial institutions. During the first
six months of fiscal year 1997, the Corporation consummated its acquisition of
Heritage Financial, Ltd. and entered into an agreement to acquire Investors
Federal Savings, and during fiscal year 1996, consummated the acquisitions of
Railroad Financial Corporation and Conservative Savings Corporation
(Conservative). Such completed and proposed acquisitions present the Corporation
with the opportunity to further expand its retail network in its existing
markets, and to increase its earnings potential by increasing its mortgage and
consumer loan volumes funded by deposits which generally bear lower rates of
interest than alternative sources of funds. The Corporation will continue to
grow its five-state franchise through an ongoing program of selective
acquisitions of other financial institutions. Acquisition candidates will be
selected based on the extent to which the candidate can enhance the
Corporation's retail presence in new or existing markets and complement the
Corporation's present retail network.

On January 30, 1997, the Corporation filed a shelf registration statement with
the Securities and Exchange Commission to issue (i) up to $45.0 million of
junior subordinated deferrable interest debentures and (ii) preferred securities
of a special-purpose subsidiary which are fully and unconditionally guaranteed
by the Corporation. The registration would allow the special-purpose subsidiary
to issue up to 1.8 million shares of preferred securities which would qualify as
Tier 1 capital of the Corporation for regulatory purposes. Although the
Corporation, as a savings and loan holding company, is not subject to the
Federal Reserve capital requirements for bank holding companies, it is possible
that in the future it could become subject to such requirements as a result of
the acquisition of a bank or change in regulations. On October 21, 1996, the
Federal Reserve announced that cumulative preferred securities having the
characteristics of the preferred securities could be included as Tier 1 captial
for bank holding companies. The special-purpose subsidiary would hold junior
subordinated deferrable interest debentures of the Corporation. Interest paid on
the junior subordinated deferrable interest debentures would be distributed to
the holders of the preferred securities. Under current tax law, distributions to
the holders of the preferred securities would be tax deductible and treated as
an expense in the Consolidated Statement of Operations. The 1998 Budget to
Congress, submitted by the President on February 6, 1997, contains legislation
with provisions which could, depending on the timing of issuance and other
factors, deny the Corporation the interest deduction on the junior subordinated
debentures. These provisions are proposed to be effective generally for
instruments issued on or after the date of the first Congressional committee
action on the budget bill. If legislation denying the Corporation's interest
deduction or otherwise adversely affecting the tax treatment of the transaction
is adopted, the Corporation may elect not to issue these securities. The
proceeds from the sale of any securities, if issued, would be used primarily to
finance future acquisitions.

At December 31, 1996, the Corporation had issued commitments, excluding
undisbursed portions of loans in process, totaling approximately $199.3 million
to fund and purchase loans as follows:  $70.4 million of single-family
adjustable-rate mortgage loans, $101.2 million of single-family fixed-rate
mortgage loans, $18.4 million of consumer loan lines of credit and $9.3 million
of commercial real estate loans.  These outstanding loan commitments to extend
credit in order to originate loans or fund consumer loan lines of credit do not
necessarily represent future cash requirements since many of the commitments may
expire without being drawn.  The Corporation expects to fund these commitments,
as necessary, from the sources of funds previously described


The maintenance of an appropriate level of liquid resources to meet not only
regulatory requirements but also to provide funding necessary to meet the
Corporation's current business activities and obligations is an integral element
in the management of the Corporation's assets.  The Corporation is required by
federal regulation to maintain a minimum average daily balance of cash and
certain qualifying liquid investments equal to 5.0% of the aggregate of the
prior month's daily average savings deposits and short-term borrowings.  The
Corporation's liquidity ratio was 6.76% at December 31, 1996.  Liquidity levels
will vary depending upon savings flows, future loan fundings, cash operating
needs, collateral requirements and general prevailing economic conditions.  The
Corporation does not foresee any difficulty in meeting its liquidity
requirements.

                                      15
<PAGE>
 
RESULTS OF OPERATIONS:
--------------------- 

Net income for the three months ended December 31, 1996, was $14.9 million, or
$.68 per share (including an after-tax loss on early retirement of debt totaling
$583,000, or $.03 loss per share, classified as an extraordinary item) compared
to net income of $11.9 million, or $.54 per share for the three months ended
December 31, 1995.  The increase in net income for the three months ended
December 31, 1996, compared to the three months ended December 31, 1995, is
primarily due to net increases of $3.1 million in net interest income after
provision for loan losses and $2.9 million in total other income and an
improvement of $147,000 in general and administrative expenses. These increases
in net income were partially offset by an increase of $2.0 million in the
provision for income taxes, the extraordinary loss on early retirement of debt
totaling $583,000 and a $540,000 increase in amortization of intangible assets.

Net income for the six months ended December 31, 1996  was $10.9 million, or
$.49 per share (including an after-tax loss on early retirement of debt totaling
$583,000, or $.03 loss per share, classified as an extraordinary item) compared
to net income of $23.1 million for the six months ended December 31, 1995, or
$1.06 per share.  The decrease in net income for the six months ended December
31, 1996, compared to the six months ended December 31, 1995, is primarily due
to the following:  the $27.1 million nonrecurring Federal deposit insurance
special assessment, an increase of $1.2 million in general and administrative
expenses, an increase of $725,000 in amortization expense of intangible assets
and the extraordinary loss on early retirement of debt totaling $583,000.  These
decreases to net income were partially offset by a reduction in the provision
for income taxes totaling $7.0 million, an increase of $5.2 million in net
interest income after provision for loan losses and an increase of $5.2 million
in total other income.


Net Interest Income:
--------------------

Net interest income was $42.3 million for the three months ended December 31,
1996, compared to $38.6 million for the three months ended December 31, 1995,
resulting in an increase of $3.7 million, or 9.5%.  Net interest income was
$82.6 million for the six months ended December 31, 1996, compared to $76.7
million for the six months ended December 31, 1995, resulting in an increase of
$5.9 million, or 7.6%.  The interest rate spread was 2.44% at December 31, 1996,
compared to 2.35% at December 31, 1995, an increase of nine basis points.
During the three months ended December 31, 1996 and 1995, interest rate spreads
were 2.45% and 2.26%, respectively, an increase of 19  basis points.  Interest
rate spreads also increased 19 basis points from 2.24% to 2.43% during the six
months ended December 31, 1996, compared to December 31, 1995.  The sale of
approximately $230.8 million of securities available-for-sale during the last
six months of fiscal year 1996 and the utilization of such proceeds to repay
maturing FHLB advances, the Corporation's favorable asset liability mix
(primarily increased levels of adjustable-rate mortgage loans, consumer loans
and multi-family commercial real estate loans), the general reduction in
interest rates on interest-bearing liabilities (5.32% and 5.33%, respectively,
for the three and six months ended December 31, 1996, compared to 5.52% for both
the three and six months ended December 31, 1995) and the acquisitions of
Conservative effective February 1, 1996, and Heritage effective October 1, 1996,
have improved the interest rate spreads and yields.  The future trend in
interest rate spreads and net interest income will be dependent upon such
factors as the composition and size of the Corporation's interest-earning assets
and interest-bearing liabilities, the interest rate risk exposure of the
Corporation, and the maturity and repricing activity of interest-sensitive
assets and liabilities, as influenced by changes in and levels of both short-
term and long-term market interest rates.

                                      16
<PAGE>
 
Net Interest Income (Continued):
--------------------------------


The following table presents certain information concerning yields earned on
interest-earning assets and rates paid on interest-bearing liabilities during
and at the end of each of the periods presented.

<TABLE>
<CAPTION>

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

                                       For the Three                For the Six      
                                       Months Ended                Months Ended                   At       
                                        December 31,               December 31,               December 31,
                                   --------------------        -------------------      ----------------------
                                    1996         1995           1996         1995         1996           1995
                                    ----         ----           ----         ----         ----           ----
<S>                                <C>         <C>             <C>        <C>           <C>            <C> 
Weighted average yield on:
   Loans...................         8.16%         8.29%         8.15%        8.29%         8.12%         8.27%
   Mortgage-backed                                                                                       
    securities.............         6.55          6.50          6.57         6.47          6.70          6.64
   Investments.............         6.41          6.12          6.26         6.09          6.21          6.07
                                  ------        ------        ------       ------        ------        ------ 
     Interest-earning assets...     7.77          7.78          7.76         7.76          7.77          7.79
                                  ------        ------        ------       ------        ------        ------ 
 
Weighted average rate paid
 on:
   Savings deposits........         3.06          3.11          3.09         3.12          3.09          2.92
   Other time deposits.....         5.73          6.00          5.74         5.98          5.74          5.97
   Advances from FHLB......         5.67          5.84          5.69         5.86          5.75          5.76
   Securities sold under                                                                                 
    agreements                                                                                           
    to repurchase..........         6.10          7.01          6.22         7.01          6.04          7.04
   Other borrowings........         9.74         10.87         10.17        10.83          8.27         10.95
                                  ------        ------        ------       ------        ------        ------ 
    Interest-bearing                                                                                     
     liabilities...........         5.32          5.52          5.33         5.52          5.33          5.44
                                  ------        ------        ------       ------        ------        ------ 
                                                                                                         
Interest rate spread.......         2.45%         2.26%         2.43%        2.24%         2.44%         2.35%
                                  ======        ======        ======       ======        ======        ====== 
Net annualized yield on                                                                                  
    interest-earning assets         2.57%         2.46%         2.56%        2.43%         2.60%         2.54%
                                  ======        ======        ======       ======        ======        ====== 
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
Net Interest Income (Continued):
--------------------------------


The following table presents average interest-earning assets and average
interest-bearing liabilities, interest income and interest expense and average
yields and rates during the three and six months ended December 31, 1996.  The
table below includes nonaccruing loans averaging $41.3 million and $39.5
million, respectively, for the three and six months ended December 31, 1996, as
interest-earning assets at a yield of zero percent.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

 
                                          Three Months Ended                               Six Months Ended      
                                          December 31, 1996                                December 31, 1996    
                             ----------------------------------------------   -------------------------------------------
                                                                 Annualized                                    Annualized
                                   Average                         Yield/        Average                         Yield/
(Dollars in Thousands)             Balance        Interest          Rate         Balance        Interest          Rate
----------------------          ------------     ----------     -----------   ------------     ----------     -----------
<S>                             <C>              <C>            <C>           <C>              <C>            <C>     
Interest-earning assets:
    Loans...................      $5,015,730       $102,254          8.16%      $4,927,242     $  200,801          8.15%
    Mortgage-backed                                                                                           
       securities...........       1,173,217         19,212          6.55        1,170,375         38,427          6.57
    Investments.............         388,634          6,281          6.41          358,209         11,305          6.26
                                  ----------     ----------     ---------     ------------     ----------     ---------
                                                                                                              
      Interest-earning assets.     6,577,581        127,747          7.77        6,455,826        250,533          7.76
                                  ----------     ----------     ---------     ------------     ----------     ---------
                                                                                                              
Interest-bearing liabilities:                                                                                                 
    Savings deposits........       1,179,371          9,105          3.06        1,156,035         18,018          3.09
    Other time deposits.....       3,265,164         47,179          5.73        3,218,600         93,056          5.74
    Advances from FHLB......       1,181,534         16,876          5.67        1,264,830         36,254          5.69
    Securities sold under                                                                                     
       agreements to 
       repurchase...........         652,929         10,184          6.10          520,414         16,547          6.22
    Other borrowings........          86,456          2,106          9.74           80,044          4,069         10.17
                                  ----------       --------     ---------       ----------     ----------     ---------
                                                                                                              
     Interest-bearing                                                                                            
       liabilities..........       6,365,454         85,450          5.32        6,239,923        167,944          5.33
                                  ----------       --------     ---------       ----------     ----------     ---------
                                                                                                              
Net earnings balance........      $  212,127                                    $  215,903                    
                                  ==========                                    ==========                    
                                                                                                              
Net interest income.........                       $ 42,297                                    $   82,589     
                                                   ========                                    ==========     
                                                                                                              
Interest rate spread........                                         2.45%                                         2.43%
                                                                =========                                     =========
                                                                                                              
Net annualized yield on                                                                                       
    interest-earning assets.                                         2.57%                                         2.56%
                                                                =========                                     =========

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

 
</TABLE>
During the three and six months ended December 31, 1996, the Corporation
experienced lower costs on interest-bearing liabilities primarily due to
decreases in the interest rates offered on certain types of deposit products and
decreases in interest rates on FHLB advances, securities sold under agreements
to repurchase and other borrowings.  The net earnings balance (the difference
between average interest-bearing liabilities and average interest-earning
assets) decreased by $63.2 million and $56.5 million, respectively, for the
three and six months ended December 31, 1996, compared to the three and six
months ended December 31, 1995, primarily due to cash outlays totaling (i)
approximately $51.7 million for federal and state tax liabilities principally
paid in June 1996 associated with taxable income recognized from the final
disposition of a subsidiary's interest in a nuclear generating facility in
February 1996, and (ii) approximately $51.2 million for the Corporation's
repurchase of its common stock during the first quarter of this fiscal year.
The effects of these decreases were partially offset by improvements from the
acquisitions of Conservative (which was partially paid for through the issuance
of common stock) and Heritage.

                                       18
<PAGE>
 
Net Interest Income (Continued):
--------------------------------


The following table presents the dollar amount of changes in interest income and
expense for each major component of interest-earning assets and interest-bearing
liabilities, respectively, and the amount of change in each attributable to:
(i) changes in volume (change in volume multiplied by prior year rate), and (ii)
changes in rate (change in rate multiplied by prior year volume).  The net
change attributable to change in both volume and rate, which cannot be
segregated, has been allocated proportionately to the change due to volume and
the change due to rate.  This table demonstrates the effect of the increased
volume of interest-earning assets and interest-bearing liabilities, the
decreasing interest rates and the improvement in interest rate spreads
previously discussed.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

 
                                                  Three Months Ended                         Six Months Ended
                                              December 31, 1996 Compared                 December 31, 1996 Compared
                                                 to December 31, 1995                       to December 31, 1995
                                       ----------------------------------------    ----------------------------------------
                                              Increase (Decrease) Due to                 Increase (Decrease) Due to
                                       ----------------------------------------    ----------------------------------------
(In Thousands)                            Volume         Rate           Net          Volume          Rate           Net
--------------                         -----------    ----------     ----------    ----------     ----------     ----------
<S>                                    <C>            <C>            <C>           <C>            <C>            <C>
Interest Income:
  Loans..............................  $    9,210     $  (1,553)     $   7,657     $   15,069     $  (3,194)     $  11,875
  Mortgage-backed securities.........      (2,687)          156         (2,531)        (6,050)          668         (5,382)
  Investments........................         (27)          291            264         (1,349)          330         (1,019)
                                       ----------     ---------      ---------     ----------     ---------      ---------
                                                                                                               
   Interest income...................       6,496        (1,106)         5,390          7,670        (2,196)         5,474
                                       ----------     ---------      ---------     ----------     ---------      ---------
                                                                                                               
Interest expense:                                                                                              
  Savings deposits...................         779          (133)           646          1,436          (128)         1,308
  Other time deposits................       4,084        (2,052)         2,032          6,775        (3,758)         3,017
  Advances from FHLB.................      (7,339)         (715)        (8,054)       (13,298)       (1,445)       (14,743)
  Securities sold under agreements                                                                             
   to repurchase.....................       7,187          (511)         6,676         10,280          (887)         9,393
  Other borrowings...................         606          (188)           418            854          (220)           634
                                       ----------     ---------      ---------     ----------     ---------      ---------
                                                                                                               
   Interest expense..................       5,317        (3,599)         1,718          6,047        (6,438)          (391)
                                       ----------     ---------      ---------     ----------     ---------      ---------
                                                                                                               
Net effect on net interest income....  $    1,179     $   2,493      $   3,672     $    1,623     $   4,242      $   5,865
                                       ==========     =========      =========     ==========     =========      =========

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

</TABLE>

Provision for Loan Losses and Real Estate Operations:
-----------------------------------------------------

The Corporation recorded loan loss provisions totaling $2.1 million and $3.8
million, respectively, for the three and six months ended December 31, 1996,
compared to $1.5 million and $3.1 million, respectively, for the three and six
months ended December 31, 1995.  The loan loss provisions increased over the
respective periods due primarily to the addition of general reserves recorded in
the second quarter of this fiscal year that were recorded primarily to cover
potential future loan losses. The allowance for loan losses is based upon
management's continuous evaluation of the collectibility of outstanding loans,
which takes into consideration such factors as changes in the composition of the
loan portfolio and current economic conditions that may affect the borrower's
ability to pay, regular examinations by the Corporation's credit review group of
specific problem loans and of the overall portfolio quality and real estate
market conditions in the Corporation's lending areas.


The Corporation recorded net income from real estate operations of $918,000 and
$1.1 million, respectively, for the three and six months ended December 31,
1996, compared to a net loss of $196,000 for the three months ended December 31,
1995, and net income of $169,000 for the six months ended December 31, 1995.
Real estate operations reflect provisions for real estate losses, net real
estate operating activity, and gains and losses on dispositions of real estate.
The improvements in real estate operations for the three and six months ended
December 31, 1996, compared to the respective prior year periods are primarily
due to the recognized gain on sale of two commercial properties totaling
approximately $1.1 million recorded in the current fiscal year second quarter.

                                       19
<PAGE>
 
Provision for Loan Losses and Real Estate Operations (Continued):
-----------------------------------------------------------------


Nonperforming assets are monitored closely on a regular basis by the
Corporation's internal credit review and asset workout groups.  Nonperforming
assets increased $3.6 million at December 31, 1996, compared to June 30, 1996,
resulting from net increases of $3.5 million in nonperforming loans and $2.8
million in real estate partially offset by net decreases of $2.7 in troubled
debt restructurings.  Nonperforming assets as of the dates indicated are
summarized below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                   December 31,     June 30,      December 31,
(Dollars in Thousands)                 1996           1996            1995
-------------------------------------------------------------------------------
<S>                                 <C>            <C>            <C>
Nonperforming loans:
  Residential real estate.......    $   38,644     $   34,660     $   34,267
  Commercial real estate........           684          2,357            442
  Consumer......................         2,085            888            461
                                    ----------     ----------     ----------
   Total........................        41,413         37,905         35,170
                                    ----------     ----------     ----------
                                                 
Real estate:                                     
  Commercial....................         8,818          8,850          8,757
  Residential...................         7,771          4,986          4,217
                                    ----------     ----------     ----------
   Total........................        16,589         13,836         12,974
                                    ----------     ----------     ----------
                                                 
Troubled debt restructurings:                    
  Commercial....................        11,288         13,894         13,310
  Residential...................           825            909          1,240
                                    ----------     ----------     ----------
   Total........................        12,113         14,803         14,550
                                    ----------     ----------     ----------
                                                 
Total nonperforming assets......    $   70,115     $   66,544     $   62,694
                                    ==========     ==========     ==========
                                                 
Nonperforming loans to total                     
 loans..........................           .80%           .77%           .75%
Nonperforming assets to total                    
 assets.........................          1.02%          1.01%           .95%
                                                 
Allowance for loan losses:                       
  Other loans (1)...............    $   38,591     $   36,513     $   34,700
  Bulk purchased loans (2)......        11,733         12,765         13,995
                                    ----------     ----------     ----------
   Total........................    $   50,324     $   49,278     $   48,695
                                    ==========     ==========     ==========
                                                 
Allowance for loan losses to                     
 total loans....................           .97%           .99%          1.03%
Allowance for loan losses to                     
 total nonperforming assets..            71.77%         74.05%         77.67%
-------------------------------------------------------------------------------
</TABLE>

(1) Includes $92,000, $78,000 and $418,000, at December 31, 1996, June 30, 1996,
    and December 31, 1995, respectively, in general allowance for losses
    established primarily to cover risks associated with borrowers'
    delinquencies and defaults on loans held for sale.

(2) Represents the allowance for loan losses for single-family residential whole
    loans purchased between January 1991 and June 30, 1992 (bulk purchased
    loans), which had been allocated from the amount of net discounts associated
    with the Corporation's purchase of these loans to provide for the credit
    risk associated with such bulk purchased loans.  These bulk purchased loans
    had principal balances of $538.2 million, $574.4 million, and $633.1
    million, respectively, at December 31, 1996, June 30, 1996, and December 31,
    1995.  These allowances are available only to absorb losses associated with
    respective bulk purchased loans and are not available to absorb losses from
    other loans.

                                       20
<PAGE>
 
Provision for Loan Losses and Real Estate Operations (Continued):
-----------------------------------------------------------------

The ratio of nonperforming loans to total loans was .80% at December 31, 1996,
based on loan balances of $5.189 billion, compared to .77% and .75%,
respectively, at June 30, 1996, and December 31, 1995, based on respective loan
balances approximating $4.955 billion and $4.717 billion. The ratio of
nonperforming assets to total assets was 1.02% at December 31, 1996 (compared to
1.01% and .95% at June 30, 1996, and December 31, 1995, respectively). Ratios
for both nonperforming loans to total loans and nonperforming assets to total
assets increased slightly compared to June 30, 1996, and December 31, 1995,
primarily due to net increases in nonperforming loans and real estate partially
offset by net increases in total loans and total assets compared to the
respective periods.

Nonperforming loans at December 31, 1996, increased by $3.5 million compared to
June 30, 1996, primarily due to net increases in delinquent residential real
estate loans totaling $1.7 million, delinquent consumer loans totaling $1.2
million and delinquent residential construction loans totaling $2.3 million.
These increases were partially offset by a decrease in delinquent commercial
real estate loans totaling $1.7 million.  The net increase in real estate of
$2.8 million at December 31, 1996, compared to June 30, 1996, is primarily due
to the addition of residential and commercial real estate totaling $7.6 million
and $1.8 million, respectively, partially offset by the sale of certain
residential real estate properties totaling $6.9 million.  The net decrease of
$2.7 million in troubled debt restructuring at December 31, 1996, compared to
June 30, 1996, is primarily attributable to the payoff of three loans.

Loan Servicing Fees:
--------------------

Fees from loans serviced for other institutions totaled $7.4 million and $14.8
million, respectively, for the three and six months ended December 31, 1996,
compared to $6.8 million and $13.3 million, respectively, for the three and six
months ended December 31, 1995.  The increases comparing the respective periods
are primarily due to increases in the size of the Corporation's loan servicing
portfolio.  At December 31, 1996 and 1995, the Corporation's mortgage servicing
portfolio approximated $5.894 billion and $5.547 billion, respectively.

The value of the Corporation's loan servicing portfolio increases as mortgage
interest rates rise and loan prepayments decrease.  It is expected that income
generated from the Corporation's loan servicing portfolio will increase in such
an environment.  However, this positive effect on the Corporation's income is
offset, in part, by a decrease in additional servicing fee income attributable
to new loan originations, which historically decrease in periods of higher, or
increasing, mortgage interest rates, and by an increase in expenses from loan
production costs since a portion of such costs cannot be deferred due to lower
loan originations.  Conversely, the value of the Corporation's loan servicing
portfolio will decrease as mortgage interest rates decline.

Retail Fees and Charges:
------------------------

Retail fees and charges totaled $4.0 million and $7.9 million, respectively, for
the three and six months ended December 31, 1996, compared to $3.0 million and
$5.7 million, respectively, for the three and six months ended December 31,
1995.  The net increases of $1.0 million and $2.2 million, respectively,
primarily result from increases in certain checking account fees and related
ancillary fees for overdraft and insufficient funds charges and net VISA check
card fees from the Corporation's increased retail customer deposit base, both in
number of accounts and dollar amount, over the same respective periods.

Gain on Sales of Loans:
-----------------------

The Corporation sold loans to third parties through its mortgage banking
operations resulting in net pre-tax gains of $22,000 and $127,000, respectively,
on loans sold totaling $160.5 million and $345.5 million, respectively, for the
three and six months ended December 31, 1996, compared to net pre-tax gains of
$318,000 and $170,000, respectively, on loans sold totaling $143.7 million and
$333.0 million, respectively, for the three and six months ended December 31,
1995.  Mortgage loans are generally sold in the secondary market with loan
servicing retained and without recourse to the Corporation.   The net gains are
attributable to the relatively stable interest rate environment.

                                       21
<PAGE>
 
Other Operating Income:
-----------------------

Other operating income totaled $2.4 million and $4.4 million, respectively, for
the three and six month periods ended December 31, 1996, compared to $1.8
million and $3.8 million, respectively, for the three and six months ended
December 31, 1995.  The major components of other operating income are from
brokerage, insurance and credit life and disability commissions.  Insurance and
brokerage commission income increased $271,000 and $270,000, respectively, for
the three months ended December 31, 1996, compared to December 31, 1995, and
$482,000 and $426,000, respectively, for the six months ended December 31, 1996,
compared to December 31, 1995.  These year-to-date increases were partially
offset by a net gain recorded on the sale of loan servicing rights which totaled
$452,000 for the six months ended December 31, 1995, of which all such sales
activity was from the former Railroad Savings Bank which have been combined
under the pooling of interests accounting treatment.

General and Administrative Expenses:
------------------------------------

General and administrative expenses, excluding the $27.1 million Federal deposit
insurance special assessment, totaled $28.4 million and $57.7 million,
respectively,  for the three and six months ended December 31, 1996, compared to
$28.5 million and $56.5 million, respectively, for the three and six months
ended December 31, 1995.  The net decrease of $147,000 for the three months
ended December 31, 1996, compared to the three months ended December 31, 1995,
was primarily due to net decreases of $1.1 million in other operating expenses
and $308,000 in regulatory insurance and assessments offset by net increases in
other compensation and benefits of $607,000, advertising of $516,000 and
occupancy and equipment of $156,000.

The net increase of $1.2 million comparing the six months ended December 31,
1996, to the six months ended December 31, 1995, was primarily due to net
increases of $742,000 in advertising, $705,000 in occupancy and equipment and
$60,000 in other operating expenses partially offset by net decreases of
$224,000 in compensation and benefits and $76,000 in regulatory insurance and
assessments.

The net decrease of $147,000 for the three months ended December 31, 1996,
compared to December 31, 1995, is in part attributable to the nonrecurring
expenses recorded last fiscal year associated with the Railroad merger and the
1995 proxy contest totaling $2.8 million.  In addition, during the second
quarter of this fiscal year a deposit insurance premium refund for $544,000 was
received from the SAIF as a rate adjustment from .23% to .18% of insured
deposits.  Offsetting most of the effect of the nonrecurring expenses and the
SAIF refund are general and administrative expenses recorded this current fiscal
year quarter from acquisitions ($950,000) as well as net increases in expenses
associated with mortgage loan production costs ($594,000), marketing costs for
checking accounts and related products and consumer loans ($516,000), regulatory
insurance costs from internal growth and acquisitions ($236,000) and operating
expenses from the addition of three branches and customer-service software.
General and administrative expenses totaling $950,000 resulting from the
Corporation's acquisitions of Conservative and Heritage were incurred during the
three months ended December 31, 1996.  Such increases in general and
administrative expenses result from increased personnel wages and benefits and
costs of operating additional branches.  Other expenses were also incurred on an
indirect basis attributable to these acquisitions.

The net $1.2 million increase in general and administrative expenses, excluding
the deposit insurance special assessment, for the six months ended December 31,
1996, compared to the six months ended December 31, 1995, is primarily
attributable to the nonrecurring expenses associated with the repurchase of
1,875,150 shares of the Corporation's common stock ($2.3 million), from
acquisitions growth ($1.5 million) and from net increases in expenses associated
with mortgage loan production costs ($1.6 million), increased marketing costs
for checking accounts and related products and consumer loans ($742,000),
regulatory insurance costs from internal growth and acquisitions ($468,000) and
operating expenses from the addition of three branches and customer-related
software. Partially offsetting these increases are the nonrecurring expenses
incurred during the six months ended December 31, 1995, related to the Railroad
merger and the 1995 proxy contest totaling $4.2 million, the SAIF refund of
$544,000 and the deferral of consumer loan production costs totaling $1.4
million.

Amortization of Goodwill and Core Value of Deposits:
--------------------------------------------------- 

Amortization of goodwill and core value of deposits totaled $2.7 million and
$5.1 million, respectively, for the three and six months ended December 31,
1996, compared to $2.2 million and $4.4 million, respectively, for the three and
six months ended December 31, 1995.  The net increases of $540,000 and $725,000,
respectively, for the three and six months ended December 31, 1996, compared to
the prior fiscal year periods are due to the amortization of core value of
deposits and goodwill resulting from the Conservative acquisition consummated
February 1, 1996, and the Heritage acquisition consummated October 1, 1996.

                                       22
<PAGE>
 
Provision for Income Taxes:
---------------------------

For the three and six months ended December 31, 1996, the provision for income
taxes totaled $8.3 million and $5.8 million, respectively, compared to $6.3
million and $12.8 million, respectively, for the three and six months ended
December 31, 1995. The effective income tax rates for the three and six months
ended December 31, 1996,  were 34.9% and 33.8%, respectively, compared to 34.8%
and 35.7%, respectively, for the three and six months ended December 31, 1995.
An income tax benefit was recorded in the first quarter due to nonrecurring
charges of $27.1 million and $2.3 million, respectively, associated with the
SAIF special assessment and the repurchase of the Corporation's common stock.

The effective tax rates for both periods vary from the federal statutory rate
primarily due to the nondeductibility of amortization of goodwill and core value
of deposits, and certain merger and acquisition costs, in relation to the level
of taxable income for the respective periods.



Extraordinary Items - Loss on Early Retirement of Debt:
------------------------------------------------------ 

In December 1996, the Corporation recognized an extraordinary loss of $583,000
(net of income tax benefit totaling $316,000), or $.03 loss per share, as a
result of the early retirement of debt.  The extraordinary loss consisted
primarily of the write-off of the associated premiums and costs associated with
the issuance and redemption of such debt.  Proceeds from the issuance of $50.0
million of 7.95% fixed-rate subordinated extendible notes due December 1, 2006,
allowed the Corporation to redeem on December 27, 1996, its $40.25 million
10.25% subordinated debt due December 15, 1999, and its $6.9 million 10.0%
senior notes due January 31, 1999.  In addition, on December 13, 1996, the
Corporation refinanced its $28.0 million short-term promissory note due January
31, 1997, with a new five-year term note for $28.0 million due December 31,
2001.  See Note C for additional information regarding these notes.

                                       23
<PAGE>
 
                          PART II.  OTHER INFORMATION
                          ---------------------------


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

         (a). The Corporation held its Annual Meeting of Stockholders on
              November 19, 1996 in Omaha, Nebraska. The inspector of election
              issued his certified final report on November 19, 1996 for the
              matters voted upon at the Annual Meeting.

         (b). Not applicable.
              

         (c). The following matters were voted upon at the Annual Meeting: (i)
              the election of two individuals as directors for a two-year term
              and the election of three individuals as directors for a three-
              year term, (ii) the approval of the Commercial Federal Corporation
              1996 Stock Option and Incentive Plan as adopted by the Board of
              Directors of the Corporation and (iii) a stockholder proposal
              requesting that the Board of Directors of the Corporation promptly
              pursue a sale or merger of the Corporation and requesting
              shareholders to express their view that delay in pursuing a sale
              or merger should adversely affect directors' entitlement to
              indemnification. The results of voting, not adjusted for the 
              three-for-two stock split effective January 14, 1997, were as
              follows:

              Proposal 1 -- Election of Directors:
              ------------------------------------
<TABLE>
<CAPTION>
                                                
              Nominee                         Votes For (1)      Votes Withheld
              -------                         -------------      --------------
              <S>                              <C>               <C>
              For terms to expire in 1998:
               Robert D. Taylor.............    10,944,704           131,448
               Aldo J. Tesi.................    10,944,404           131,498
              For terms to expire in 1999:
               Robert F. Krohn..............    10,944,222           131,448
               Charles M. Lillis............    10,944,628           131,478
               Robert S. Milligan...........    10,944,704           131,448   
</TABLE>
              ---------------------------------------------
              (1) Stockholders are entitled to cumulate their votes in the
                  election of directors. Unless otherwise indicated by the
                  stockholder, a vote for the Board of Directors' nominees gives
                  the proxies named discretionary authority to cumulate all
                  votes to which the stockholder was entitled and to allocate
                  such votes in favor of one or more of the Board's nominees as
                  the proxies determined. The votes reported herein reflect the
                  allocation of votes so as to maximize the number of nominees
                  elected to serve as directors.

              Proposal 2 -- Approval of Stock Option and Incentive Plan:
              ----------------------------------------------------------
 
              Votes For       Votes Against     Abstentions or Broker Nonvotes
              ---------       -------------     ------------------------------

              7,442,115         3,557,529                 87,085
 
              ----------------------------------------------------------------
              Proposal 3 -- Stockholder Proposal:
              -----------------------------------
 
              Votes For       Votes Against     Abstentions or Broker Nonvotes
              ---------       -------------     ------------------------------

               950,228          7,701,876                2,423,828
 
              ----------------------------------------------------------------
        (d).  Not applicable.



   

                                       24
<PAGE>
 
                    PART II.  OTHER INFORMATION (Continued)
                    ---------------------------------------

Item 5.  Other Information
         -----------------

         Effective December 15, 1996, the Corporation entered into a definitive
         agreement to acquire Investors Federal Savings which operates three
         branches in southwest Kansas. See Note K for information on this
         proposed acquisition.

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

         (a).  Exhibits:    

               Exhibit 10.  Commercial Federal Corporation 1996 Stock Option and
                            Incentive Plan (incorporated by reference to the
                            Corporation's Form S-8 Registration Statement 
                            No. 333-20739

               Exhibit 11.  Computation of Earnings Per Share

               Exhibit 27.  Financial Data Schedules (EDGAR)

         (b).  Reports on Form 8-K

         The Corporation filed a Current Report on Form 8-K dated November 18,
         1996, announcing the authorization by its Board of Directors of a 
         three-for-two stock split to be effected in the form of a 50 percent
         stock dividend. The Corporation also reported on this Form 8-K the
         declaration of a quarterly cash dividend of $.07 per common share
         representing a 5.0% increase from last quarter after adjusting for the
         stock split. The stock and cash dividends, payable to shareholders of
         record as of December 31, 1996, were paid on January 14, 1997. See Note
         B for additional information.

                                       25
<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.



                                      COMMERCIAL FEDERAL CORPORATION
                                      ------------------------------
                                      (Registrant)



Date:   February 14, 1997             /s/ James A. Laphen
        -----------------             ------------------------------
                                      James A. Laphen, President, Chief
                                      Operating Officer and Chief
                                      Financial Officer (Duly Authorized
                                      and Principal Financial Officer)



Date:   February 14, 1997             /s/ Gary L. Matter
        -----------------             ------------------------------
                                      Gary L. Matter, Senior Vice President,
                                      Controller and Secretary
                                      (Principal Accounting Officer)

                                       26
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------


                                                                Page No.
                                                                --------

Exhibit 10.  Commercial Federal Corporation 1996 Stock Option 
             and Incentive Plan (incorporated by reference to 
             the Corporation's Form S-8 Registration Statement 
             No. 333-20739)                                         --     

Exhibit 11.  Computation of Earnings Per Share                     28

Exhibit 27.  Financial Data Schedules (EDGAR only)                 --

                                       27